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Business succession in Flensburg

Law & Taxation Reese Flensburg
23.10.2026
Company Law & Reorganisation
Inheritance tax on business assets, Business succession, Succession clause, Statutory Share for Companies, plan ahead, Plan your will in good time, Will, Articles of Association, Check handover, Business succession in good time, Plan business succession in good time, Discount for leniency, succession by anticipation

Business succession in Flensburg

Business succession in Flensburg: Planning inheritance and tax matters correctly

In many family businesses between Flensburg and Husum, a generational handover is due to take place in the coming years. The question of who will take over the business is often answered quickly. Putting this into practice, however, is more difficult: claims to a compulsory share of the estate, a divided community of heirs or an unanticipated tax burden can place a considerable strain even on a financially sound business.

Business succession touches on three areas of law simultaneously: inheritance law, company law and tax law. An arrangement that is sound in one of these areas may prove costly in another. We highlight where this typically occurs and what can be sorted out in good time.

In the absence of specific provisions, the law applies

If an entrepreneur does not leave a will, the rules of intestate succession apply. The spouse and children then inherit jointly as a community of heirs. The sole proprietorship or the shares in the limited liability company (GmbH) subsequently belong jointly to all the co-heirs.

This has significant implications for the running of the business. The community of heirs administers the estate jointly (Section 2038 of the German Civil Code (BGB)). A majority decision is sufficient for day-to-day management, whilst far-reaching measures require the consent of all co-heirs. The heirs may only exercise rights arising from a share in a limited liability company (GmbH) jointly vis-à-vis the company (Section 18 of the German Limited Liability Companies Act (GmbHG)). Decisions on investments, loans or staffing therefore depend on the heirs reaching a consensus. Furthermore, any co-heir may, in principle, demand the distribution of the estate at any time (Section 2042 of the German Civil Code (BGB)). If an heir wishes to be paid out and the funds are lacking, the only option in the worst-case scenario is to sell the assets.

A typical scenario: the daughter has been working in the business for years, the son lives in Munich and has no interest in the company, and the widow needs an income to support herself. Three understandable interests that are almost impossible to reconcile without prior arrangements.

A will and articles of association must be consistent with one another

In the case of partnerships, it is not the will alone that determines who succeeds. The partnership agreement takes precedence. A will cannot enforce anything that is not provided for in the partnership agreement.

Since the Act on the Modernisation of Partnership Law (MoPeG) came into force on 1 January 2024, the following applies: If a partner in a GbR or OHG dies, they cease to be a partner in the partnership, and the remaining partners continue the partnership (Section 723 of the Civil Code (BGB), Section 130 of the Commercial Code (HGB)). The heirs are merely entitled to a settlement payment. In the case of a limited partner, the situation is the reverse: the KG continues with his or her heirs (Section 177 of the German Commercial Code (HGB)). Both provisions apply only in so far as the partnership agreement does not provide otherwise.

An overview of the most common clauses

Continuation clause: The company will continue to operate without the heirs, who will receive a settlement.
Simple succession clause: All heirs assume the status of partners.
Qualified succession clause: Only certain heirs become shareholders, such as a child who is already working in the business.
Entry clause: A particular person is granted the right to join the company, but is not obliged to do so.

Where things go wrong in practice

Often, the will and the partnership agreement were drawn up at different times and by different advisers. The will designates the son as the successor, but the partnership agreement contains a continuation clause. In such cases, the share in the partnership does not pass to the son; instead, the heirs retain a claim for compensation, which is often based on a contractually reduced compensation formula.

In the case of a GmbH, shares are freely inheritable (section 15(1) of the GmbH Act). However, the articles of association may stipulate that shares must be redeemed from heirs or transferred to specific persons. For this reason, the will and the articles of association must be considered side by side – not just once, but whenever there is a change in the group of shareholders or within the family.

