Why You Need a Succession Plan
Passing on capital and passing on a business are two different tasks. Cash, securities and real estate reach the heirs and are divided without much difficulty. A working business does not behave that way: it has employees, counterparties, obligations and daily decisions that cannot be put on hold while the estate is administered; the timetable depends on the applicable procedure. If the owner leaves no instructions, shares pass under the applicable succession law and corporate documents; fragmented ownership may then prevent a single centre of decision and cause corporate conflict. (Sources: EU succession rules; GOV.UK: lasting power of attorney; GOV.UK: decision-making authority).
That is why succession is planned in advance, ideally years before the hand-over. The plan answers three questions: who will own the business, who will run it, and what happens if the owner is suddenly out of the picture. The answers determine the toolkit — a shareholders' agreement, a holding, a personal foundation or a foreign trust. How those decisions line up against the rest of the family perimeter — the property regime, succession, divorce — is set out in the family cluster map.
| Who is caught | Owners of a working business whose shares pass to heirs |
|---|---|
| Two triggers | Death and incapacity — different events, with different machinery for restoring authority |
| The continuity gap | Measured in months: a UK grant of representation and a Russian certificate of inheritance both take time |
| Statutory clocks | Delaware LLC — 90 days for the personal representative's consent; Russian LLC — 30 days for participants' consent; Russian acceptance period — six months |
| Emergency key | Model Article 17(2) for post-2009 companies; Civil Code art. 1173 — notary-appointed trust management of the share |
| Transfer tax | Germany — 85% or up to 100% (§ 13a ErbStG); UK — 100% APR/BPR up to £2.5 million, then 50%; US — 40% with a $15 million exclusion |
| Russian foundation | Lifetime personal foundation threshold 100 million roubles; none for the hereditary foundation (art. 123.20-4); 15% profit tax |
| Status as at | The UK APR/BPR allowance applies from 6 April 2026; the US exclusion is the 2026 figure |
Concept
A family business is the hardest asset to inherit: it cannot be divided equally like cash, and it loses value quickly without management. The survival figures quoted everywhere in the field — roughly 30% of family companies reaching the second generation, 10–15% the third and 3–5% the fourth — trace back to John Ward's study of Illinois manufacturers in the 1980s and have been repeated by advisers ever since; Ward's own firm points out that comparable attrition shows up in listed companies too, so the numbers measure how hard corporate survival is rather than proving that families are uniquely bad at it. The main cause of failure is the absence of a succession plan thought through in advance — heirs receive shares, but with them neither agreements about control nor any preparation to manage.
A business cannot be "divided equally" without damage: succession is built on separating ownership and management, a shareholders' agreement, and a holding structure — a foundation or a holding company.
What the Plan Has to Survive: One Week
The test of a succession plan is one ordinary sequence of events. Take an owner — an illustrative case, not a real one — who holds 100% of a UK trading company, is its only director and is the sole signatory on its bank mandate. She dies on a Tuesday. By Wednesday four things have happened at once, as a matter of law rather than of practice:
- the office of director is vacant, so nobody can bind the company;
- her shares have passed by transmission to her personal representatives, who are not yet members and cannot vote;
- her personal accounts are frozen once the bank has notice of the death;
- the general power of attorney she gave her business partner has lapsed.
Payroll still runs on Friday and a supplier still expects payment, and no one holds the authority to deal with either. None of that turns on the size of the estate or the quality of the will.
Everything else in this guide answers some part of that Wednesday, and each answer trades one thing against another. Concentrating votes in one heir is what keeps the company decidable and what the other heirs experience as unequal treatment, so the compensation has to be economic rather than constitutional. A fixed valuation formula removes the argument about price but locks in a number the market may later contradict. And liquidity built in advance buys the family time — provided the instrument that creates the money is not also the instrument that disqualifies the tax relief.
Ownership and Management Are Different
The key mistake is to conflate a share in the business with the right to manage it. Heirs can own shares and receive dividends, but management should belong to whoever is capable of it — not necessarily all the children in equal measure. A sound structure separates these rights: the economics are distributed fairly among everyone, while control is concentrated in one or two people or in a governing body. This is done with two classes of shares — voting and non-voting — a management company at the top of the holding, or a foundation holding the controlling stake.
Tools
A shareholders' agreement sets the rules of the game: who sits on the governing bodies, how and to whom shares may be sold, what happens on the death or exit of a co-owner, and how deadlocks are resolved. A holding gathers scattered assets into a single structure and simplifies the transfer — what is inherited is a share in the holding company, not a dozen separate businesses. At the top there is often a foundation or a trust: it retains control and keeps the shares from fragmenting with each new generation. Options and vesting keep key non-family managers in place.
