Succession planning for business owners without children begins with an uncomfortable finding: there is no obvious heir to take over the business, and the law provides no solution for this case that suits your company. Anyone who makes no arrangements leaves what has been built up over decades to more distant relatives or, in the extreme case, to the state. The following sets out which routes for handing over a business exist, which legal and tax questions each route raises and what must additionally be considered if you yourself move abroad or a successor or buyer is based there. How exit tax and gifts to family members relate to one another is dealt with in our article on business succession when a shareholder emigrates. The focus here is on the question of who takes over at all when the family is not available as successor.
Legal position: September 2026.
Succession Planning without Children: Why the External Solution Is Gaining Importance
According to the KfW Nachfolge-Monitoring Mittelstand 2025 (the SME succession monitor of the German state development bank KfW), around 109,000 companies per year in Germany are planning a handover until the end of 2029, while around 114,000 per year are considering closing down. For a good half of owners, handing over to a family member remains the preferred option, but in practice the external solution is becoming increasingly important. Anyone who has no children, or whose children are not interested, is therefore no exception. External succession is not a last resort, but it requires more lead time and contractual work than a handover within the family.
What Happens without Arrangements: Statutory Succession and the State
Without a will or an inheritance contract (Erbvertrag, a binding contract on succession concluded before a notary), statutory succession applies. If you are married and have no children, your spouse inherits one half alongside your parents or, if they have died, alongside your siblings and their descendants, and under the matrimonial property regime of the community of accrued gains (Zugewinngemeinschaft) an additional flat-rate quarter (Sections 1931, 1371 BGB, German Civil Code). The remainder is distributed among the relatives of the second order. If you are unmarried, your partner inherits nothing at all; only parents, siblings, nieces and nephews inherit, followed by grandparents and their line. If there is no statutory heir, the assets pass to the state under Section 1936 BGB. For a business, these variants are often problematic because a community of heirs (Erbengemeinschaft) may arise that can only with difficulty run the business jointly.
Parents and the spouse also have a claim to a compulsory portion (Pflichtteil) if you disinherit them by will (Section 2303 (2) BGB). A compulsory portion is a monetary claim which, where the estate consists of a business, can put a heavy strain on liquidity. How this works with assets abroad is explained in our article on the compulsory portion and foreign assets.
The Legal Form Determines Whether the Business Can Be Inherited
The legal form determines what happens on death. In the case of a sole proprietorship, the business passes to the heirs together with its liabilities. GmbH shares are inheritable under Section 15 (1) GmbHG (German Limited Liability Companies Act), but the articles of association can provide for redemption (Einziehung), transfer restrictions (Vinkulierung) and compensation. In the case of a general partnership (OHG) and of the personally liable partner of a limited partnership (KG), death leads under Section 130 HGB (German Commercial Code, in the version in force since 1 January 2024) in principle to the partner’s withdrawal, unless the partnership agreement provides otherwise; if a limited partner dies, the partnership is continued with their heirs in the absence of a different arrangement (Section 177 HGB). Continuation and succession clauses and the amount of compensation are therefore decisive. You should review these agreements before talking to buyers.
First Step: Stocktaking and Objectives
Before choosing a route, clarify four things. First, the value of the company, because it is the basis of any negotiation, whether with managers or investors. Second, the dependence on the owner: if customer relationships, know-how and decisions depend on you alone, a successor is buying a risk and will push the price down. A second management level and documented processes are among the most effective preparations and take years. Third, your objectives: the highest price, continuity for employees and the location, or a gradual exit. Fourth, your retirement provision: are the after-tax proceeds sufficient for your old age, and how does this relate to a later life abroad? See our article on German pension insurance and emigration. One to five years from the first consideration to completion is realistic; the best price is rarely achieved under time pressure.