Transfer during one’s lifetime: anticipated succession

Many business owners pass on their business not only upon their death, but whilst they are still alive. This has tangible advantages. The successor can be trained in the business, the transferor can oversee the handover, and the tax allowances can be utilised on multiple occasions. A child may receive 400,000 euros tax-free from each parent every ten years (Sections 14 and 16 of the Inheritance Tax Act (ErbStG)).

Usufruct and maintenance payments

People who hand over the reins often want to remain covered. There are two common ways of doing this. In the case of Usufruct subject to reservation the transferor retains the income from the transferred assets. In principle, the usufruct reduces the value of the gift for the purposes of gift tax; however, where business assets are exempt, this reduction is limited.

In the context of business assets, usufruct is a sensitive issue for tax purposes. In the case of a sole trader, the Federal Fiscal Court rules out a transfer at book value if the transferor retains the usufruct and continues to run the business (BFH, judgement of 29 January 2025, X R 35/19). The tax authorities follow this ruling. In the case of shares in partnerships, this arrangement remains possible provided that the transferee becomes a co-partner for tax purposes despite the usufruct. Exemption from gift tax also depends on this.

At Care services The transferee pays the transferor regular sums for the rest of the transferor’s life. The transferee may deduct these payments as special expenses (Section 10(1a)(2) of the Income Tax Act (EStG)), whilst the transferor, in return, pays tax on them as other income. Only certain transfers qualify for this benefit: a business or part of a business, a partnership interest or a share in a limited liability company (GmbH) of at least 50 per cent, provided that the transferor was a managing director and the transferee takes over this role.

Agree on rights of recovery

A transfer agreement should specify when the transferor may reclaim the business: for example, if the transferee dies before the transferor, becomes insolvent or sells the business without the transferor’s consent. If a gift is returned on the basis of such a contractual right of reclamation, gift tax is waived with retroactive effect (Section 29(1)(1) of the German Inheritance Tax Act (ErbStG)). The grounds for reclamation should be specified in detail. An unrestricted right of revocation, which the transferor may exercise at any time, may result in the transferee not being regarded as a co-partner for tax purposes.

For income tax purposes, it is possible to transfer a business or a co-partner’s share free of charge at book value (Section 6(3) of the Income Tax Act). Hidden reserves are then not realised. However, this only applies if the structure is correct. For more on this, see the section „Checking the structure and legal form before the handover“.

Claims to a compulsory share as a liquidity risk

Children who are excluded from the succession by will do not go away empty-handed. They are entitled to the compulsory portion, that is, half of their statutory share of the estate (Section 2303 of the German Civil Code (BGB)). The compulsory portion is a purely monetary claim and becomes due upon the testator’s death. An heir may only request a deferral under very specific conditions (Section 2331a of the German Civil Code (BGB)).

A sample calculation: A widowed entrepreneur leaves behind two children. His estate consists of the business, which is valued at two million euros. The daughter becomes the sole heir. Under the law, the son would have inherited half; his statutory share is therefore a quarter of the estate: 500,000 euros, in cash. The daughter must raise this sum, often from a business whose assets are tied up in machinery, buildings and receivables. In addition, there are frequently disputes over the value of the business, on which the statutory share is based.

Even gifts made during one’s lifetime do not provide complete protection. Gifts made within the last ten years prior to the opening of the succession are taken into account via the claim for a supplementary compulsory portion, with the value taken into account being reduced by one-tenth each year (Section 2325 of the German Civil Code (BGB)). If the donor reserves a comprehensive right of usufruct, this period generally does not even begin to run, according to the case law of the Federal Court of Justice.

What can be sorted out in advance

Waiver of the statutory share in return for a settlement: The child who is leaving the family waives their statutory share by means of a notarised deed (Section 2346(2) of the German Civil Code (BGB)) and receives compensation in return. The waiver may be limited to the business.
Settlement from other assets: Property, securities or a life insurance policy can cover the settlement so that the business is not burdened.