The terms of that agreement do independent legal work: what is not written into it is, by default, not among the parties' rights either. The dispositive rule of the Partnership Act 1890 makes the point for partnerships — ordinary matters of the business are decided by a majority, but a majority may expel a partner only where that power is expressly written in. On the same logic, provisions on a co-owner's exit, share valuation and deadlock resolution work only when they are spelled out.
A succession plan includes a "what if tomorrow" scenario — the sudden death or incapacity of the owner. Without management appointed in advance, the business is paralysed for the duration of the estate proceedings.
Typical Scenarios
The most common set-up: the business rests on one person, there are several heirs, and not all of them want or are able to manage. The working solution is to give management to one and secure an income for the rest. One heir receives the controlling stake or the director's seat; the others receive non-voting shares and a right to dividends. So that this does not become a source of resentment, the proportions and payout rules are fixed in a shareholders' agreement, and the family arrangements in a family charter.
Sometimes no one wants to manage. Then the family keeps ownership and hires a professional CEO, or the business is sold — to management through a management buy-out, or to an outside buyer. A sale mechanism written in advance (valuation, right of first refusal, tag-along and drag-along) turns a forced deal from chaos into a managed process and protects the minority heirs.
Death and Incapacity Are Two Different Triggers
Continuity planning fails most often because the owner treats "if something happens to me" as one event. Legally it is two, and they engage different machinery. A plan that answers one and assumes it covers the other leaves a real gap.
Death ends the person. The shares fall into the estate; any office held — director, managing partner — ends, because a deceased person cannot hold it; and a bank mandate or power of attorney the deceased had given lapses at the moment of death, because an agent cannot act for a principal who no longer exists. Authority now runs through the estate: a personal representative (an executor named in the will, or a court-appointed administrator where there is none) and, once title is transferred, the heirs.
Incapacity leaves the person alive but unable to act. The shares are still owned by the same living shareholder; the director may still hold office in law but cannot exercise it; and nothing passes to any estate, because there is no estate. What is needed instead is someone authorised to act for the living person — an attorney under a registered lasting power of attorney or a court-appointed deputy in England and Wales, a guardian (опекун) appointed after a Russian court declares the person incapable.
A power of attorney is where this distinction bites hardest. In England and Wales, an ordinary power of attorney works only while the donor has mental capacity. A properly registered property and financial affairs LPA can continue during incapacity within its terms; both are lifetime instruments and end on death. GOV.UK states plainly that an LPA "ends because the donor has died"; from that moment the attorney has no authority and the estate route takes over.
Russian law reaches the same result from both directions at once — Civil Code art. 188 terminates a power of attorney on the death of the grantor and on a court's declaration that the grantor is incapable. So a power of attorney is neither a universal continuation of the owner's powers after death nor, on its own, a durable answer: it is one tool that covers one trigger, and only while the grantor is alive.
Five Powers That Do Not Move Together
"Control of the company" is not one right that transfers in a single step. It is a bundle of separate legal channels, each with its own holder, its own trigger and its own timeline. On the owner's death or incapacity they come apart, and the family learns that holding one of them does not carry the rest. The table below is the document matrix to check for any owner-dependent company: for each channel, ask who holds it the morning after the trigger.
| Channel | What it is | On death | On incapacity |
|---|---|---|---|
| Ownership of shares | economic and voting title in the register of members | transmits to the estate, then to heirs once they are registered; voting may be suspended until registration | stays with the same owner; can be exercised only through an attorney, deputy or guardian |
| Director / manager powers | the office that runs the company day to day | the office ends; a replacement must be appointed by whoever now can | the office continues but cannot be exercised — and under Model Article 18(d) it ends outright once a treating doctor certifies incapacity likely to last more than three months; the board or members must fill the gap |
| Bank mandate | who may operate company and personal accounts | personal accounts frozen on notice of death; company mandate survives only through signatories who remain in office | the incapacitated signatory can no longer give valid instructions; the bank needs attorney authority it will accept |
| Power of attorney (LPA / PoA) | authority to act for a living person | lapses at death — carries nothing across | for incapacity in England and Wales: a property and financial affairs LPA must be made and registered; an ordinary PoA does not cover loss of capacity |
| Executor / administrator and heirs | authority over the estate and its assets | an executor acts from death (probate confirms it); an administrator only from the grant | not engaged — there is no estate while the owner lives |
The lesson of the matrix is that continuity is not "who inherits the company" but "who can validly sign for it on Tuesday morning" — and those are frequently different people holding different powers under different documents.
