The family transmission of a business is often the guarantee of its sustainability. One or more children taking over the company upon the retirement or death of the representative of the previous generation, often the founder. However, it is better to think before taking over the family business, to be sure not to get lost in an entrepreneurial or inheritance impasse, and to ask yourself the right questions…
Think like a business creator
As a general rule, the activity of a family business reaches a form of maturity. Indeed, created twenty, thirty years or more ago, the company has already been operating for more than a generation. Its economic model therefore appears well established. However, the buyer must ensure that this business remains sustainable in the face of recent societal changes and technological accelerations. If this is not the case, the company must be able to renew itself – like the saddler Hermès which reinvented itself as a leather goods manufacturer when the automobile supplanted horse-drawn traction.
Consequently, the buyer of the family business must think like a true business creator. He must verify the validity of the business model for the future. Above all, he must analyze with particular attention the evolution of the accounts and balance sheets over several financial years. If turnover or margins are falling regularly, it is better to avoid making a commitment, unless you deploy a clear strategy to reverse the trend (the launch of new products or services, for example). If, on the contrary, the indicators remain stable, the adventure is certainly worth pursuing.
Is the transfer possible from a financial perspective?
The family business represents capital: relatively modest if it is a craft activity or a small business, this capital often becomes very substantial for an SME of a certain scale. Therefore, the takeover of the company must be part of an overall asset transfer plan, because the new manager will become, in the more or less long term, the owner of the structure.
In addition, you should not neglect the tax impact of the transfer. Fortunately, current legal tools can minimize the amounts owed and make this transition almost painless. Advance donations make it possible to subtract a significant part of the value of the company from inheritance, especially since the tax code allows them to be renewed every fifteen years. If this is not enough, the Dutreil system makes it possible to very significantly reduce taxation, subject to conditions of capital stability.
Furthermore, the presence of co-heirs (generally siblings) can generate tensions. If they do not wish or cannot invest in the takeover, you must ensure that you have the financial capacity necessary to disinterest them, in order to maintain equality between the heirs. If they agree to participate in the takeover, the agreement should be sealed with a shareholders’ agreement (a mandatory document under the Dutreil system).
Definition of the Dutreil device
The transfer of securities (shares or shares) of companies and individual businesses carrying out an industrial, commercial, artisanal, agricultural or liberal activity can benefit from a major tax exemption. This measure applies both to a transfer by donation and by inheritance, and whether the transaction concerns full ownership or a dismemberment of ownership (bare ownership / usufruct).
This tax exemption amounts to 75% (i.e. ¾) of the value of the securities or the company.
What are the conditions of exemption from the Dutreil pact for companies?
- Eligible activity: The company whose securities are the subject of a collective commitment must carry out an industrial, commercial, artisanal, agricultural, liberal or holding activity.
- Collective conservation commitment:
- The partners must enter into this commitment for a minimum period of two yearsand this must run on the day of transmission.
- The deceased or the donor may enter into this commitment for himself and his successors free of charge, either with other partners, or alone for himself and his successors.
- The commitment must cover, throughout its duration, at least 17% of financial rights and 34% of voting rights if they are unlisted companies (or at least 10% of financial rights and 20% of voting rights for listed companies).
Attention ! At the time of transmission of titles:
- Individual commitment: Each heir, donee or legatee wishing to benefit from the Dutreil system must individually undertake to keep the titles transmitted for a minimum period of four yearsfrom the end of the collective commitment.
- Management function: One of the partners signing the collective commitment (or one of the donees, heirs or legatees) must exercise a management function within the company for the entire duration of the collective commitment and during the three years which follow the transmission.
By respecting all of these conditions, the heirs fully benefit from the 75% tax reduction on the value transferred.
