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Succession planning for shareholders: Coordinating the articles of association and will
Specialist article in corporate law
Succession planning for shareholders: contract and will
You own shares in a company and have already made provisions in your will – yet your succession plan can still fail. With a company shareholding, the articles of association primarily determine the fate of your shares, not solely your will. If these two sets of regulations conflict, your will becomes invalid on that point.
Succession provisions in the articles of association take precedence over testamentary dispositions. Ignoring this principle jeopardizes the company through unwanted new shareholders, substantial severance demands, inheritance disputes, or even a management standstill. Furthermore, claims to a compulsory share of the inheritance and tax consequences can quickly threaten the company's financial stability.
This article explains the interplay between the articles of association and the will in business succession, presents the various succession clauses and shows you how to coordinate both levels of regulation so that your ideas are actually realized.
Why the articles of association and the will must be coordinated
The biggest weakness in succession planning for shareholders lies in treating inheritance law and corporate law regulations in isolation. While inheritance law determines who inherits your assets, corporate law stipulates the conditions under which a company share may even pass to an heir. In cases of conflicting regulations, corporate law prevails: The provisions of the articles of association take precedence over any differing testamentary dispositions.
The problem can be illustrated by a specific example. If you name your daughter as the heir to your company share in your will, while the company agreement stipulates that the share accrues to the remaining shareholders upon the death of a shareholder, your daughter will not receive the share. She is only entitled to a monetary settlement, while her shareholder status itself is lost. The testamentary disposition is ineffective in this respect.
For this reason, the first step in any succession planning is to compare both sets of rules and examine them for inconsistencies. Only when the articles of association and the will are in harmony can it be ensured that your succession wishes actually become reality.
Have both documents reviewed jointly by a lawyer before assuming the effectiveness of your succession plan.
Succession clauses in the articles of association: These options are available.
In partnerships, the succession clause in the partnership agreement primarily determines whether and in what form a share can be inherited. If there is no explicit agreement, the statutory provisions apply, which were fundamentally revised by the reform of partnership law on January 1, 2024. The following types of clauses are common in practice:
- Continuation clause: Upon the death of a partner, the company continues solely with the remaining partners. The heirs are only entitled to a settlement payment, not the partnership itself.
- Simple succession clause: The shareholding passes to all heirs according to their respective inheritance shares. This makes each co-heir an immediate shareholder.
- Qualified succession clause: Succession is limited to a specific, contractually defined group of people, for example exclusively to descendants or a named heir.
- Entry clause: The share does not automatically pass to the heirs, but they are granted the right to join the company by making their own declaration of intent.
The choice of a specific clause depends on your individual objectives: Should the stake remain within the family, should the company be protected from fragmentation of the shareholder base, or should the path be paved for a specifically selected successor? Crucially, the chosen clause must be fully consistent with your testamentary dispositions.
Before making any changes to the articles of association, have the succession clause reviewed to ensure it is compatible with your family and business situation.
Limited liability company (GmbH) holdings and partnerships: Differences in inheritance
The legal form of a company is crucial in determining how company shares can be inherited. In the case of a limited liability company (GmbH), shares are legally freely inheritable (§ 15 para. 1 GmbHG). Upon the death of a shareholder, they pass directly to the heirs without any special succession arrangements. However, the articles of association may contain restrictions, such as the redemption of the share or the obligation to transfer it to a fellow shareholder in exchange for a settlement payment.
The situation is different for partnerships such as GbR (general partnership), OHG (commercial partnership), or limited partnership. Here, the partnership agreement determines whether and to whom the share can be inherited. Limited partnerships have a special feature: while a limited partner's share is usually easily inheritable, the inheritance of a share held by a personally liable partner requires an explicit succession plan.
These differences directly affect the drafting of your will. If you hold interests in various companies with different legal structures, you must examine how the articles of association and your will harmonize with each individual interest.
For each individual investment, have the articles of association or partnership agreement reviewed to ensure they align with your will.