The Entity Form Sets the Default
Before any of those channels can be restored, a prior question decides how much time the family has: what the law does to the entity itself when the owner drops out. A company survives its members and its directors, so only offices and title have to move. Other forms are less patient — a partnership can dissolve outright, and a single-member LLC can be on a statutory clock from the day of death. The mechanics of appointing and removing directors and of keeping the register belong to the company lifecycle; what changes from form to form is the default that applies when nobody acts.
| Form | What happens to the entity | How authority is restored, and on what threshold |
|---|---|---|
| UK company limited by shares | survives; the director's office is vacant and the shares sit in the estate | post-2009 Model Article 17(2): the personal representatives appoint a director by written notice; companies on older Table A articles need a court application |
| English partnership | dissolved by default — Partnership Act 1890 s. 33(1) dissolves it "as regards all the partners by the death or bankruptcy of any partner", "subject to any agreement between the partners" | only the partnership agreement displaces that default; otherwise the business goes into winding up rather than to an heir |
| Delaware LLC with one member | dissolution is triggered when the last member ceases to be a member | 6 Del. C. § 18-801(a)(4): no dissolution if, within 90 days or the period the LLC agreement sets, the personal representative of the last remaining member agrees in writing to continue the company and admits a member |
| Delaware corporation | survives; the board may be left empty | DGCL § 223: remaining directors, even fewer than a quorum, fill vacancies; where those in office are less than a majority of the board, holders of at least 10% of the voting stock may ask the Court of Chancery to order an election |
| Russian LLC | survives; the share sits in the estate | LLC Law art. 21(8): shares pass to heirs unless the charter provides otherwise; where the charter requires consent, art. 21(10) deems it given if within thirty days every participant consents in writing — or nobody refuses in writing |
Three different keys, then: the English company hands the emergency key to the estate, the LLC hands it to the estate but starts a clock, and the corporation hands it to a shareholding threshold and a court. Which one a family holds is settled at incorporation, not at death — which is why the choice of vehicle belongs in the succession conversation and not only in the tax one.
Who Can Act Today: The Continuity Gap
Between the trigger and the completion of title transfer there is a window in which the register still names a person who can no longer act. Who may step in, and on what basis, differs sharply between a common-law and a civil-law system. England and Wales and Russia make the contrast concrete.
England and Wales
An executor derives authority from the will and acts from the moment of death; the grant of probate confirms that authority rather than creating it, so an executor can, in principle, begin dealing with the estate at once. An administrator — appointed where there is no will or no willing executor — has no authority at all until the grant of letters of administration is issued, and intestacy administration can be slow, which is precisely when a company most needs a shareholder resolution passed.
For the classic disaster — the sole shareholder who is also the sole director dies — the Model Articles for companies incorporated from October 2009 supply the escape. Article 17(2) provides that "where, as a result of death, the company has no shareholders and no directors, the personal representatives of the last shareholder to have died have the right, by notice in writing, to appoint a person to be a director." Companies still on the older Table A articles have no equivalent, so their estates may need a court application to break the deadlock. Legal title to the deceased's shares passes by transmission to the personal representatives (Model Articles 27–29), who may become registered holders or transfer the shares on; Companies Act 2006 s. 773 lets a personal representative execute a transfer even though they are not themselves a member. Meanwhile the bank, on notice of death, freezes the deceased's personal accounts until a grant is produced, and the company's account keeps running only if an authorised signatory other than the deceased remains.
Incapacity is not automatically gentler on the office than death is. Model Article 18(d) ends a director's appointment as soon as "a registered medical practitioner who is treating that person gives a written opinion to the company stating that that person has become physically or mentally incapable of acting as a director and may remain so for more than three months". The separate ground that removed a director because of a court order made by reason of their mental health was omitted by the Mental Health (Discrimination) Act 2013 with effect from 28 April 2013, so the medical opinion is now the operative route — a document from a treating doctor rather than a court process, and one that can empty the board of a company that assumed it had months in hand.
Russia
On death, the share in the LLC (доля в уставном капитале ООО) falls into the estate (наследственная масса), but the certificate of inheritance (свидетельство о праве на наследство) is normally issued only after the six-month acceptance period. To stop the business drifting through those months, Civil Code art. 1173 lets a notary act as founder of доверительное управление (trust management), signing a management contract — for up to five years — so a manager runs the interest until the heirs are confirmed; an executor of the will, once they consent, is treated as the trust manager from that moment.
The company's charter (устав) may make the heirs' entry conditional: art. 93 allows the charter to require the consent of the other participants for a share to pass to heirs, and a refusal converts the inheritance into a duty of the company to pay the heirs the actual value of the share (действительная стоимость доли) instead of admitting them as members.
