How Can I Pass My Company on to My Child While Protecting Capital?
If you want to pass your company on to a child while protecting capital, you should not risk the company value, pose a disadvantage to your other children under inheritance laws, or endanger your retirement provisions. Therefore, merely giving the company away is not a suitable option.
It is understandable that you do not want to risk the company value when passing your company on to your own child. Moreover, you do not want to place too much of a financial burden on a child who takes over the company and does not have a lot of assets at this time. On the other hand, it's understandable that the other children must be treated equally under inheritance laws. What's more, the parents' retirement provisions must be secured within the succession management process.
Merely giving the company away is not a suitable option
Merely giving the company away is almost never a suitable option. SMEs in particular will often stockpile profits that are not needed for business operations, but were not withdrawn with the most tax advantages, either – such as to buy into the pension fund. Business properties that are better held as private assets also frequently result in an excessive enterprise value. Therefore, you should take care of financial and tax planning no later than five years before passing on your company.
Capital can be protected in many ways
There are many ways to pass on the company while protecting capital: bank financing, loan financing for the parents, or tax-optimized withdrawal of liquidity not needed for business operations to buy into the pension fund, to name just a few. The right combination of multiple measures generally provides a long-term solution for everyone concerned.