Thousands of family businesses are facing the question of whom to hand over the work of their lives. Over 80% of companies in the region are family-owned, with many still being run by the founders without a clear succession plan in place. The key question that must be asked is the transfer of the business to family members.
Family businesses are not just an economic factor but also represent a link between generations, carrying values such as loyalty, responsibility, and a connection to the environment. They should be understood as strategic assets that require thoughtful and responsible management, especially when it comes to the transfer of ownership.
Many founders delay succession due to fears of losing influence, lack of trust in successors, or unresolved family relationships. Common mistakes include procrastinating the founder’s exit, transferring the business without professional assistance, or treating family members unequally. The consequences can be severe, such as a decline in the company’s value, employee loss, or the breakdown of business relationships. As a mass retirement of founders is expected in the coming years, timely preparation is crucial for maintaining the company’s stability. Statistics show that only about one-third of family businesses survive the transfer to the next generation, primarily due to late planning and insufficient preparation of successors.
Succession plan as a tool for security and clarity
A succession plan should ideally be prepared years in advance and in collaboration with relevant family members. It is advisable to document all decisions and agreements. For example, a best practice is the “family constitution,” which governs relationships within the family community, sets common values, vision, and rules for collaboration, and prevents disagreements and legal complications. It is mainly intended for families with a shared business or significant family capital who want to align the rules for successful intergenerational cooperation and the transfer of ownership and responsibilities.
Methods of transfer
The transfer of a business can be carried out in several ways, depending on the founder’s goals, family relationships, and tax considerations.
The first thing to agree upon is whether the transfer to family members will be free of charge or compensated, or a combination of both.
The most common forms of non-compensated transfer are gift contracts and transfer agreements. Each has its own specifics and legal effects, so it is advisable to consult an expert before proceeding with the transfer.
Alternatively, a founder can transfer their business share for compensation, ensuring payment for their work and maintaining social security. Examples of compensated transfers include a sale, an agreement on lifetime support, and others.
Some entrepreneurs also create “trusts” to better manage their assets, protect the company, and preserve unified management and the founder’s vision.
If the business is not transferred to family members during the founder’s lifetime, shares in the company may be inherited, either by legal heirs or according to the rules specified in a will. Such a transfer often leads to management issues, inequality among heirs, and delays in decision-making, which can jeopardize business continuity.
Tax exemptions for family transfers
Taxation should be checked when making the transfer of a business share, or other assets. In the case of compensated transfers, taxes are assessed depending on the type of transaction and the relationship between the transferor and the transferee.
Selling to a third party as an alternative to family transfer
If there is no successor within the family or they cannot be prepared for the takeover in time, one option is to sell the business share to a third-party buyer. This type of transfer offers greater:
- legal clarity,
- flexibility,
- faster transfer of management rights,
- while providing the founder with financial independence and
- a gradual exit from operations.
Key to this process is a precise valuation of the share’s market value, which ensures appropriate determination of the purchase price.
Transferring the business to employees as an alternative to family transfer
Another option is to transfer the business (in full or partially) to key employees. This model allows employees to become business owners, either through share buyouts or other forms of ownership, such as stock option plans, and more. Transferring to employees can reduce internal conflicts that might arise from a family transfer and increase motivation and engagement among employees for the future of the business. Effective communication and preparation for the process are essential.
Valuation of the business
From a planning perspective, it is advisable to carry out a business valuation before the transfer process. This determines the value of the business share, whether it is a transfer to family members or a sale to third parties.
The valuation process involves analysing financial statements, reviewing business operations, evaluating assets and liabilities, and estimating future cash flows. In addition to numerical indicators, the company’s market position, the stability of business relationships, the brand, and the founder’s role in the business model are also considered. It is crucial that the valuation is performed by an independent expert using recognized valuation methods, such as discounted cash flow analysis, comparative market analysis, or book value. This approach ensures an objective and professionally justified assessment that serves as a reliable basis for fair determination of the purchase price, tax planning, and the ownership transfer strategy.
Since transferring a business requires a coordinated understanding of legal, tax, and financial matters, it is important to approach it holistically. At Unija ETL Consulting, a member of the Unija ETL Group, we offer professional support to businesses in the region through all phases of the transfer, from situation analysis and choosing the most appropriate form to legal, tax, and financial advisory. This multidisciplinary approach preserves the company’s value, trust, and long-term stability.
For more information contact us at info@unija.com.
