Planning the succession of my business with the implementation of the new inheritance law
With the new inheritance law coming into effect on January 1, 2023, entrepreneurs will have increased freedom in disposing of their estate. The new law reduces the mandatory share (reserved portion) that certain legal heirs, such as descendants and spouses, are entitled to. While heirs will still have their inheritance protected by reserved portions, these will be smaller, increasing the available portion of the estate (the portion that can be freely disposed of after deducting all reserved portions). Currently, an individual can only freely dispose of a quarter of their estate, but this will increase to half under the new law.
From January 1, 2023, entrepreneurs can freely dispose of half of their estate. This change significantly facilitates the transfer of a family business to a descendant.
However, the succession of a family business can often lead to conflicts among heirs, potentially resulting in the division or liquidation of the business to satisfy all heirs. With the new law, an entrepreneur who wishes to manage their succession through a will can have more freedom to dispose of their assets and favor the descendant who wishes to take over the business, thus preserving it.
Currently, the law does not regulate the transfer of a business upon the entrepreneur’s death. Therefore, entrepreneurs need to make provisions through a will or a succession agreement if they want to ensure the transfer of their business upon their death.
The implementation of the new inheritance law provides an ideal opportunity to consult with our lawyers to carefully consider all succession and planning options.
Transforming a sole proprietorship into a capital company
As your business grows, it may become beneficial to transform your sole proprietorship into a capital company, such as an LLC (Sàrl) or a corporation (SA).
Many businesses start as sole proprietorships due to the lower costs, fewer administrative formalities, and the tax advantage of not having profits doubly taxed (both at the business and personal levels).
However, a sole proprietorship may not be the best structure for growing a business. The unlimited liability means the entrepreneur is personally liable for business debts. Additionally, sole proprietorships do not allow for new investors or partners, and clients and business partners may perceive them as small-scale operations.
Transforming a sole proprietorship into a capital company involves an “in-kind contribution” of the sole proprietorship’s assets. Several steps must be followed: creating a balance sheet for the sole proprietorship, drafting an in-kind contribution agreement, preparing a foundation report, and a verification report before holding a constitutive meeting.
Numerous conditions must be met, and various legal issues addressed to ensure that the transformation preserves your interests and avoids adverse consequences. For example, it is crucial that ownership proportions are not altered by the transformation, as the entrepreneur must initially hold all the capital. Introducing an investor during the transformation could be considered a partial sale, with potential civil and tax implications.
Consulting with a specialized lawyer can help navigate these complexities and ensure a smooth transformation and succession of your business.
