Business Succession for GmbHs in Family-Owned Businesses—Why Early Planning Is Crucial
Many family business owners wish to transfer their GmbH shares to the next generation while they are still alive. A key tool for tax-efficient planning of business succession for GmbHs is the tax relief for business assets under Sections 13a and 13b of the German Inheritance Tax Act (ErbStG) (standard and optional exemptions). For corporations, however, this exemption applies only if the decedent or donor holds more than 25 % of the par value of the capital stock.
This becomes problematic, therefore, when both parents hold only minority stakes of less than 25 % each, but the children are still intended to benefit from the exemption. One possible solution for succession planning in a GmbH is to enter into a pool agreement, which “consolidates” the shares and ensures that the 25% threshold for inheritance tax purposes is exceeded. This article explains the basic mechanics and requirements—including the (regular) obligation to have the agreement notarized.
Special Considerations for Business Succession in a GmbH
Background: Minimum Ownership as a Prerequisite for Exemption
The acquisition of shares in a corporation constitutes exempt property within the meaning of § 13a of the Inheritance Tax Act (ErbStG) only if, at the time the tax liability arises (gift or inheritance), the decedent or donor holds more than 25 % of the par value of the capital (§ 13b(1)(3) ErbStG).
Key points:
- Ownership interests of 25 % or less are not eligible for preferential treatment.
- The decisive factor is the testator’s or donor’s ownership share, not the recipient’s ownership share.
- Section 13a of the Inheritance Tax Act (ErbStG) does not apply to shares held as part of private assets if the donor’s ownership interest does not exceed the 25% threshold.
Scenario in a family business:
- For example, the father holds 20% and the mother holds 20% of the GmbH.
- Both wish to transfer their shares to their children as part of an anticipated succession.
- Without further measures, their respective holdings would not qualify for tax relief, even though the family collectively holds 40%.
This is where pool agreements come into play in GmbH business succession planning.
Tax Pitfalls in the Transfer of GmbH Shares
Pool Agreements as a Tool for Aggregating Shares
Pool agreements are contractual arrangements between shareholders of a corporation that bind the disposal of shares and the exercise of voting rights within a “pool.” The goal is to aggregate multiple holdings for inheritance tax purposes into a single minimum holding of more than 25%.
Characteristics:
- They apply only to corporations, specifically shares in GmbHs and AGs.
- They are generally concluded outside the articles of association between specific shareholders.
- They require the following cumulative conditions:
- a restriction on the disposal of the shares and
- a voting rights restriction (voting rights pooling).
- Legal consequence: The shares held in the pool may be aggregated for purposes of § 13b(1)(3), sentence 2, of the German Inheritance Tax Act (ErbStG) to reach the minimum ownership stake > 25 %.
The pool agreement must be distinguished from qualified family-owned companies with an advance deduction under § 13a(9) ErbStG, in which restrictions on withdrawals, dispositions, and buyouts set forth in the articles of association apply for a period of 22 years. In contrast, the pool agreement primarily serves to “meet the threshold” for Section 13b(1)(3) of the German Inheritance Tax Act (ErbStG).
Transfer of Shares in the Context of Succession Planning for a GmbH
Tax Requirements for a Valid Pool Agreement
In order for a pool agreement to allow for the aggregation of estates for inheritance tax purposes—and thus to confer tax benefits—the following requirements, in particular, must be met:
Restriction on Disposal (Cases 1 and 2 of Section 13b(1)(3), second sentence, of the Inheritance Tax Act (ErbStG))
The legislature requires that the pool shareholders
- are either obligated to dispose of the shares only collectively (Case 1) or
- be obligated to transfer the shares exclusively to other shareholders subject to the same obligation (Case 2).
“Disposition” is to be understood in the context of civil law, specifically as the transfer of ownership interests. The pool agreement is intended to restrict the free transferability of the ownership interests.
Practical Provisions in the Pool Agreement:
- Disposals (for consideration or without consideration) are permitted only with the consent of all pool members and in the form of a unified resolution by all pool members; individual resolutions are not permitted.
- Alternatively or in addition: Transfers are permitted only to persons who are subject to the pool agreement (upon joining the pool agreement).
- For succession cases (heirs, legatees), an obligation to join the pool should be stipulated within a transition period.
In practice, Case 2 typically provides for the following:
- New purchasers become shareholders only upon transfer and simultaneously join the pool agreement; this fulfills the legal requirement of “restricted shareholders.”
- If necessary, a phased transfer of shares to avoid formal uncertainties.
Voting Rights Coordination (Voting Rights Pooling)
In addition to the restriction on disposal, voting rights must be exercised uniformly with respect to unbound shareholders (voting rights coordination/voting rights pooling):
- Pool members do not vote individually, but rather according to a procedure specified in the pool agreement (e.g., majority decision within the pool, appointment of a pool spokesperson).
- The goal is for the pool to act as a “major shareholder” in relation to the company.
The Federal Fiscal Court (BFH) has clarified that the obligation to exercise voting rights uniformly in a GmbH may be agreed upon in writing or orally; de facto or purely moral commitments are not sufficient. This case law pertains to the binding of voting rights, not to the restriction on the exercise of voting rights.
Options for Tax-Advantaged Share Transfers
Form: Why Pool Agreements Must Generally Be Notarized
In principle, no specific form is required for pool agreements; however, compliance with the written form is recommended for purposes of providing evidence.
However, as soon as the pool agreement extends to shares in a GmbH and contains a restriction on disposal within the meaning of § 13b(1)(3), sentence 2, of the German Inheritance Tax Act (ErbStG), a civil law form requirement applies:
- An agreement that establishes a shareholder’s obligation to transfer a share in a limited liability company must be notarized to be valid.
