Succession of generations of a sole trader
The succession of generations of a business often takes place by gift, inheritance or will. During the succession of generations, it is important that both donors and recipients have clear roles in the business.
When your sole trader is transferred to a new owner by gift, inheritance or will, it is called a transfer of beneficial ownership.
Gift
A transfer is a gift if
- you give away your sole trader without getting anything in return
- there is a gift intention
- it is voluntary
- the gift has been handed over.
Sometimes the recipient provides some compensation, for example by taking over existing loans, in connection with the gift. If the compensation is lower than the market value, the transfer is still normally considered as a gift.
Once you have transferred your business, you must deregister your sole trader with the Tax Agency, and you can also change the holder with the Companies Registration Office.
Deregistering a sole trader in the event of a generational change
Inheritance and wills
When an individual trader dies, the business assets and liabilities go to the estate. As a party to an estate, you are responsible for assets and debts and for accounting for taxes and fees until the estate is distributed.
The estate is distributed when the parties have divided the assets among themselves. If you are the sole party, the estate will have been registered when the Tax Agency has registered the inventory of estate.
If the estate has not been settled by 1 January of the year following the death, you should contact the Tax Agency to register the estate. The Tax Agency will then assign a registration number to the estate. You should use this number when reporting taxes and charges such as F-tax, VAT and employer's contributions.
When a sole trader dies, this must be reported to the Companies Registration Office if the company name is registered there. All parties to the estate must sign the notification. The estate inventory identifying the parties to the estate does not need to be submitted. If an estate administrator has been appointed, he or she can sign the notification on behalf of the estate. The District Court's appointment of the administrator must be included.
The new owner must register the activity with the Tax Agency and may also register the business name with the Companies Registration Office.
A succession of generations presents many challenges
- Involve the whole family in the change of ownership so that everyone has a say.
- The person who will take over management needs appropriate training. Working in another company for a while is also good.
- It is advantageous for the next generation to get to know the different parts of the family business before taking over, for example through a trainee programme. A mentor, who is not a member of the family, can also be very helpful.
- Distinguish between ownership and operational management. Interested children may well take over part of the ownership, without taking operational positions in the management of the company.
- If you remain in the business after the change of ownership, it is important that you can interact constructively with your children in their new roles as owners and/or managers.