For tax purposes, it depends on who pays the settlement. If the business owner pays it themselves, it is regarded as a gift to the child who has waived their claim (Section 7(1)(5) of the Inheritance Tax Act) and is set off against that child’s tax-free allowance of 400,000 euros. This gift is taken into account in the ten-year assessment period. If, on the other hand, the sister pays it as the successor, the Federal Fiscal Court treats this as a gift between siblings: Tax class II applies, with an allowance of only 20,000 euros (Federal Fiscal Court, judgement of 10 May 2017, II R 25/15). The question of who pays should therefore be clarified before the agreement is signed.

Inheritance tax on business assets

Under certain conditions, business assets are largely exempt from inheritance and gift tax (Sections 13a and 13b of the Inheritance Tax Act (ErbStG)). This exemption applies to sole traders, shares in commercial partnerships and shares in companies. In the case of a limited liability company (GmbH), this only applies if the transferor holds more than a 25 per cent stake or has entered into a pooling agreement with other shareholders. The legislator distinguishes between two models:

Exemption from the rule: 85 per cent of the assets transferred remain tax-free. The business must be retained for five years, and the total wage bill during this period must amount to at least 400 per cent of the initial wage bill.
Option exemption: 100 per cent remains tax-free. The holding period is seven years, and the minimum wage total is 700 per cent. A further condition is that administrative assets must account for no more than 20 per cent.

For smaller businesses, graduated requirements apply: for businesses with up to five employees, the payroll test does not apply. For businesses with six to ten employees, 250 per cent is sufficient (optional exemption: 500 per cent); for those with eleven to 15 employees, 300 per cent is sufficient (optional exemption: 565 per cent).

Administrative assets such as properties let to third parties, securities or surplus liquid assets are, as a rule, not eligible for relief. If his share is 90 per cent or more, the relief is completely withdrawn. For very large acquisitions involving more than 26 million euros of exempt assets, additional rules apply: the exemption allowance is phased out, or the acquirer must apply for a remission and, to do so, must prove that they are unable to pay the tax from half of their remaining available assets.

The Articles of Association as a tax factor

Family businesses organised as partnerships or companies may be eligible for a reduction of up to 30 per cent prior to the actual exemption (Section 13a(9) of the Inheritance Tax Act). This is subject to the articles of association stipulating three conditions: withdrawals and distributions are limited to a maximum of 37.5 per cent of the profit after tax; shares may only be transferred to co-shareholders, relatives or a family trust; and the severance payment upon withdrawal is below the market value. These provisions must already be in place two years prior to the death or the gift and must be complied with for 20 years thereafter. This illustrates particularly clearly how closely company law and inheritance tax are linked.

What overturns the exemption retrospectively

The tax exemption is subject to conditions which must be met after the transfer. It will be withdrawn in full or in part if, during the holding period:

the business is sold or wound up,
if key assets essential to operations are sold,
the minimum wage total is not met, for example due to staff cuts following the takeover,
withdrawals that exceed deposits and profits by more than 150,000 euros.

Latest: The Federal Constitutional Court is reviewing inheritance tax

In mid-October 2026, the Federal Constitutional Court will hear two cases concerning inheritance tax. The first case concerns the valuation of property, personal allowances and tax rates (Ref. 1 BvF 1/23), whilst the second concerns the preferential treatment of business assets over private assets (Ref. 1 BvR 804/22). A ruling is not expected until several weeks or months after the oral hearing.

In previous rulings, the court has set the legislature a deadline for enacting new legislation; the existing law remained in force until then. Experts generally expect stricter rules for business assets. Our assessment: There is no need to either rush ahead with a transfer that was already planned or put it on hold. However, it makes sense to draft transfer agreements in such a way that they can adapt to changing circumstances, for example through clawback or adjustment clauses.

Check the structure and legal form before the handover

In addition to inheritance tax, there are income tax risks associated with succession that often only become apparent after the death of the testator. Two scenarios are particularly common in small and medium-sized enterprises.

