Business Succession: Transferring a Company to Heirs

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 for six months while the estate is settled. If the owner leaves no instructions, the shares split equally among the heirs, no single centre of decision emerges, and the company gets stuck in corporate conflict.

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.

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 statistics are unforgiving: about 30% of family companies survive to the second generation, only 12% to the third, and around 3% to the fourth. 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.

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.

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. An LPA, or an ordinary power of attorney, is a lifetime instrument: it can bridge incapacity, but it dies with the donor. 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.

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.

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.

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.

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.

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.

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. Germany's § 13a ErbStG can exempt 85% of qualifying business property if the business and payroll conditions are maintained for five years, or 100% under the optional seven-year regime with stricter payroll and administrative-asset limits. Transfers above €26 million enter special reduction or needs-test rules; the relief is not automatic.

In the UK, 100% Agricultural and Business Property Relief is limited from 6 April 2026 to a combined £2.5 million allowance per person, with unused allowance transferable to a spouse or civil partner; qualifying value above it generally receives 50% relief, producing an effective 20% inheritance-tax rate at the standard 40% rate. In the United States the top federal estate-tax rate remains 40%, while the IRS confirms a 2026 basic exclusion amount of $15 million per person. Section 6166 can allow instalment payment where a closely held business forms the required share of the estate. In every jurisdiction, model the tax and the available cash before the transfer; relief conditions and liquidity matter as much as the headline rate.

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.

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.