Engage in your own business is an exciting process in which you put all your effort and enthusiasm, but whathappens when you inherit a family business?
Inheriting the company can be a complicatedprocess, especially when a documented succession plan is not available and no steps have been taken to make a‘sweet’transition to the next generation of the family. This is usually more common when the company is inherited as a result of the owner’s death, and not from a retirement.
Aware that there are many doubts that may exist about it, in this post we tell you how to inherit the family business trying to answer all the questions.
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What to do when inheriting the family business?
The first step in inheriting the family business is to accept theinheritance, which entails a number of rights and obligations for the heirs, who will automatically become the new owners of the company.
This means that once the inheritance is accepted, heirs and new owners will be responsible for potential debts,in addition to business management and all charges in the inheritance.
Without a doubt, by inheriting a family business it is best for the company to havea succession plan or a family protocol, since in this way everything will be tied up, explained in a clear way and can be continued with the business with the authorization of the owner, in addition to having been signed by the heirs.
Such documents are not regulated in the successor regulations,since these are voluntary agreements between the members of the company, which, as they are contracts, have the force of law between the different parties.
The family protocol aims to regulate business organization and family relationships, while the succession plan sets out how the substitution of persons will occur, so as not to harm the company. But the statistics are not very positive at this point, since 80%of companies do not have a succession plan or family protocol, which complicates things and lengthens the process.
How to inherit a family business without a succession plan or family protocol?
The first thing to do is to differentiate between inheriting a company from a single person or multiple family members. Obviously it will always be much easier when there is only one heir, because when it comes to several people, they must agree on all points.
In the event that several heirs are, it is essential that everyone reach basic agreements on business management and succession of positions since otherwise, in addition to lengthening the process, the company could lose value as it will not be being managed properly.
Tax benefits of inheriting a family business
If all the formalities are carried out well by inheriting the company and all obligations are fulfilled, the heir(s) may have a bonus of up to 99% in the Inheritance Tax,as the family companies are rewarded. However, in return the heirs must take over the company for a period of between 5 and 10 years,depending on each Autonomous Community.
Heirs shall also be spouses, biological children or adopted of the deceasedperson, and in the absence of ancestors, adopters or collateral family members until third degrees.
On the other hand, the deceased person must also meet a number of requirements for exemption of up to 99% in inheritance tax:
- Effective exercise of management functions by itself, or by the family group.
- That the remuneration of the management functions of the performer or the member of the family group who exercises them, is more than 50% of all their income from work and economic activities.
- Have a 5% individual or 20% stake with your household.
If you are going to inherit the family business, we hope to have solved any possible doubts you may have about it. Otherwise, do not hesitate to contact us and our advisors will offer you all the help you need.