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Articles of association and succession planning: Coordinating wills and inheritance law

Specialist article in corporate law

Align the articles of association and succession planning

Anyone who has built a company wants to ensure it passes into reliable hands upon their death. Many rely solely on a will for succession planning. This is insufficient. In the case of company shares, the articles of association primarily determine who is entitled to inherit. If the articles of association and the will are inconsistent, the intended succession may fail.

The reason lies in the hierarchy of corporate law. If the articles of association govern succession, these provisions take precedence over any conflicting instructions in a will. An heir who, according to the will, is to continue running the company can be bypassed if the articles of association do not designate them as a successor. Conversely, undesirable individuals can move into the company.

This text explains how articles of association, wills, and inheritance law interrelate, what succession clauses exist, and how to avoid typical mistakes in succession planning. A coordinated approach protects both the company and the family. It prevents uncertainty about management in the event of inheritance and protects the business from becoming paralyzed by indecisive structures.

Why the articles of association determine company succession

According to Section 1922 of the German Civil Code (BGB), the assets of a deceased person pass to their heirs by way of universal succession. However, this principle applies only to a limited extent to company shares. Whether and in what form a share can be inherited is primarily determined by the articles of association and the legal form of the company.

The articles of association take precedence over any conflicting testamentary provisions. If they stipulate that the company continues upon the death of a partner without the participation of the heirs, the heirs are only entitled to a settlement payment, not to partner status. A testamentary disposition intended to allocate the share to a specific person is ineffective in this case to the extent that it contradicts the articles of association.

For this reason, the correct order of examination is crucial. First, it must be clarified what provisions the articles of association contain before the inheritance arrangements can be developed based on this. Anyone who reverses this order creates arrangements that are legally unenforceable and can lead to protracted disputes in the event of inheritance.

The scope of the articles of association varies depending on the legal form. In partnerships, it can restrict the inheritability of shares or limit them to a specific group of people. In limited liability companies (GmbHs), shares are generally inheritable, but the articles of association can regulate the transfer through redemption or assignment clauses. In any case, reliable succession planning is impossible without reviewing the articles of association.

Succession clauses in the articles of association: continuation, succession and entry

In partnerships such as general partnerships (OHG), limited partnerships (KG), or civil law partnerships (GbR), the partnership agreement stipulates the consequences of a partner's death. If no specific provision exists, the deceased partner typically withdraws from the partnership, while the remaining partners continue to operate the business, and the heirs are only entitled to a settlement payment. This continuation clause ensures the continued existence of the partnership but does not grant the heirs any partner rights.

If an heir is to assume the position of shareholder, a succession clause is required. A simple succession clause allows all heirs to join the company according to their respective inheritance shares. A qualified succession clause, on the other hand, stipulates that only a specific person named in the articles of association may succeed to the position, for example, a child with entrepreneurial skills.

Another option is the entry clause. This grants a specific person the right to become a shareholder by declaration. Unlike the succession clause, it does not take effect directly by virtue of inheritance law, but rather on the basis of a legal transaction. The choice of the appropriate clause depends on the family's objectives, the number of potential successors, and the company's legal structure.

A special feature of partnerships is the special succession arrangement. If, due to a qualified succession clause, only a single heir succeeds to the partnership, the share passes directly to that heir without becoming part of the community of heirs. The other co-heirs receive compensation of value from the remaining estate. This arrangement prevents several individuals from having to jointly dispose of the share, but requires precise coordination with the inheritance shares.

Inheritance of GmbH shares: community of heirs, redemption and assignment

The legal situation for a limited liability company (GmbH) differs fundamentally from that for partnerships. According to Section 15 Paragraph 1 of the German Limited Liability Companies Act (GmbHG), shares in a GmbH can be freely inherited. They become part of the estate and pass to the heirs. If there are multiple heirs, they are jointly entitled to the share according to Section 18 of the GmbHG. They can only exercise their rights jointly, which in practice often leads to deadlocks within the shareholders' meeting.

The articles of association offer the possibility of managing this consequence. Often, they contain redemption clauses pursuant to Section 34 of the German Limited Liability Companies Act (GmbHG), which permit the company to redeem the share of a deceased shareholder upon payment of compensation. Another option is for the articles of association to obligate the heirs to transfer the share to a designated successor or to the company itself.

Without such provisions, unwanted heirs can acquire shareholder status and influence the GmbH's decisions. Therefore, especially in family businesses, it is advisable to include precise provisions for the event of death in the articles of association and to coordinate these with inheritance law arrangements.