The Routes for Handing Over at a Glance
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| Route | Who takes over | Suitable if | Typical risk |
|---|---|---|---|
| Management buy-out (MBO) | Manager from within the company | Continuity and trust matter | Financing the purchase price |
| Management buy-in (MBI) | External manager | No successor available internally | Fit with team and culture |
| Strategic buyer | Competitor, supplier | Price more important than independence | Integration, brand disappears |
| Financial investor | Private equity firm, family office | Growth, transition over several years | Resale after a few years |
| Employees or cooperative | Workforce | Skilled trades, strong workforce | Capital, management structure |
| Sale against instalments or annuity | Any buyer | Buyer has little equity | Default risk, tax consequences |
| Leasing out the business | Lessee | You want to retain income | Termination, change of lessee |
| External managing director | Employed or participating management | You remain the owner | Interference, disputes over shareholdings |
| Foundation | Foundation as owner | Continuity beyond your lifetime | Effort, appointment of boards |
Sale to Managers, Strategic Buyers or Investors
In an MBO, the buyers know the processes and customers but rarely bring enough equity. The gap is often closed by vendor loans, private equity firms or public funding; clarify early whether the financing will hold before investing time in negotiations. In an MBI, the manager comes from outside; a CV says little about whether someone will cope in a business of your size, so getting to know the team and the business before signing makes sense. Strategic buyers often pay more because they value the business together with their own, but in return they integrate it more strongly. Financial investors often take over together with the management and typically plan a resale after a few years; if the location and workforce matter to you, raise this early and have commitments secured in the contract. A partial sale in stages allows you to remain on board for a transitional period, but carries the risk of lacking a clean break.
Instalments, Annuities, Leasing and External Management
If the purchase price is deferred or paid in instalments or as an annuity, tax law treats this differently from a sale against immediate payment; the choice between immediate taxation and ongoing subsequent taxation should be clarified with your tax adviser in advance. You must also provide for what happens to outstanding instalments on death, because they form part of the estate and pass to your heirs. If you lease out the business, you continue to receive income, but it stands or falls with the lessee’s success; if the lessee terminates, the search starts all over again. For inheritance tax purposes, leasing to third parties can jeopardise the relief, because leased assets may qualify as administrative assets (Verwaltungsvermögen); this must be examined in the individual case. If you appoint an external managing director and remain the owner, this often fails because the owner continues to interfere in day-to-day business. If you give management a stake in the company, provide contractually for what happens in the event of departure or dispute.
Foundation as Successor Vehicle
A company-affiliated foundation can hold the business together permanently and secure your retirement provision. However, it is designed to last: a purpose defined too narrowly can later paralyse the company, and the boards should be staffed with professionally suitable persons, not only with relatives. For tax purposes: the transfer to a foundation is in principle subject to inheritance or gift tax; it is exempt essentially in the case of a foundation recognised as charitable (Section 13 (1) no. 16 (b) ErbStG, German Inheritance and Gift Tax Act), while for business assets the relief rules of Sections 13a, 13b ErbStG may apply. A family foundation is also subject to substitute inheritance tax (Erbersatzsteuer) at intervals of 30 years (Section 1 (1) no. 4 ErbStG). More on structure and international aspects can be found in our article on the German family foundation and asset protection.
The Sale Process: What Sellers Need to Know
A professional sale process often takes six to nine months, counted only from the start of approaching the market; the preparation comes before that. The initial approach is usually made on an anonymised basis, with details following only after a non-disclosure agreement. You should plan deliberately when to inform the workforce.
In due diligence, buyers examine finances, legal matters, tax and the market. In the purchase price, a distinction is made between the value of the operating business (enterprise value) and the amount that reaches you (equity value): in simplified terms, financial debt is deducted and existing cash is added. Several clauses have a considerable influence on the result:
- Working capital adjustment: If current assets at handover are below the agreed level, the purchase price falls.
- Earn-out: Part of the purchase price depends on later targets; this is a risk for you, so the fixed portion at completion should be as high as possible.
- Reinvestment (roll-over): The buyer requires you to reinvest part of the proceeds.
- Vendor loan: You defer part of the purchase price and bear the credit risk; term, interest and security are a matter for negotiation.
- Warranties: Customary are assurances on title to the shares, the accuracy of the financial statements and tax; liability should be limited in time and amount.
Between signing (notarisation) and closing (completion with payment and transfer), several weeks often pass because conditions such as bank releases must be fulfilled. In an asset deal, employment relationships pass to the acquirer under Section 613a BGB; in a sale of company shares, the employer remains the same. The choice between a share deal and an asset deal has considerable tax consequences and depends on the legal form and the hidden reserves.
