During their transmission, family businesses are facing obstacles.

In France, 17% are intra-family transfers.

The annual Observatory of Family Businesses makes it possible to highlight the main challenges related to transmitting of family businesses, as well as to assess their level of preparation and the conditions that must be met to successfully complete this stage.

Transferring your business to your children does not mean that it is easy or peaceful. Some moments are sometimes even extremely tense, especially when it comes to deciding who, among the children joining society, is the best and most qualified to take the lead.

Les challenges of the transfer of the family business are numerous and several strategies are possible. We're taking stock.

The challenges of transferring a family business

One Family transmission offers the possibility of transmitting by way of vending or donation (or even both).

Psychological preparation includes the evaluation of the environment to assess whether a successor wants to take over the business and whether he has the necessary skills.

During a family transfer, one of the major challenges lies in the management of family conflicts potentials.

Moreover, several situations can give rise to disagreements and tensions.

Conflicts during family transmission

There may be disagreements about the decision To give or sell the shares of the family business.

It is only possible to make a donation if the transferor already has the necessary funds to finance his projects after the transfer.

Otherwise, to guarantee a standard of living, it is essential to sell some of the shares.

Les disagreements also arise from tensions concerning the value of the shares given or sold to his child.

Let's take the example of a higher price that leads to a greater demand for financing from the purchaser.

It is therefore a question of ensuring that non-transferable heirs do not lose indirect value in the event of a reduced price.

In addition to the price, the terms of payment can also lead to conflicts, especially in relation to the long payment term or immediate payment.

In the event of late payment, the transferor, creditor, is exposed to the risks of insolvency, which implies that, in the event of a decrease in activity, conflicts could arise between the heirs, who fear losing their share of the price.

If immediate payment is made, it is necessary for the funds to be immediately available in order to pay for the purchase of the shares, which implies debt or the participation of a financial partner, and therefore increased pressure on the purchaser.

It is therefore certainly preferable to sell all or part of the shares at a market price, in case of non-takeover of the business by other heirs.

You can also choose to make only one part of the business grow and to donate the other part, for example in the context of a Donation Dutreil. However, it is essential to carry out an objective assessment of the value of the company, by an independent third party.

Indeed, the use of a equity certificate to assess the business offers essential guarantees in order to To avoid any family conflict concerning the valuation of the company.

La Selecting a buyer may cause tension.

For example, if heirs are competing for the head of the company, selecting the buyer (s) can become extremely difficult.

The situation may result in tensions between the heirs rivals as well as between parents and children. Another possibility of conflict linked to family transmission is the Dispersion of capitall.

With the evolution of generations, the multiplication of family members leads to the risk of capital dispersion and differences in vision for the future of the company.

Transfer of family business and taxation

Les tax obligations vary according to the nature of the business. However, the main challenges remain the same.

The first difficulty when transferring a business lies in determining the value of the business.

This step is essential. Indeed, it is essential to assess the value of the business in order to facilitate all administrative and fiscal procedures.

The second problem is the transfer of control of the company. During the transfer, management power does not necessarily correspond to the possession of the majority of the shares.

For legal reasons (sole proprietorship) Or in fact (companies), the company is not always divided equally according to its legal form.

It is also important to determine the ideal time to transfer the business, select successors and reduce costs. tax fees linked to this transmission.

It is therefore essential to plan for all the important questions. It is necessary to take into account the measures that can be taken to facilitate or complete the transfer of the business.

It is relevant to set up a legal structure adapted to the company and to determine the mode of transmission of it (for example: traditional liberality, donation-sharing, etc.). In addition, the establishment of protocols between partners or managers and successors is always beneficial.

The Dutreil law and the partial exemption for the transfer of a family business

The main objective of the law for economic initiative or Dutreil law is to facilitate access to starting a business by simplifying procedures and reducing taxes.

‍When a family business is passed on, it offers in some cases a partial exemption from transfer duties.

Transfer duties, also called registration fees, refer to the fees and taxes to be paid during a transfer of business.

They are the responsibility of the buyer and are calculated according to the amount of the sale (from 0% for purchases under €23,000 to 5% for sales over €240,000).

The application of the Dutreil law presents benefits when transferring a family business. During transmission, the Dutreil law authorizes a partial exemption 75% of the value of a company (or its securities, shares or shares).

It only applies if certain conditions are met. The Dutreil law, implemented in 2003, aims in particular to prevent heirs from selling the family business in order to pay inheritance taxes and therefore, more generally, to maintain economic stability.

The Dutreil law is applicable in the event of death and in the event of early transmission, which allows you to be protected from the high amount of transfer taxes. An exception to all this, the Dutreil law only concerns businesses with commercial, craft, industrial, liberal or agricultural activities.

The titles must be subject to a collective conversation commitment of two years. (from the tax registration of the act or from the signature of the act if it is notarized) in order to be able take advantage of this law.

This commitment should extend to 20% of the shares for listed companies and to 34% for unlisted companies.

When the deceased or the donor owned the percentage of shares taxed for at least two years and was active in the company, this collective commitment is considered to have been fulfilled.

It is possible to conclude a collective conservation commitment in the six months following death, either between the legatees alone or with partners. Les legatees, heirs or donees must keep the titles transmitted for a period of four years when the business is transferred.

The Dutreil law applies to businesses subject to income tax and corporate tax. The Dutreil system concerns the shares of holding companies that lead groups.

Les usufruct donations (or with reservation of usufruct) are exempt from the partial exemption on the value of the usufruct or bare ownership transferred. The Dutreil law has specific advantages when it comes to the transfer of family businesses, however, it is a bit difficult to achieve. It is therefore recommended to seek the help of a business transfer expert who can provide advice and assistance.

What strategies for a successful transmission?

Succeeding in the transfer of a family business consists first of all in drawing up a personal report in order to reflect and analyze the reasons why you want to transfer your business. Once completed, this assessment will allow you to act with greater confidence and to better assume your decision.

At the business level, with the help of family transmission professionals, you will in practice need to design a transmission schedule, providing for the various actions to be taken to preparing the successors for succession.

These actions taken beforehand will ultimately facilitate transmission and will influence the development and even the sustainability of the company.

The training of successors, supported by the trust placed by their parents, their continuing education in various positions in the company and the leadership lessons they are given, promotes an environment conducive to recovery.

Managers who think about the transmission of power between generations are faced with a double constraint.

On the one hand, show confidence in the Future generation, even if the latter may have a different vision of the direction to be given to the company.

On the other hand, be insightful enough to determine if successors have the skills needed to ensure continuity.

Some aim to avoid a succession that is financially and humanly impossible to bear. Some others establish beneficial competition with people outside the family in order to confirm their final decision.

Still others prefer transfer, in order to allow their heirs to freely take their destiny.

It is possible for the transmission to be successful when it is well prepared, or even included in a family charter to which each member of the family adheres.