One of the most delicate moments in the life of a family business comes when it is time to pass the baton to the next generation. If not planned carefully, this process can jeopardise both the continuity of the business and family harmony.
In Spain, more than 89% of companies are family-owned (data from the Family Business Institute). However, only a small percentage manage to survive beyond the third generation. To prevent your legacy from being diluted, it is essential to understand the various legal and tax options available for transferring a business to your children.
Below, we explain the main aspects you should take into account, using clear language and without unnecessary technical jargon.
Before getting into the subject, it is important to distinguish whether the business is set up as a sole proprietorship or as a commercial company.
Differences between sole traders and companies
In the first case, the owner usually takes charge of management directly, which simplifies some procedures but can also complicate succession planning.
In contrast, in a society, two levels are clearly differentiated:
- Ownership (shares or stocks)
- Management (administrative bodies)
This duality allows for greater flexibility in transmission and business continuity.
Ways to transfer a business to your children
Donation during lifetime
Donation during one’s lifetime is by far the most common way to transfer a family business. It involves the owner, usually one of the parents, transferring ownership of the business or their shares in it to their children free of charge.
Although it does not involve financial compensation, the transaction is subject to gift tax, although there are tax breaks that can be very significant, especially in regions such as Catalonia, where they can reach up to 95% if certain requirements are met.
Transferring the company through a succession agreement
The succession agreement is a legal concept recognised in Catalan civil law, and in other communities with their own civil law, which allows the transfer of a family business between the owner and their future heirs to be agreed through a notarised agreement.
Unlike a will, it is not a unilateral declaration, but rather a commitment between parties that can only be modified with the consent of all signatories, which gives it greater legal certainty.
This agreement may establish the transfer of the company or its shares with immediate or deferred effect, and is an effective alternative to donation when greater stability and predictability are sought in succession.
Succession by inheritance
Succession by inheritance is one of the most common ways to transfer a family business, especially when the transfer has not been planned during the owner’s lifetime. In this case, the transfer takes place after the owner’s death, through the distribution of the inheritance among the heirs.
Although it is usually applied by default, it can also be organised precisely by will, allowing conditions, specific allocations and mechanisms to be established to ensure business continuity.
The legitimate heir in Catalonia
In Catalonia, the legitimate portion represents 25% of the value of the inheritance and must be reserved for the heirs (usually the children). This aspect can cause tension if only one of them is to continue running the company.
How can you avoid the fragmentation of your company?
When you don’t want to divide the company among all the heirs, one option is for the person who receives the company to compensate the others with assets or other amounts, or even to pay the legitimate shares from their own resources. This solution, although it requires financial planning, allows you to maintain the unity of the business and avoid loss of control.
Surround yourself with good advisors
The transfer of a family business is not the time to improvise.
Having the right team of professionals will not only help you make informed decisions, but can also save you legal complications, family disputes and significant tax costs. Such a complex process requires a comprehensive overview, and to achieve this, it is essential to surround yourself with specialists:
- An expert lawyer in inheritance and commercial law who will analyse the structure of the company, draft the necessary documents (donations, inheritance agreements, wills, family protocols, etc.) and ensure that the entire process complies with current legislation.
- A tax advisor who is key to designing the most efficient strategy from a tax perspective. They will be familiar with the reductions and exemptions applicable in your autonomous community and can help you avoid mistakes that could lead to penalties or unnecessary payments.
- A family consultant or specialised mediator, particularly useful when there are several heirs with different views or when there are personal tensions. Their role is to facilitate dialogue, build agreements and help preserve the balance between the company and the family.
En resumen…
Business and family can be a great combination… or a ticking time bomb. Generational change is an opportunity to strengthen that bond and project it into the future, but only if it is approached with planning, transparency and professional support. A well-designed succession plan not only guarantees business continuity, but also harmony between those who must work and live with that legacy. Because yes, with a good strategy, you can keep the company alive… and peace at Christmas dinner.