Business Succession

What is business succession?

Business succession (German: Unternehmensnachfolge, also Betriebsnachfolge or Unternehmensübergabe) describes the transfer of a company from the previous owner to one or more successors. Succession comprises two levels, which can pass together or separately: ownership of the shares and management of the company. The transfer can take place during the owner's lifetime, by gift or sale, or on death by inheritance.

Succession concerns above all owner-managed companies, but increasingly also founders of technology companies who want to step back after many years. Besides the owner and the successor, those involved often include family members, the management, banks, the tax adviser, a law firm, a notary and, in a sale, an adviser for company transactions (M&A adviser). Succession is regulated in a purchase or gift agreement, flanked by the articles of association, will, marriage contract and powers of attorney.

Routes of business succession

Succession within the family

In succession within the family, the shares usually pass free of charge to children or other relatives, often already during the owner's lifetime as an anticipated succession (vorweggenommene Erbfolge). The transferor often retains income through a usufruct or receives recurring provision payments (Versorgungsleistungen). To be clarified are the equal treatment of siblings who do not join the company, their compulsory portion claims (statutory minimum share of the estate, payable in money) and inheritance and gift tax. What is decisive is whether a family member wants and is able to run the company; if this condition is absent, separation of ownership and management remains, with an external management.

Sale to strategic buyers or financial investors

In a sale to third parties, either a strategic buyer acquires the company, for example a competitor or customer, in a trade sale. Or a financial investor takes it over with the aim of selling it on after a few years. Mid-sized companies are often acquired as the cornerstone or as an add-on of a buy-and-build strategy, in which an investor combines several companies of an industry into a group. Financial investors often require the seller to remain invested with part of the proceeds (reinvestment). A structured process is usual, with approaches to several interested parties, due diligence and negotiation of a share purchase agreement, which must be notarised for shares in a GmbH (German limited liability company).

Management buy-out and management buy-in

In a management buy-out, the existing management team takes over the company, in a management buy-in an external manager. In both cases the buyers' own capital is rarely sufficient. Financing is therefore often made up of bank loans, equity from a financial investor and a vendor loan, with which the transferor defers part of the purchase price and remains exposed to the risk.

What to consider in business succession: timetable and preparation

The actual sale or transfer is the shorter part of a succession. A structured sale process typically takes 6 to 12 months from preparing the documents to closing. The prerequisites take more time, which is why a lead time of several years is recommended in practice:

• Reduce dependence on the owner. Customer relationships, technical knowledge and decisions that hang on one person reduce value and make any handover harder. A second management level cannot be built in a few months.
• Prepare the figures. Buyers and banks expect robust financial statements for several years, a plan and a comprehensible separation of business and private expenses.
• Observe tax deadlines. Relief for business assets is tied to multi-year holding periods, and gifts are aggregated over ten years. Restructurings such as contributing shares to a holding structure trigger lock-up periods within which a sale can subsequently trigger tax.
• Provide for emergencies. A lasting power of attorney (Vorsorgevollmacht), deputising arrangements and a business owner's will secure the ability to act if the owner becomes unavailable before the planned handover.

Valuation and purchase price in business succession

In a sale, the market determines the price. Buyers derive it from sustainable earnings, as a rule an adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation). They apply multiples to it, that is, factors at which comparable companies were sold, or they discount the expected cash surpluses to today (discounted cash flow calculation). Special effects and owner-related items are adjusted, for example a managing director's salary that departs from the market level, or private expenses. High dependence on the owner leads to discounts or to purchase price components tied to future success (earn-out).

In a transfer free of charge within the family, by contrast, the tax value is decisive, which is determined under the German Valuation Act (Bewertungsgesetz). It can differ considerably from the achievable market price, in both directions. A clear distinction must therefore be made between the purchase price in a sale and the tax value in a gift.

Taxes in business succession

In the sale of GmbH shares from private assets, the capital gain on a holding of at least 1% is subject under Section 17 of the German Income Tax Act (Einkommensteuergesetz, EStG) to the partial income method (Teileinkünfteverfahren), under which 60% is taxable. If a holding GmbH holds the shares, the gain is 95% tax-exempt under Section 8b of the German Corporation Tax Act (Körperschaftsteuergesetz, KStG); the proceeds, however, then initially remain in the holding company. For the sale of a sole proprietorship or of an interest in a commercial partnership (Mitunternehmeranteil), the Income Tax Act provides, under conditions, for example from the age of 55, an allowance and a reduced tax rate, which are granted only once in a lifetime (Section 16 (4) and Section 34 (3) EStG).

In a transfer within the family, inheritance and gift tax is in the foreground. For qualifying business assets, the law provides extensive relief, the business relief (Verschonungsabschlag), which is tied to payroll and holding period rules. Whether this relief remains as it is is currently being examined by the Federal Constitutional Court (Bundesverfassungsgericht); until a decision, the existing law applies (as of October 2026). Which structure holds up in the individual case depends on legal form, size of holding, asset structure and family situation and belongs in the hands of the tax adviser before any transfer.

