For the sake of business sustainability and stability, several measures encourage entrepreneurs to pass their business on to their loved ones.
Though which form should you give your business to the children?
An entrepreneur who wishes to transfer the ownership of his business without any financial compensation, shall opt for a donation .
- In the presence of only one child, it will be qualified as being a simple transfer.
- If he has several children, a shared donation will be recommended; this is the only solution so that the passed-on property is definitively valued on the day of the act and not reassessed during the death. Everything is possible: give company shares to all of your children; or only to a single transferee, the other children receiving other property (real estate for example); or last but not least, if the company constitutes the only asset of the patrimony, give it to a single child, after which he shall decide to compensate the others through a balance (payment periods may be granted to him).
Can a sole proprietorship be transferred?
Yes, it can be perfectly be passed on, whether it is artisanal, commercial, agricultural. But since it constitutes a "whole", made up of intangible elements (clientele, right to lease , trade name, sign, patent, etc.) and tangible (tools, equipment, etc.), it can only be given in its entirety.
On the flipside, the social rights of a company have the advantage of being able to be passed on gradually. This is the reason why, it will often be advantageous to first transform your sole proprietorship into a company.
How can the entrepreneur ensure income after the sale?
We must not lose sight of the fact that a new life is going to start, namely retirement. There it is important to think about the transmission method, that leaves the manager with the means of subsistence. You can consider several options with the help of a notary:
- Combine donation and sale. Nothing prevents you from giving your children only part of the shares in the company and from selling or keeping the rest of them.
- Think about dismemberment. Only the bare ownership of the shares is passed on to the children, the entrepreneur retaining the usufruct . The turnover of the company must be sufficient enough to ensure the income of the transferor but also the one of the child who is taking over the bare owner.
- Separate professional real estate. If the entrepreneur owns the business premises, he can create a real estate company (SCI) and bring the real estate there. The SCI will be able to rent out the premises to the company and the donee will be able to retain a source of income through the rents which are received by the SCI.
What will the tax cost of the operation be?
By combining several provisions, the entrepreneur can pass on his business on to his children tax free.
- Each of them benefits from a reduction of 100,000 € per parent. This means that a 200,000€ business can be given to two children without any transfer taxes.
- Children can also round off a pact, known as "Dutreil" so that the sole proprietorship is exempt from any inheritance or donation tax up to 75% of its value (see the Dutreil system and family business transfers document).
- If the value of the company justifies so, it is possible to spread out the transmission. This makes it possible to optimize the parent/child allowance which is reconstituted every 15 years.
Is it possible to give your business to employees?
At times it is difficult to find a buyer, especially for very small businesses. To save the business and preserve jobs, the manager can choose to transfer his business free of charge to one or more employees. Favorable taxation favors considering the elements peacefully.
If the employee benefits from an indefinite full-time contract for more than two years or an apprenticeship contract, he shall benefit from a reduction of 300,000€ for the calculation of transfer rights. This allowance applies to donations of artisanal funds, business assets , liberal clienteles, or shares of a company exercising an industrial, commercial, artisanal, or liberal activity.
A word of caution for entrepreneurs with children. This donation must not affect their rights. The law requires that a minimum part of the heritage be should be returned to them, this is known as a reserved share. Therefore, if the business is the entrepreneur's only valuable asset, the children will have to give up their rights. Failing that, they may apply an action to reduce. One can find solutions through the notary’s help. Transferring a company brand is an important stage in the CEO’s life. And even if the law has created a favorable transmission context, the head of the company needs to properly mull over his decision, each solution leads to major legal and fiscal consequences. The notary is an ideal interlocutor to initiate this reflection in a peaceful manner.
- My paternal grandfather has just died. My predeceased father had worked on my grandfather's farm without ever being paid. Can I claim my father's deferred salary claim in my grandfather's estate?
- I am a partner of an SCI that was incorporated in 1950 for a period of 50 years. No extension has been made at the end of the term, but SCI is still active today. Is it possible to regularize a posteriori?