The director is the sole executive body (единоличный исполнительный орган); on the director's death the general meeting must appoint a new one — and where the deceased was both sole participant and sole director, there may be no one with authority to convene that meeting until the inheritance is resolved.
The charter route runs on its own clock. Article 21(8) of the LLC Law passes shares to the heirs of a participant "unless the company's charter provides otherwise"; where the charter does require the other participants' consent, art. 21(10) treats that consent as given if, within thirty days of the company receiving the request — or another period the charter sets — every participant has delivered a written consent, or no one has delivered a written refusal. Silence admits the heir; only an express refusal converts the inheritance into the company's duty to pay out the actual value of the share.
Incapacity has its own analogue of art. 1173. Where a ward's property needs continuous management, Civil Code art. 38(1) has the guardianship authority itself conclude a trust-management contract with a manager it selects, and that manager is bound by the rules in art. 37(2)–(3), so disposals still need the authority's prior permission. A controlling interest in an operating company is exactly the asset that provision is meant to catch — and its management then answers to an administrative body rather than to the family.
When the Articles Have No Answer: Williams v Russell Price Farm Services
The gap is not theoretical, and the courts have had to fill it. In Williams v Russell Price Farm Services Ltd [2020] EWHC 1088 (Ch) the sole shareholder and sole director of a Herefordshire farm-contracting company died on 8 March 2020. The company's articles incorporated Table A from the Companies (Tables A to F) Regulations 1985: on death the shares vested in the executors, but only registered members could appoint directors, and the executors were not on the register. The bank had frozen the account, about £110,065 was owed to creditors, and the spring planting season was running.
The executors applied under Companies Act 2006 s. 125 to rectify the register of members by entering their own names, so that they could then appoint a director. The court made the order before any grant of probate had issued, holding that in those circumstances "unnecessary delay is taking place in entering the names of the named executors on the company's register of members", and conditioned it on undertakings that the executors apply promptly for probate and meet the inheritance tax. The same result had been reached on the same problem in Kings Court Trust Ltd v Lancashire Cleaning Services Ltd [2017] EWHC 1094 (Ch).
The limits matter as much as the holding. This is a discretionary remedy: it needs a court application, evidence of urgency and personal undertakings, and it costs the days and the money a paralysed business is losing anyway. A company on post-2009 Model Articles would not have needed it at all, because Article 17(2) lets the personal representatives appoint a director by written notice. What the case really argues for is a dull piece of housekeeping — reading the articles of every company in the group and replacing the pre-2009 ones.
An Event-Authority Timeline
The same event unfolds on a schedule, and the holder of valid authority changes at each stage. Reading a continuity plan means checking that someone can act at every row of this timeline, not only at the end when title is finally settled.
| Stage | England and Wales | Russia |
|---|---|---|
| Day 0 — death or incapacity | on incapacity: LPA attorney or Court of Protection deputy. On death: the office of director ends and any PoA lapses; an executor's authority arises immediately, an administrator's does not | on incapacity: a guardian only after a court declares incapacity. On death: the director's office ends and the доверенность lapses under art. 188 |
| First days — keep the lights on | surviving authorised signatory operates company accounts; personal accounts frozen; reserve or alternate director acts if the articles provide one | surviving единоличный исполнительный орган or a deputy acts; notary can open a trust-management contract under art. 1173 |
| First weeks — restore governance | personal representatives use Model Article 17(2) to appoint a director where the company was left with none | general meeting appoints a new director; if the sole participant-director died, the interest waits on a trust manager or the inheritance |
| First months — obtain the grant | grant of probate or letters of administration issued; personal representatives can deal with and transfer the shares (s. 773) | six-month acceptance period runs; certificate of inheritance (свидетельство о праве на наследство) issued at its end |
| Title complete — heirs registered | transmittees registered as members (Model Articles 27–29); voting rights restored to the new holders | heirs entered in the company, subject to any charter consent under art. 93; on refusal, paid the actual value of the share instead |
Four Continuity Scenarios
Each scenario below asks the operational question, not the eventual one: who is entitled to act today, before title passes, and on what basis.