Worked example: company value before and after succession preparation

An industrial service provider in the legal form of a GmbH belongs to a 62-year-old sole shareholder who is also the managing director. Reported EBITDA is EUR 2.0 million. The owner draws a salary of EUR 150,000; the market rate for an external managing director would be EUR 250,000. Private vehicle costs of EUR 30,000 run through the company. Net financial liabilities, that is, bank debt less liquid funds, amount to EUR 1.5 million. The multiples are assumed for the example.

• Adjusted EBITDA: EUR 2.0 million minus EUR 100,000 additional salary plus EUR 30,000 private costs = EUR 1.93 million
• Sale immediately, customer relationships depend on the owner, multiple 5.0: 1.93 million × 5.0 = EUR 9.65 million enterprise value
• Sale after three years of building a second management level at a cost of EUR 150,000 per year: 1.93 million minus 0.15 million = EUR 1.78 million adjusted EBITDA
• Multiple after reducing dependence on the owner 6.0: 1.78 million × 6.0 = EUR 10.68 million enterprise value
• Value gain from the preparation: 10.68 million minus 9.65 million = EUR 1.03 million
• Cost of the preparation until the sale: 3 × EUR 150,000 = EUR 450,000 before tax
• Purchase price for the shares after deducting net financial liabilities: EUR 8.15 million on an immediate sale, EUR 9.18 million after the preparation

The example assumes unchanged business performance. The value gain of EUR 1.03 million is set against EUR 450,000 of build-up costs. It shows that an independent management level can raise value despite higher costs, because buyers assess the risk of the owner dropping out as lower.

Distinction: business succession, company sale and succession on death

• Company sale: one of the routes of succession. Succession additionally comprises transfer free of charge and the arrangements for death.
• Anticipated succession (vorweggenommene Erbfolge): transfer during lifetime to future heirs, usually as a gift with conditions such as usufruct or provision payments.
• Business owner's will: regulates succession on death and must be coordinated with the articles of association.

Common mistakes

• Starting too late. Anyone who plans only when the exit is imminent can neither reduce dependence on the owner nor use tax deadlines.
• Narrowing down to the price. Payment method, liability under warranties, provision and one's own role after the handover often influence the result as strongly as the amount of the purchase price.
• Documents not coordinated. Articles of association, will and marriage contract that contradict each other lead on death to results that nobody intended.
• No emergency provision. If powers of attorney and deputising rules are missing, the company's ability to act is restricted for weeks if the owner suddenly drops out.
• Transferor without a defined role. If the previous owner de facto keeps the decisions, the successor loses authority, and buyers assess that as a risk.

Frequently asked questions

When should succession planning begin?

Several years before the planned exit. Three to five years are often mentioned, because management level, figures and tax structuring need lead time.

Where do entrepreneurs find a successor?

First in the family and management, then through company exchanges, chambers or a structured sale process. In Germany, there is the nationwide platform nexxt-change for this, supported by the Federal Ministry for Economic Affairs, KfW (Germany's state development bank), the umbrella organisations of the chambers and the associations of the savings banks and the cooperative banks (Volksbanken and Raiffeisenbanken). Companies post offers there free of charge, and prospective buyers publish enquiries. The chambers of industry and commerce (IHK) and the chambers of crafts advise on succession, help with listings and broker contacts.

Larger companies tend to be sold confidentially. An M&A adviser then approaches selected strategic buyers and financial investors directly, instead of offering the company publicly.

How long does the sale of a company in a succession take?

As a rule 6 to 12 months from preparing the documents to closing. Before that comes the preparation of the management level and figures, which ideally begins years earlier.

Is a handover within the family cheaper than a sale?

Not in general. The gift can be tax-privileged, but brings the transferor no proceeds. Whether it works depends above all on whether a suitable and willing successor is available.

Does a buyer have to pay the entire purchase price at closing?

Not necessarily. Parts are often deferred, for example through a vendor loan, or tied to future success. Both ease the financing but leave the seller exposed to risk.

Can the transferor stay in the company after the sale?

Yes, usually for a limited period. Buyers often agree a transition phase in which the previous owner hands over customers and knowledge, as managing director or as an adviser.

The Roemer Capital view

We accompany company sales and succession from preparation to closing. For the sale process itself, we plan 6 to 12 months; the work on owner dependence, figures and management structure ideally begins earlier. At the start stands a sober inventory: which customers, contracts and decisions depend on the owner, and what a buyer would deduct for them.

Tax and legal structuring lie with the client's tax adviser and law firm. We work through the variants economically, prepare documents and data room, approach buyers and negotiate the purchase price and its payment method.