Tax: Sale, Gift, Death
Sale during Your Lifetime
On the sale of a sole proprietorship or a partnership interest (Mitunternehmeranteil), the gain is a capital gain on disposal under Section 16 EStG (German Income Tax Act). Anyone who has reached the age of 55 or is permanently unable to work can apply once in their lifetime for an allowance of EUR 45,000, which is reduced from a gain of EUR 136,000 (Section 16 (4) EStG), and for reduced taxation (56 % of the average tax rate, at least 14 %) for gains up to 5 million euros (Section 34 (3) EStG). If you sell GmbH shares held as private assets and held an interest of at least one per cent within the last five years, Section 17 EStG applies with the partial income method (Teileinkünfteverfahren). If a holding company holds the shares, capital gains are in principle 95 % tax-exempt under Section 8b KStG (German Corporation Tax Act). The choice of structure should be settled before the sale, not afterwards.
Gift and Inheritance: Tax Classes II and III
Tax class II applies to nieces and nephews, tax class III to friends and unmarried partners. Under Section 16 ErbStG, both have an allowance of only EUR 20,000. Under Section 19 ErbStG, the tax rate in tax class II for acquisitions of more than EUR 75,000 up to EUR 300,000 is 20 % (up to EUR 75,000: 15 %), and in tax class III for acquisitions up to 6 million euros it is 30 %.
Example (entirely fictitious): Petra, unmarried and childless, appoints her partner Emre as her heir and leaves private assets of EUR 300,000. After deducting the allowance of EUR 20,000, EUR 280,000 remains; at 30 %, this results in tax of around EUR 84,000 (simplified, without hardship relief). If a nephew were the heir, the rate would be 20 %, that is, around EUR 56,000. A spouse, by contrast, would be in tax class I with an allowance of EUR 500,000.
For business assets, Sections 13a, 13b ErbStG provide for relief of 85 % (standard relief, Regelverschonung) or 100 % (optional relief, Optionsverschonung), combined with payroll and retention periods of five and seven years respectively. Smaller businesses are wholly or partly exempt from the payroll test. For optional relief, administrative assets may not exceed 20 %. Where the acquisition exceeds 26 million euros, special rules apply. Importantly, these reliefs require the acquirer to continue the business. If your heirs sell the company within the retention period, the relief is withdrawn retroactively on a pro rata basis for the remaining years of the period (Section 13a (6) ErbStG); this applies to both standard and optional relief. For acquirers in tax classes II and III, the tariff limitation under Section 19a ErbStG also reduces the tax on qualifying business assets. However, the legal position is not definitively settled: on 13 October 2026, the Federal Constitutional Court will hold an oral hearing on the relief for business assets (1 BvR 804/22), and on the preceding day it will also hear abstract judicial review proceedings concerning further provisions of the Inheritance and Gift Tax Act (1 BvF 1/23). For succession plans that rely on this relief, the current position must therefore be checked in each case.
Successors who are not family members therefore hardly benefit from personal allowances on death. This is a common reason to sell a company during one’s lifetime and bequeath only the proceeds, or to choose a structure with a legacy (Vermächtnis) and execution of the will (Testamentsvollstreckung) that is calculated through with the tax adviser. In addition to the inheritance tax questions with an international connection, see our article on German inheritance tax and double taxation treaties.
Unclear legal position: obtain a binding ruling. Where the German tax treatment is not settled or may foreseeably change, an application to the tax office for a binding ruling (verbindliche Auskunft, Section 89(2) of the German Fiscal Code, AO) should come before implementation. For a precisely defined transaction that has not yet been carried out, the ruling binds the tax office, and it is subject to a fee. In our view, a tax adviser who does not recommend this in such a situation is acting irresponsibly: the client risks having to litigate over the outcome years later, which costs time and money.
International Aspects: If You Move Away or the Successor Lives Abroad
Emigrate First, Then Sell: A Widespread Misconception
Many business owners hope to save tax on the sale gain by emigrating. For shares in corporations, however, Section 6 AStG (German Foreign Tax Act), subject to its conditions, already treats emigration as equivalent to a sale and taxes the hidden reserves on a notional basis. A later sale abroad does not in principle change this. The details are set out in our article on exit tax for GmbH shareholders. Anyone who emigrates as a sole trader or freelancer should also check whether the permanent establishment (Betriebsstätte) remains in Germany; see our article on business relocation abroad for freelancers.