| Scenario | Who may act today — and on what basis |
|---|---|
| A sole director dies (England and Wales) | No board remains to appoint a successor. Under the post-2009 Model Articles the deceased's personal representatives appoint a director under Article 17(2) — an executor from death, an administrator only once the grant issues; older Table A companies may have to apply to court. Until then no one can bind the company. |
| A shareholder is alive but incapacitated | The shares still belong to the living owner and are inherited by no one. Only an attorney under a registered property-and-financial-affairs LPA, or a Court of Protection deputy where there is none, may vote or sign. If the owner was also the director, a reserve director or a board quorum must carry the company in the meantime. |
| Shares pass to a minor | In England and Wales the articles may refuse to register a minor, and a minor can repudiate the shares up to a reasonable time after turning 18, so they are usually held on a bare trust or by a nominee. In Russia a minor heir takes the share, but every dealing with it needs the guardianship authority's (орган опеки) consent. |
| A family dispute blocks the quorum | No one may act unless documents written earlier decide it: a shareholders' agreement with deadlock, casting-vote and buy-out mechanics, a family charter aligning expectations, or a foundation or holding that keeps the voting block whole. Otherwise the company waits on litigation. |
Emergency Provisions Worth Building in Advance
Because none of the continuity channels can be created after the trigger, the work is done in the constitutional documents while the owner is able. The articles and any shareholders' agreement can name a reserve or alternate director who steps in automatically, set the quorum low enough that one surviving participant can still transact, and give the chair a casting vote so a split board is not frozen.
Bank continuity comes from a second authorised signatory or a joint account, not from a mandate in one name. Incapacity is covered by a registered lasting power of attorney — including, in England and Wales, a distinct business LPA where the owner does not want the same attorney over personal and company affairs. And a foundation or holding company at the top keeps the voting block intact across a death, so the company never has to be managed by whoever happens to obtain a grant first — control then runs through a trustee or protector rather than through the estate.
These are the provisions that convert a paralysing event into a governed one; they are described here as knowledge, and each has to be tested against the governing law of every company in the group and, for the estate itself, the law applicable to the succession.
Russian Instruments: The Personal and Hereditary Foundation
Since 2018 Russian law has offered the hereditary foundation: it is created by will and begins operating after the owner's death, taking in the assets and distributing income under rules set in advance. From 1 March 2022 the personal foundation appeared — it is established during the founder's lifetime, so the founder has time to test both the structure and the management personally. For a lifetime personal foundation there is a threshold: the value of the property transferred may not be less than 100 million roubles; the hereditary foundation has no such threshold (Civil Code, art. 123.20-4).
The tax regime makes the foundation convenient for succession: income of the founder and their close relatives — Russian tax residents — is exempt from personal income tax, while other beneficiaries receive the relief after the founder's death. The foundation itself enjoys a reduced profit-tax rate of 15% where passive income exceeds 90%. In 2025 the regulation was tightened significantly, so any specific model should be run against the current version of the law. A detailed analysis is in the material on the personal and hereditary foundation.
Foreign Instruments
When the business or the heirs are tied to several countries, the classic Western constructions come into play. A discretionary trust separates ownership from control and distributes income flexibly; a Private Trust Company gives the family its own trustee and keeps decisions inside the family; a foundation — the civil-law foundation (Stiftung in Liechtenstein, the private foundation in Panama) — combines features of a trust and a company. Such structures retain control and outlive the change of generations, but they demand attention to the recognition of trusts (Hague Convention 1985), to substance, and to the automatic exchange of information (CRS).
Why Succession Plans Fail
The failures follow a recognisable pattern. A founder dies without a workable will or governance plan, so intestacy or forced-heirship rules split the company into voting stakes nobody intended to create. The estate then owes cash tax on an illiquid asset and sells shares to an outsider. Children whose roles were never defined compete for the same chair. These are planning failures, not market failures, and each can be addressed with documents, funding and governance agreed years before a death.
Forced Heirship Can Override a Will
In many civil-law systems a will is not the final word. A reserved share protects children, and often a spouse, regardless of the deceased's wishes. If the business is held personally, that rule can place voting shares with heirs who should not manage them. A holding company or foundation funded and governed during life can keep operating shares together, although the value transferred, clawback rules and heirs' claims still have to be tested under every relevant law.
Article 22 of the EU Succession Regulation also permits a person to choose the law of a country whose nationality they hold. Where the Regulation applies, that can replace the default connecting factor with a law offering wider testamentary freedom. The choice must be made during life and does not automatically defeat public-policy rules, lifetime-transfer clawbacks or rights outside the Regulation.
The Tax Bill That Forces a Sale
The sharpest risk is a cash tax bill attached to an asset that cannot be sold by the slice. Ten systems answer it differently, and the difference sits in the conditions of the relief rather than in the headline rate. The first table keeps the detailed German, British and American mechanics; the second puts all ten side by side.