Special business assets

The business premises are owned personally by the partner and are let to his limited partnership. For tax purposes, they therefore constitute special business assets. If the partnership agreement contains a qualified succession clause, the partnership share passes only to the successor, whilst the premises pass to all the heirs. The portion of the property attributable to the other heirs is deemed to have been withdrawn. The hidden reserves in this portion become subject to income tax without any cash payment being made.

Business split

The situation is similar in the case of a business split: the premises are owned privately by the business owner and are let to his or her limited liability company (GmbH), which runs the business. If, upon succession, one child inherits the GmbH and another the premises – whether by gift or will – the tax interdependence ceases. This is treated as a cessation of business, and the hidden reserves in the property and in the GmbH shares are subject to tax.

Tackle restructuring in good time

Both problems can be resolved if they are identified in advance. In the case of a KG, the land can often be transferred to the company’s assets at book value. In the case of a business split, the property is often transferred to a commercial GmbH & Co. KG so that it remains business assets even without any interdependence. In addition, it may be advisable to spin off administrative assets so that the business complies with the tax exemption thresholds. Lock-up periods and land transfer tax must be taken into account in each case. Such steps must be taken before the handover, as restructuring measures carried out afterwards may affect the holding periods. Find out more on our page about Right of conversion.

Legal and tax services under one roof

Business succession is not a single contract, but a package comprising a will, articles of association, a transfer agreement and tax planning. The individual elements are interlinked. That is why we work them out together.

Ina Reese is a solicitor, a specialist in tax law and a tax adviser. We are reviewing the Articles of Association, calculate the tax implications of various options and coordinate the contracts. Where notarisation is required – for example, in the case of a waiver of the statutory share or the transfer of GmbH shares – we prepare the relevant documents and liaise with the notary’s office. We provide ongoing tax support following the handover, including monitoring the wage bill and retention periods, as part of our Tax advice.

Frequently asked questions about business succession

When should you start planning your succession?

Ideally, several years before the planned handover. Many provisions take effect over time: tax allowances are renewed every ten years, the supplement to the compulsory share is phased out over ten years, and clauses in the articles of association relating to the family business allowance must have been in place for two years beforehand.

Is a will sufficient for business succession?

In the case of sole traders, it can be a key component. In the case of partnerships, however, it is the partnership agreement that determines who becomes a partner. In the case of a limited liability company (GmbH), the articles of association may contain rules on the redemption or transfer of shares. Unless a will is brought into line with these agreements, it may well come to nothing.

Is tax payable on a transfer of assets during the owner’s lifetime?

The transfer is subject to gift tax. The same personal allowances and exemption rules apply as for inheritance tax. Where business assets are treated as favoured assets and the transfer is structured correctly, the tax may therefore be waived in full or to a large extent. For income tax purposes, a transfer at book value is possible if the structure is correct. However, a usufruct with a right of reservation in respect of a sole trader’s business precludes this.

Should we broadcast it straight away because of the proceedings in Karlsruhe?

We do not recommend bringing the transfer forward prematurely. However, a transfer that was already planned can be carried out in a sensible manner, provided that the applicable law remains in force. Recoupment and adjustment clauses provide additional security in this regard.

In summary

In the absence of any provisions, the estate is inherited by a community of heirs, which often brings operations to a standstill.
The will and the articles of association must be consistent with one another; otherwise, the articles of association shall prevail.
Transferring assets during one’s lifetime allows for a phased handover and the reuse of tax allowances.
Claims to a compulsory share by heirs who are giving up their inheritance can be settled in advance by means of a waiver and a settlement.
The exemption of business assets is subject to holding periods, total wage bills and the proportion of administrative assets.
Separate business assets and the division of a business can result in high income tax liabilities if not properly planned.

Are you planning to hand over your business? During an initial consultation lasting around 15 minutes, we’ll assess where you’re at and which issues need to be addressed first. Get in touch now