Compulsory share claims and severance payment demands: Financial burdens for the company
Even a carefully drafted succession clause does not offer comprehensive protection against financial risks. Disinherited or insufficiently considered close relatives have a right to a compulsory share of the inheritance pursuant to Section 2303 of the German Civil Code (BGB), the amount of which is based on the value of the estate and also takes into account the value of the shareholding in the company. This claim must be settled in cash and can amount to considerable sums.
In addition, claims for compensation arise from the partnership. If a partner leaves the company upon death and their heirs do not receive a shareholding under company law, they are generally entitled to compensation. These two claims affect the company or the subsequent partners simultaneously and can significantly restrict financial flexibility.
Proactive succession planning addresses these risks in a timely manner. This could include, for example, limitations on the amount of severance pay in the partnership agreement, waivers of inheritance rights with relatives, or financial security through life insurance policies. Crucially, these measures must be coordinated with the will and the partnership agreement without any contradictions.
Have compulsory share and severance pay risks assessed before they unexpectedly affect the company in the event of inheritance.
Coordinate your will and articles of association for tax purposes
The coordination of the articles of association and the will also has significant tax implications. The Inheritance Tax Act provides extensive preferential provisions for the transfer of business assets (§§ 13a, 13b ErbStG). Provided the legal requirements are met, privileged business assets can be transferred completely or partially tax-free. However, the legislator attaches conditions to this preferential treatment, such as holding periods and the continuation of business operations.
A lack of coordination between the two regulatory levels risks the loss of these tax privileges. For example, if the articles of association stipulate the mandatory redemption of a shareholding or its transfer to fellow shareholders, while the will designates a different beneficiary, tax benefits may be lost or subsequent tax liabilities may arise.
For this reason, the tax implications must be considered in the planning from the outset. The articles of association, will, and any lifetime transfers must be coordinated in such a way that both the desired succession plan is implemented and the tax burden for the company and heirs is minimized within the legally permissible limits.
Have the tax consequences of your succession planning reviewed before preferential tax provisions lose their effectiveness due to a lack of coordination.
Succession planning for shareholders: How to implement it
A robust succession plan doesn't develop from a single document, but from the structured interplay of various steps. In practice, the following approach has proven effective:
- Inventory: All shareholdings, company agreements and existing wills are recorded and checked for contradictions.
- Goal definition: They decide who will continue to run the company, who will provide financial support, and what stake should remain within the family.
- Corporate law adjustments: The succession clauses in the articles of association are designed in such a way as to enable your objectives to be achieved.
- Implementation of inheritance law: The will or inheritance contract is precisely tailored to the company agreement.
- Tax and liquidity planning: The consequences regarding compulsory shares, severance payments, and taxes are determined and secured.
- Regular review: The plan will be adjusted if there are changes in family, company, or legal circumstances.
Precisely because corporate law, inheritance law, and tax law are intertwined, the precise coordination of these steps is of central importance. Addressing individual aspects separately regularly leads to inconsistencies that become costly in inheritance cases.
Have your succession planning overseen by a lawyer as a whole concept, so that the articles of association, will and tax consequences mesh together seamlessly.
Conflict resolution among multiple heirs and communities of heirs
If a shareholder transfers their stake to several heirs, a Community of heirs according to §§ 2032 ff. German Civil Code (BGB). This community must, in principle, manage the shareholding jointly – all heirs must therefore decide on the company share together. In practice, this often leads to significant deadlocks: shareholder resolutions cannot be passed if the heirs cannot agree. The situation becomes particularly problematic when the heirs pursue conflicting goals – for example, one heir wants to continue running the company while another aims for a quick sale.
Through qualified succession clauses Such conflicts can be mitigated in the articles of association. One option is the simple heir clause: only the main heir designated in a will or inheritance contract joins the company, while the other heirs receive a settlement. An alternative is the majority heir clause, according to which the heir who inherits the largest share of the estate joins. However, both arrangements require that the testamentary disposition (will or inheritance contract) is consistent with the articles of association. If this consistency is lacking, a legal gap arises that can only be closed through litigation or costly settlements.