| Jurisdiction | Relief | Conditions and limits |
|---|---|---|
| Germany | § 13a ErbStG: exempts 85% of qualifying business property, or 100% under the optional seven-year regime | Business and payroll conditions maintained for five years, with stricter payroll and administrative-asset limits in the optional regime; transfers above €26 million enter reduction or needs-test rules; the relief is not automatic |
| United Kingdom | 100% Agricultural and Business Property Relief, limited from 6 April 2026 | Combined £2.5 million allowance per person, unused allowance transferable to a spouse or civil partner; qualifying value above it generally receives 50% relief — an effective 20% rate at the standard 40% rate |
| United States | Section 6166: instalment payment where a closely held business forms the required share of the estate | Top federal estate-tax rate remains 40%; the IRS confirms a 2026 basic exclusion amount of $15 million per person |
| Jurisdiction | Tax on a child (headline) | Business relief | Holding or continuation period | Key condition | Lifetime gift of the business |
|---|---|---|---|---|---|
| Germany | 7–30% after €400,000 allowance | 85% or 100% (§§ 13a, 13b ErbStG) | 5 or 7 years | payroll and administrative-asset tests | same relief; 10-year aggregation |
| United Kingdom | 40% above £325,000 | 100% to £2.5m, then 50% (from 06.04.2026) | 2 years' ownership before transfer | trading, not investment, business | potentially exempt; 7-year survival |
| United States | 40% above USD 15m (2026) | none on value; instalments under § 6166 | — | closely held business above 35% of the estate | unified with the estate exclusion |
| France | 5–45% after €100,000 per parent | 75% of value (art. 787 B CGI) | collective 2 years, individual 6 years (Finance Act 2026) | management role 3 years; non-business assets excluded | same relief; a further 50% off if the donor is under 70 |
| Italy | 4% above €1m per child | 100% exemption (art. 3(4-ter) TUS) | 5 years | heir acquires or completes control of a company | same exemption; patto di famiglia shields from clawback |
| Spain | state scale 7.65–34%, regional credits | 95% reduction (art. 20.2.c LISD) | 10 years | wealth-tax exemption met: stake and management role | 95% if the donor is 65+ and leaves management |
| Netherlands | 10% / 20% bands | 100% to €1.5m, 75% above (2025) | 3 years' continuation | prior ownership 1 year (death) or 5 years (gift) | same relief |
| Switzerland | no federal tax; cantonal | — | — | most cantons exempt spouses and descendants | cantonal gift tax on the same pattern |
| Singapore, Hong Kong, UAE | none (estate duty abolished 2008 and 2006; none in the UAE) | not needed | — | — | no gift tax |
| Russia | none on inheritance (Tax Code art. 217(18)) | not needed | — | — | exempt between close relatives (art. 217(18.1)) |
The table shows a pattern the headline rates hide. Every high-tax European system except Switzerland has built a business carve-out, and each one buys the relief with time: six years of holding in France since the 2026 Finance Act, five in Italy under art. 3(4-ter) of the succession tax code, ten in Spain, three in the Netherlands after the 2025 reform of the BOR, five or seven in Germany. An heir who sells, dilutes below control or stops managing inside the window loses the relief retroactively. The succession plan therefore has to decide who will run the company before it decides who will own it, because the relief follows the manager.
The second pattern is that the reliefs are not interchangeable in what they protect. Italy exempts the whole value but only where the heir acquires or completes control, so a company split equally between two children can fail the test that a 51/49 split passes. France exempts three quarters, and since 2026 only of the operating value: holiday homes, art, jewellery, racehorses and similar assets held inside the company are now taxed in full. The United Kingdom caps the full relief at £2.5 million per person, and the United States offers no relief on value at all, only an instalment regime. The zero-tax jurisdictions at the bottom of the table remove the tax question but not the forced-heirship and continuity questions set out above.
Worked example: one €10 million company, one heir who runs it
A founder leaves 100% of a trading company worth €10 million to the child who manages it; a second child receives other assets. On the same figures the tax on the managing child ranges from nothing to more than €4 million. In France without a Dutreil pact, the taxable base after the €100,000 allowance is €9.9 million and the tax on the direct-line scale of art. 777 CGI is about €4.22 million. With a Dutreil pact the base falls to €2.4 million and the tax to about €842,000. In Germany, the 85% relief leaves €1.5 million, less the €400,000 allowance, taxed at 19%: €209,000, conditional on payroll and administrative-asset tests for five years. In Italy the stake passes free because the heir acquires control, provided control is kept for five years. In the United Kingdom the same value in sterling produces the £1.5 million bill computed below. In the United States a USD 10 million estate sits below the 2026 exclusion and pays nothing. The figures show why the relief conditions, not the rates, belong at the top of the succession file.
In every jurisdiction, model the tax and the available cash before the transfer; relief conditions and liquidity matter as much as the headline rate.
On invented figures, to show the arithmetic rather than any real estate: a UK shareholding worth £10 million that qualifies in full. The first £2.5 million attracts 100% relief and is not chargeable; the remaining £7.5 million attracts 50% relief, leaving £3.75 million chargeable; at the 40% rate that is £1.5 million of inheritance tax before any nil-rate band — 20% of the value above the allowance, and 15% of the holding as a whole. The sum the family has to find in cash does not shrink because the shares are hard to sell.
