Succession via Donation of GmbH Shares

The process of transferring an operational family business is usually very different from the donation of shares in a GmbH that only serves as a holding GmbH, i.e. through which other shareholdings are held.

Succession to the shareholder position of a family business in the legal form of a GmbH often goes hand in hand with entrepreneurial co-responsibility. The recipient of the gift therefore not only receives an asset, but must also “fit in” with the company - both personally and in terms of their qualifications. He or she will then follow in the footsteps of the previous shareholder and possibly manage the company as managing director.

Our practical experience shows that without early planning within the family circle and, in particular, the involvement of all stakeholders and their interests, such a handover will not succeed. The consequences of omitted or unsuccessful communication within the family circle encourage envy and resentment. In the worst case, this lays the foundation for years of bitter dispute within the family. It is obvious that the company also suffers as a result.

In contrast, a shareholding in a holding GmbH is often only a purely financial investment if the holding GmbH is only used for asset management (e.g. through minority shareholdings in various target companies) and has no operational activities. The donation of shares in such a GmbH holding or “family GmbH” is therefore comparatively simple and usually associated with significantly less emotion.

Although the donor wants to protect his family with the transfer of the GmbH shares, he often also pursues the goal of being able to continue to influence his GmbH for a certain period of time. In addition, the donor often wishes to be secured and provided for despite the gift. Various legal options are available for this, e.g.

There are also numerous other options. With a little creativity, the right succession solution can be designed for every entrepreneur.

The gift of GmbH shares is generally subject to gift tax in Germany. However, tax- free allowances apply within the family circle: Assets amounting to EUR 500,000 (spouse) or EUR 400,000 (children) can be given away tax-free every ten years.

In the case of valuable GmbH shares, however, this is little consolation. Within the scope of the tax-free allowances, the donor will then only be able to transfer a small proportion of their shareholding as a gift every ten years.

In individual cases, however, the effects of gift tax can be mitigated by valuing the GmbH shares favorably. This is because there is generally no one correct value for GmbH shares that are not publicly traded.

For long-established GmbHs, the provisions of the German Valuation Act do help, and there are various valuation methods, but in specific cases, special features will often have an influence on the valuation of the company.

Particularly in the case of start-up companies that do not yet have a marketable product on offer, the classic valuation methods usually do not provide useful results. This in turn opens up opportunities for coordination with the tax authorities regarding the value of the GmbH shares.

In individual cases, interesting tax and non-tax benefits can also be achieved by involving foundations.

For example, it is conceivable to transfer the GmbH shares in their substance tax-free mainly to a charitable foundation, while the distributions flowing from the shares should mainly accrue to the family members receiving the gift or to a family foundation.

Such a foundation solution can make sense not only from a tax perspective. Particularly in cases where the family members do not wish to become shareholders or should not do so in the opinion of the donor, it makes sense to “interpose” a family foundation. In this way, the family members can be provided for in the long term without being burdened with a shareholder role in the GmbH.

Incidentally, the fact that tax pitfalls must be taken into account if the shareholder wants to give away his GmbH shares does not only apply to gift tax. The gift of GmbH shares can also sometimes have surprising consequences in terms of income tax: For example, if the GmbH shareholder is also the owner of a property that he has leased to his GmbH as a so-called essential operating basis and he now gives his shares in the GmbH to his children as a gift, he automatically, albeit often unknowingly, unbundles the so-called business split. As a result, the hidden reserves in the property must be disclosed and taxed without the donor having received a single euro. It is obvious that such unintended tax consequences should be avoided through a planned approach.