Shareholder as testator
If a decedent was active as an entrepreneur in some way during his lifetime, after his death, for the settlement of his estate, in addition to inheritance law, company law also applies.
What happens to my sole proprietorship after my death?
1. continuation of the business
If the decedent has not made a testamentary disposition, the sole proprietorship is included in the estate as a tangible entity in accordance with § 1922 BGB. If several persons inherit the estate, the resulting community of heirs becomes the owner of the company.
The undivided community of heirs can consequently continue the sole proprietorship. It should be noted that the mere continuation of the business does not constitute an implied conclusion of a partnership agreement and therefore the sole proprietorship is not automatically converted into a general partnership or a partnership under civil law.
2. break-up of the company
In principle, the objective of a community of heirs is its dissolution. On the basis of this, each individual person of the community of heirs can demand the break-up at any time.
In the process of inheritance division, each co-heir should receive his or her corresponding inheritance quota. However, if the assets of the estate are not liquid, but essentially consist only of the company, it will inevitably be necessary to break up and sell the company in order to be able to divide the estate according to the quotas.
If this is not necessary, the principle of unanimity of all heirs in the management of the company by the undivided community of heirs often leads to problems. According to Section 2040 of the German Civil Code, heirs may only jointly dispose of one object of the estate. In practice, this often leads to conflicts of interest within the community of heirs when it comes to important decisions relating to the company.
To prevent potential disagreements, it is recommended that a third party who is not a co-heir be granted power of attorney to be entered in the commercial register.
It should also be noted that the assertion of compulsory portion rights can also lead to considerable liquidity difficulties for the company. This is because compulsory portion claims against the community of heirs are due immediately. In order to settle these claims, it may also be necessary to break up and sell the company. In order to prevent the company from being broken up by the assertion of compulsory portion claims, a declaration of waiver of inheritance or an isolated waiver of compulsory portion is often recommended.
In addition, under certain circumstances, the heirs' lack of qualifications can make it considerably more difficult or even impossible to continue the business. In the case of craft businesses in particular, the special provisions of the Crafts Code must be observed. According to the Crafts Code, a crafts business can only be continued after the death of the master craftsman by his spouse, the child entitled to inherit up to the age of 25, the executor of the will, a guardian of the estate, estate administrator or estate insolvency administrator. If one year has already passed since the date of death of the testator, the continuation of a craft business is only possible if the business is managed by a craftsman who meets the registration requirements of the register of craftsmen.
How can I protect my sole proprietorship?
By drawing up a will, the testator can avoid the break-up of his business by arranging for a successor for his business at an early stage or by setting up a partnership or corporation.
What happens to my share in a partnership?
Shares in corporations, primarily shares and GmbH business shares, are also inheritable.
The situation is different for a partnership under civil law within the meaning of Section 705 of the German Civil Code. If the partnership agreement does not expressly provide for continuation after the death of a partner (Section 727 (1) BGB). A deviating regulation can be agreed by way of a so-called continuation clause in the partnership agreement. Thus, if such a clause has been agreed, the GbR can be continued after the death of a partner. The shares of the deceased partner fall to the other partners (§ 738 Paragraph 1 BGB).
Depending on the form of the continuation clause, the heirs of the deceased partner can assert claims for compensation in accordance with §§ 738-740 BGB.
The situation is different if the deceased was part of a partnership (OHG, KG). Here the death of a partner does not lead in principle to the dissolution of the partnership. The partner leaves the partnership through his death. His share in the company accrues to the remaining partners. A corresponding continuation clause is superfluous in such a form of partnership. The heirs of the deceased do not automatically become partners of the deceased.
However, it is possible to enable the heirs to enter into the partnership position by means of an entry or succession clause or, if applicable, a so-called qualified succession clause.
An entry clause is an agreement in the partnership agreement that after the death of a partner, his heir or a third party designated by the deceased has the right to enter the partnership in place of the deceased.
By means of a succession clause, the share in the company becomes hereditary and the heir directly receives a share in the company. If there are several heirs, the principle of universal succession applies, which means that the heirs acquire the company share as a community of heirs. However, it should be noted that by way of special legal succession, the community of heirs as a whole does not receive the company share, but each heir acquires a company share as an individual in accordance with his or her share in the estate.
Furthermore, it is possible to designate only one or certain heirs as successors by means of a qualified succession clause.