How Large Families Keep Control
Long-lived business families repeatedly use the same architecture. The Kirk Kristiansen family controls Lego through KIRKBI. The Hermès family pooled a majority stake in H51 in 2011 as a defence against LVMH's creeping acquisition. The Walton family holds Walmart shares through Walton Enterprises, while the Quandt family has retained a controlling block in BMW across generations. The instruments differ, but the pattern is consistent: a holding company or foundation concentrates voting rights and keeps the block intact, cash can be distributed to family members, and the operating company is not broken up to settle a private dispute.
Liquidity Without Selling the Business
Even a well-governed succession needs cash at death: to pay tax, buy out heirs who prefer money to shares, and bridge the period before the next dividend. The usual answer is to fund that liability in advance. Life insurance sized to the expected tax converts an uncertain bill into known premiums. A funded buy-sell agreement lets the continuing owners acquire a deceased partner's interest under an agreed valuation mechanism instead of negotiating with heirs. Disciplined lifetime gifting can move value before the estate is taxed, subject to local clawback, valuation and gift-tax rules.
The instrument that creates the cash can also destroy the relief. Under IHTA 1984 s. 113 property subject to a binding contract for sale when the transfer takes place is not relevant business property, so business relief is lost. HMRC's guidance at IHTM25292 treats a true "buy and sell" agreement — one where the personal representatives are required to sell and the survivors obliged to buy — as exactly such a contract, while cross-option arrangements, in which each side holds an option rather than an obligation, are not binding contracts for sale and "do not prevent the interest from qualifying for business relief". The commercial outcome of the two patterns is identical: the survivors end up with the shares and the family with the money. Only the drafting decides whether the relief survives, which is why the exit and put/call mechanics belong in the shareholders' agreement rather than in a side letter.
Next Generation
Succession is both a legal and a human task. The legal part is solved by structures; the human part is harder. Heirs are prepared over years: gradually brought into the business, with the roles of "active" members (those who work in the company) and "passive" members (those who only receive income) separated, and mutual expectations talked through in advance. Often the family keeps ownership but hands operational management to a professional manager — more reliable than putting an unprepared heir at the head just to keep the family name at the helm.
Instruments Against Tasks
No single instrument solves the Wednesday problem described at the top of this guide. The matrix reads each common instrument against the six tasks a business succession has to complete.
| Instrument | Keeps votes together | Treats other heirs fairly | Works on incapacity | Funds tax or buy-out | Resists forced heirship | Effect on tax relief |
|---|---|---|---|---|---|---|
| Will, including a situs will | only if it allocates shares to one heir | by allocating other assets | no | no | no; subject to the reserve | neutral |
| Articles and shareholders' agreement | yes, through transfer and deadlock clauses | valuation, tag-along, put options | only if written in | cross-option with insurance | limits who becomes a member | cross-option keeps UK relief; buy-and-sell loses it |
| Voting and non-voting shares | yes | yes, equal economics | no | no | partly: value counts, votes stay | check control tests (Italy) |
| Holding company | yes, one block | partly | no | dividends upstream | no | risk if the holding is mainly investment |
| Trust or PTC | yes | yes, by discretion | yes, trustee continues | no | firewall at home of the trust only | often lost or replaced by trust charges |
| Foundation, including a Russian personal foundation | yes | yes, by bylaws | yes | no | partly; recognised in civil law | jurisdiction-specific |
| Lasting power of attorney | no | no | yes, if it covers shareholder rights | no | no | neutral |
| Life insurance | no | yes, cash for non-managing heirs | no | yes | often outside the estate | neutral if not a binding sale |
| Lifetime gift: Dutreil, patto di famiglia, gift with usufruct | yes, donor may keep votes | patto settles the others at signing | moves assets before incapacity | no | patto di famiglia: yes | designed to secure it |
The columns do not add up to a single answer, and that is the point. Instruments that keep the votes together — share classes, a holding, a trust or a foundation — do nothing for cash, and the instruments that create cash — insurance and a funded cross-option — do nothing for control. The incapacity column is the thinnest: only a trust, a foundation and a power of attorney drafted to cover shareholder rights keep the company decidable while the owner is alive but unable to act. The forced-heirship column is the one most often misread: a trust or foundation protects the block inside its own jurisdiction, but the heirs' claim to value is decided by the law of the estate, and only the Italian patto di famiglia settles it contractually with every heir at signing.