Inheritance Tax after Emigration and Successors Abroad
After emigrating, German nationals remain subject to unlimited inheritance tax liability for another five years (Section 2 (1) no. 1 (b) ErbStG); thereafter, taxation is linked, among other things, to domestic assets and to the person of the acquirer. For the relief under Section 13b (1) ErbStG, it also matters where the business assets are located: qualifying assets are domestic business assets and business assets in a permanent establishment in the EU or the EEA, and in the case of shares in corporations also shares in companies with their registered office or place of management in Germany, the EU or the EEA, provided there is a shareholding of more than 25 %. Business assets in third countries are in principle excluded from the relief. After the five-year period has expired, extended limited tax liability (erweiterte beschränkte Steuerpflicht) under Section 4 AStG can also play a role for domestic assets. If a successor lives abroad, questions of residence and of the law applicable to the succession arise as well; see our articles on international succession law and emigration and on wills and succession law when living abroad. For questions of foreign law itself, a local adviser should be consulted.
Management and Capacity to Act from Abroad
Anyone who continues to act as managing director should arrange for representation and availability; see our article on relocating abroad and the managing director’s liability and, where the registered office or management is relocated, our article on GmbH relocation abroad.
Planning for Emergencies
Regardless of the handover plan, you need an emergency arrangement in case you are suddenly unable to act. This includes a valid will, where appropriate with execution of the will, an advance power of attorney (Vorsorgevollmacht) that also covers business matters, an emergency folder with access data and contact persons, and representation by a registered authorised signatory (Prokura) or management. For the power of attorney in cases abroad, see our article on the advance power of attorney when living abroad. Unmarried partners and friends inherit nothing without a will.
Typical Mistakes
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| Mistake | Consequence |
|---|---|
| Starting too late | Sale under time pressure, lower price |
| Company remains dependent on the owner | Discount or no buyer at all |
| Partnership agreement or articles not reviewed | Shares cannot be transferred as planned |
| Examining tax only after the contract | Structure can no longer be changed |
| Will and sale plan not coordinated | Heirs receive shares instead of proceeds, or vice versa |
| Emigration and sale not planned together | Exit tax despite sale abroad |
| Instalments without provision for death | Dispute over outstanding claims |
Conclusion
Without children there is no automatic solution, but there are many suitable routes: MBO, MBI, sale to strategic buyers or investors, instalment or leasing models, external management or a foundation. Which one fits depends on your objectives, the company structure and the tax burden. From a legal perspective, the partnership agreement or articles of association, the will and the power of attorney are central; from a tax perspective, the difference between a sale during your lifetime and a transfer on death, where nieces, nephews and partners have only small allowances. Anyone who also moves abroad or has a successor abroad must consider exit tax, the law applicable to the succession and the location of the business assets together.
FAQ
What happens to my company if I have no children and make no arrangements?
Statutory succession applies. A spouse inherits alongside parents or siblings; for unmarried persons, only relatives inherit. If there are none, the estate passes to the state (Section 1936 BGB). The company is then often administered by a community of heirs or liquidated.
Can I transfer my company tax-free to employees or a friend?
Not without further ado. Friends are in tax class III with an allowance of EUR 20,000. Relief under Sections 13a, 13b ErbStG may be available for business assets, but requires continuation of the business and compliance with payroll and retention periods. A sale or a transfer for consideration follows its own rules.
How long does succession outside the family take?
One to five years from the first consideration to completion is realistic; the sale process itself often takes six to nine months. Preparation, such as building up a second management level, should begin years earlier.
Does emigrating help to reduce the tax on the sale?
For GmbH shares, as a rule not, because emigration itself triggers a taxable event under Section 6 AStG. Whether and how a double taxation treaty applies must be examined in the individual case.
Is a foundation a solution for business owners without heirs?
It can secure the continued existence of the company, but it is designed to last and involves effort and taxation of its own. A family foundation is subject to substitute inheritance tax every 30 years. Whether it suits your situation should be examined in advance.
Attorney Dr. Johannes Fiala has published extensively on international tax, succession and company law and supports business owners in coordinating succession, the will and a possible emigration with one another from a legal and tax perspective. Please contact the firm without obligation to discuss your personal succession situation in an initial consultation.