Following an inheritance, the list of shareholders must also be updated. Only upon registration in the list filed with the commercial register does a person become a shareholder of the company according to Section 16 of the German Limited Liability Companies Act (GmbHG) and can assert their rights. Until the list is updated, ambiguities may arise regarding voting and profit participation rights. Clear contractual provisions and timely correction of the list prevent conflicts.

Aligning the will and inheritance contract with the company agreement

A qualified succession clause can only take effect if the person named in the articles of association actually becomes the heir. If the intended successor was not appointed as heir in a will, the share cannot transfer to that person. Therefore, the articles of association and the will must be substantively aligned.

For estate planning, the will and the inheritance contract are available as instruments. A will, according to § 2247 of the German Civil Code (BGB), can be drawn up either by hand or by a notary and can generally be freely revoked. An inheritance contract, according to § 2274 of the BGB, has a stronger binding effect on the testator and is suitable when succession arrangements are to be definitively established. Spouses also have the option of drawing up a joint will.

It is crucial that inheritance provisions, division orders, and legacies are formulated in such a way that they comply with the provisions of the articles of association. Contradictions between these two levels can lead to conflicts of interpretation and, in the worst case, cause the intended succession to fail.

Particular care is required when drafting a joint will by spouses. Reciprocal provisions become binding upon the death of the first spouse, significantly complicating subsequent amendments. If the business situation changes, an existing arrangement cannot simply be adapted to the provisions of the articles of association. Anyone wishing to maintain flexibility in structuring their business succession should consider this binding effect from the outset.

Compulsory share, severance pay and liquidity: common risks in succession planning

Even if the articles of association and the will are in agreement, financial risks remain. Close family members who were not provided for in the will are entitled to a compulsory share of the inheritance under Section 2303 of the German Civil Code (BGB). This claim is for a monetary payment and can cause difficulties for the company if the necessary liquid funds are lacking or if the liquidation of shareholdings becomes necessary.

Compensation claims by heirs leaving the company have a similar effect. If the articles of association contain provisions for substantial severance payments, the company risks being jeopardized by the resulting capital outflow. Conversely, completely excluded or significantly insufficient severance payments may be legally invalid and lead to conflicts. Therefore, an appropriate severance agreement is an essential component of succession planning.

It is advisable to identify and secure these claims early on, for example through tailored severance agreements, contractual waivers of compulsory shares, or prudent liquidity planning. This helps prevent the succession plan from leading to a financial strain on the company.

In addition, the supplementary compulsory portion must be considered. Transfers of assets during one's lifetime, such as the early transfer of shares, can give rise to supplementary claims under Section 2325 of the German Civil Code (BGB), which are only gradually reduced over a period of ten years. Company valuation is equally prone to conflict, because the determined share value directly influences the amount of the compulsory portion and the severance payment. Timely planning and appropriate documentation ensure legal certainty in this regard. Furthermore, it is advisable to stipulate a transparent valuation method in the articles of association to prevent future disputes regarding share valuation.

Anticipated inheritance: Transfer of company shares during one's lifetime

Succession does not necessarily have to occur only upon death. Through anticipated inheritance, the owner transfers shares to the next generation during their lifetime. This provides legal certainty, allows for a gradual introduction of the successor, and can reduce compulsory shares and tax burdens.

Such transfers can be equipped with protective measures, such as a usufruct, reserved voting rights, or rights of reversion in the event that the successor dies before the transferor or does not continue the business. In this way, the transferor secures control and protection while the succession is already taking place.

In this case, too, coordination with the articles of association is essential. If these stipulate approval requirements or restrictions on the transfer of shares, these must be observed. Otherwise, the transfer may be invalid or the consent of the other shareholders may be required.

Why the articles of association determine company succession

When a person dies, their assets pass to their heirs by way of universal succession according to § 1922 of the German Civil Code (BGB). However, this principle applies only to a limited extent to company shares. Whether and how a share can be inherited is primarily determined by the company's articles of association and its legal form.

The articles of association take precedence over any conflicting testamentary provision. If they stipulate that upon the death of a partner, the company continues without the participation of the heirs, the heirs are only entitled to a settlement payment, not to partner status. A will that allocates a share to a specific person is invalid if the articles of association contradict it.

Therefore, the correct order of examination is crucial. First, it must be clarified what the articles of association permit, and only then can the inheritance arrangements be addressed. Anyone who reverses this sequence risks creating legally unenforceable provisions that will lead to protracted disputes in the event of death.

The effectiveness of the articles of association varies depending on the legal form. In partnerships, the inheritability of shares can be restricted or limited to specific individuals. In a limited liability company (GmbH), shares are generally inheritable, but the articles of association can regulate the transfer through redemption or assignment clauses. In any case, succession planning cannot be reliably arranged without knowledge of the articles of association.