Profile to package
| Family profile | Usual package |
|---|---|
| One heir runs the business, others do not; civil-law country | share classes + shareholders' agreement + lifetime gift under the local relief + insurance to equalise |
| Several active heirs, risk of deadlock | holding with a board and a family charter + shareholders' agreement with a deadlock ladder |
| Owner over 70 or with health risk | lasting power of attorney covering shareholder rights + emergency provisions in the articles, then the gift |
| Heirs in several countries, UK or US estate | trust or foundation holding the block + funded cross-option; test relief under each tax system |
| No heir wants to manage | professional CEO under a holding, or a pre-agreed sale mechanism with valuation and drag-along |
Q/A
Which country taxes the transfer of a family business least?
Among high-tax systems, Italy exempts the whole value where the heir acquires or completes control and keeps it for five years; the Netherlands exempts the first €1.5 million fully and 75% above; Spain reduces the base by 95% for ten years of holding. Singapore, Hong Kong, the UAE and Russia levy no inheritance tax on children at all.
What changed in the French Dutreil pact in 2026?
The Finance Act for 2026 extended the heir's individual holding commitment from four to six years and excluded non-business assets held by the company — such as residences not used in the business, art, jewellery and racehorses — from the 75% exemption.
Can all children own equal shares while only one runs the business?
Yes, if the corporate documents genuinely separate economic and voting rights. Share classes, board composition, dividend policy, exit and minority protection must be fixed before the transfer; forced-heirship claims and clawback of lifetime transfers must be tested under every applicable law.
Is a will enough to keep the business from fragmenting?
No. A will transfers the asset but does not provide daily management, bank signatories, deadlock rules or a buy-out of a deceased partner’s interest. Continuity needs aligned articles, a shareholders’ agreement, a holding or foundation, and a funded death-and-incapacity plan prepared in advance.
Can a choice of nationality law remove forced heirship?
A nationality law may be chosen where Article 22 of EU Regulation 650/2012 applies, but it is not a universal way to eliminate forced heirship. The choice must be validly recorded and does not remove matters outside the Regulation, public policy, clawback of lifetime transfers or corporate restrictions.
What must work if the owner becomes incapacitated tomorrow?
A documented emergency governance route is needed: a replacement director or body, valid bank authorities, voting rules and access to key contracts and data. It must operate before any estate administration and separately from the will; each company’s governing law must recognise the powers used.
How should tax and heirs’ share buy-outs be funded?
Create liquidity before the event through cash reserves, life insurance, a credit facility or a funded buy-sell agreement with a valuation formula. Size it against each jurisdiction’s taxes, debt and the period without dividends; otherwise even an intact controlling block may have to be sold for cash.
If the sole director and shareholder dies, who can run the company before probate?
Under the post-2009 Model Articles, the deceased's personal representatives may appoint a director under Article 17(2) — an executor from the date of death, an administrator only once the grant of representation issues. Companies on older Table A articles have no such power and may need a court application. Until a director is validly in place, nothing can be done in the company's name.
Can a power of attorney be used to manage the business after the owner dies?
No. A lasting power of attorney or ordinary PoA is a lifetime instrument and lapses at the moment of death (UK government guidance; Russian Civil Code art. 188). After death, authority runs only through the estate — the executor or administrator — and then the heirs. Incapacity is different: in England and Wales an ordinary PoA cannot then be used, but a registered property and financial affairs LPA can continue within its terms. The Russian ordinary power of attorney and other jurisdictions require their own analysis.
What happens if company shares are inherited by a minor?
In England and Wales a minor can hold shares unless the articles say otherwise, but the holding is precarious — the minor can repudiate the shares up to a reasonable time after turning 18 — so they are usually held on a bare trust or by a nominee. In Russia a minor heir takes the share, yet dealings with it need the guardianship authority's consent, which slows every corporate decision. Neither route gives the child working voting control until adulthood.
Does a buy-sell agreement protect the family or cost it the tax relief?
Both are possible, and the drafting decides which. IHTA 1984 s. 113 denies business property relief to an interest subject to a binding contract for sale at the time of the transfer, and HMRC treats a mutual obligation to sell and to buy as exactly that. Cross-option arrangements — each side holding an option, neither bound to act — are not binding contracts for sale and leave the relief intact, while producing the same commercial result: the survivors take the shares and the estate takes the money.
What happens when the sole member of a US LLC dies?
Under Delaware law the death of the last remaining member is a dissolution event, but 6 Del. C. § 18-801(a)(4) opens a window: there is no dissolution if, within 90 days of that event or another period fixed in the LLC agreement, the personal representative of the last remaining member agrees in writing to continue the company and admits a member. Ninety days is short by estate standards, so the LLC agreement should name the successor and set the period rather than leave the default to run.