Another design option is the Execution of a will pursuant to § 2197 of the German Civil Code (BGB) The testator can stipulate that an executor manage the company shares and exercise the voting rights until the estate is settled. This ensures the company remains operational and prevents inheritance disputes from paralyzing business decisions. The articles of association should explicitly state the permissibility of appointing an executor and clarify whether the executor is bound by instructions from the heirs.
In practice, a Mediation clause The articles of association often stipulate that out-of-court proceedings are mandatory in the event of disputes between heirs. Particularly in family-owned companies, emotional factors often hinder a substantive agreement; neutral mediation frequently leads to faster and more cost-effective solutions than lengthy litigation. If you, as a shareholder or heir, are facing such a situation, you should seek legal advice promptly. A lawyer will analyze your situation and develop a strategy that considers both corporate and inheritance law interests. Contact a lawyer for expert advice on conflict resolution within communities of heirs.
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Frequently Asked Questions:
The articles of association take precedence. Succession clauses in the articles of association prevail over conflicting testamentary provisions. For example, if the articles stipulate that a share accrues to the remaining partners, a will cannot effectively transfer this share to another person. Therefore, a consistent and unambiguous agreement between both documents is essential.
Yes. Shares in a limited liability company (GmbH) are legally inheritable according to Section 15 Paragraph 1 of the German Limited Liability Companies Act (GmbHG) and pass to the heirs upon the death of the shareholder. However, the articles of association may contain restrictions, such as the redemption of shares or an obligation to transfer them against compensation. Therefore, reviewing the articles of association is essential.
This depends on the provisions in the partnership agreement. If a succession clause is missing, the statutory provisions apply, which were revised by the reform of partnership law on January 1, 2024. Depending on the agreed clause, the partnership continues without the participation of the heirs, the share is transferred to all or selected heirs, or the heirs have a right of entry.
A qualified succession clause stipulates that only a group of people defined in the contract is entitled to inherit the share, for example, only a specific descendant. The other heirs receive a financial settlement. This clause requires precise coordination with the will to ensure that the named person actually acquires the share through inheritance.
Yes, partially. If your will assigns an heir a shareholding that differs from what the articles of association stipulate, this provision is ineffective. The heir will then only receive a settlement payment instead of the shareholding. This risk can be avoided by reconciling both documents beforehand.
Close relatives who have been disinherited or inadequately provided for have a right to a compulsory share of the inheritance under Section 2303 of the German Civil Code (BGB). This share is also calculated based on the value of the company shareholding and must be paid in cash. Such claims can strain the company's liquidity and should be factored into planning at an early stage.
If a shareholder dies and the heirs do not succeed to the share under company law, they generally have a claim to compensation. The amount of this compensation is determined either by the articles of association or by statutory provisions. While the articles of association may contain restrictions on the compensation, these restrictions must be legally valid.
Business assets are subject to special tax benefits under inheritance tax law (§§ 13a, 13b ErbStG). Under certain conditions, such as compliance with holding periods and the continuation of the business, privileged business assets can be transferred fully or partially tax-free. A lack of coordination in succession planning can jeopardize these privileges.
You can revoke or amend a will yourself at any time. An inheritance contract, on the other hand, creates a legally binding agreement with the other parties and ensures a higher degree of reliability – especially if a designated successor assumes certain obligations in return. Which form of agreement is right for you depends on your individual circumstances and the level of legal binding effect you desire.
Legal advice is recommended as soon as you become a shareholder and wish to bequeath assets. Corporate law, inheritance law, and tax law are so intertwined that discrepancies often go undetected without professional assistance. Drafting a timely and coordinated articles of association and a will ensures that your provisions are actually enforced in the event of your death and that the company does not face financial difficulties.