- Pool agreements concerning GmbH shares typically contain precisely such obligations (uniform disposition, transfer only to bound shareholders).
- Consequence: Such a pool agreement must generally be notarized. A pool agreement that is not notarized is invalid due to a lack of formal requirements and is therefore void.
From a professional standpoint, it is therefore essential that:
- The pool agreement should be drafted as a notarized contract.
- Clearly define the scope of restrictions on disposal and any obligations to assign, and have these documented by a notary.
- Voting rights restrictions are also routinely included in the notarial deed.
Notarization is recommended as standard practice, particularly with regard to inheritance tax recognition: Only a valid pool agreement can serve as the basis for aggregating the shares and thus for taking advantage of the benefits under § 13a/§ 13b of the Inheritance Tax Act (ErbStG).
Business Succession for GmbHs: The Role of Pool Agreements and Articles of Association Clauses
Application to the scenario “both parents < 25 %, combined ≥ 25 %”
How can this be applied in a typical family situation?
Initial scenario:
- Father: 20% stake in a GmbH
- Mother: 20% stake in the GmbH
- Total family share: 40% (>25%), but individual holdings are less than 25%.
- The children are to receive shares as gifts and benefit from the standard/optional tax exemption.
Design Steps:
- Execution of a notarized pool agreement between the parents
- Notarized pool agreement regarding the father’s and mother’s shares in the GmbH.
- Restriction on Disposal:
- Uniform disposition of the pooled shares or
- transfer exclusively to bound shareholders (including a requirement for children to join).
- Voting rights coordination: uniform exercise of voting rights in relation to non-bound shareholders.
Result: For the purposes of § 13b(1)(3), sentence 2, of the German Inheritance Tax Act (ErbStG), the father’s and mother’s shares are aggregated; the pool holds a minimum stake of more than 25%.
- Gifts of shares to children from the pool arrangement
- The father and/or mother transfer shares in the business to the children on a pro-rata basis.
- Pursuant to the pool agreement, the children join the pool simultaneously or within an agreed-upon period and are subject to the same restrictions on disposal and voting rights.
- Inheritance Tax Consequences (Standard Exemption/Optional Exemption)
- The transferred shares qualify as exempt assets within the meaning of Section 13b(1)(3) of the Inheritance Tax Act (ErbStG).
- The children may claim the standard exemption (85%) or—if the additional requirements are met—the optional exemption (100%).
- The holding period provisions of Section 13a(6) of the Inheritance Tax Act (ErbStG) apply, with holding periods of 5 or 7 years, respectively.
Practical Examples: Successfully Implementing Business Succession for GmbHs
Keeping an Eye on Holding and Retention Periods
The pool agreement is merely the tool used to achieve the minimum ownership requirement. After the transfer, the children must continue to meet the other requirements for tax exemption on a permanent basis:
- Retention periods:
- 5 years with an 85% exemption,
- 7 years for 100% exemption.
- Circumstances giving rise to retroactive taxation (Section 13a(6) of the Inheritance Tax Act), such as:
- sale or discontinuation of the business,
- detrimental withdrawals,
- certain restructurings.
To ensure that these benefits are maintained over the long term, the following measures should therefore be taken:
- Pool arrangements and the corporate structure will continue to exist beyond the holding periods.
- Share transfers should only take place within a framework that does not jeopardize the pool commitment or the minimum ownership requirement.
Checklist for Advisors: Steps for Optimizing Succession Planning for a GmbH
Distinction from the Advance Deduction for Qualified Family Businesses
In practice, it is important to clearly distinguish between these two tools:
- Pool Agreement (Voting Rights Pooling, Restrictions on Disposal)
- Relevant only to corporations.
- Objective: To achieve the 25% minimum ownership requirement under § 13b(1)(3) of the German Inheritance Tax Act (ErbStG) by aggregating the shares.
- Restrictions on disposal and voting rights agreements are established outside the articles of association, typically through a notarized agreement.
- Qualified Family Corporation (Section 13a(9) of the Inheritance Tax Act, Advance Deduction)
- Applies to all types of companies.
- Requires extensive restrictions on withdrawals, dispositions, and buyouts in the articles of association themselves, with long notice periods and lock-in periods.
- No voting rights tie-in is required; however, stricter rules governing profit withdrawals and buyouts apply.
In many situations, a well-drafted and notarized pool agreement is sufficient to take advantage of the standard and optional tax exemptions for shares in corporations without resorting to the significant amendments to the articles of incorporation required by the advance deduction.
Conclusion on Structuring Advice
For the transfer of GmbH shares from both parents to their children, where each parent’s individual stake is less than 25%, the pool agreement offers an effective structuring tool to optimize Business Succession for GmbHs:
- Through a notarized pool agreement with restrictions on disposal and voting rights, the parents’ shares are consolidated for inheritance tax purposes into a minimum holding of more than 25 %.
- Transfers of shares to children can then be structured as favored business assets under § 13a/§ 13b of the Inheritance Tax Act (ErbStG), so that standard or optional tax exemptions apply.
- Crucial factors include the precise formulation of the restrictions on disposal, the notarization of the pool agreement, and careful adherence to the holding periods.
This ensures that Business Succession for GmbHs in a family-owned business is tax-optimized and implemented in a structurally sound manner.
Sources: s&w Steuerberatungsgesellschaft mbH, Unterberg & Unterberg, Haufe, Gesetzte im Internet
Photo: AI-generated
Disclaimer: We assume no liability for the accuracy or completeness of the information. The information provided here does not constitute a recommendation for action.
