Succession planning and business transformation

Planning my company’s succession under the new law

The new inheritance law, which comes into force on January¹, 2023, will increase freedom of disposal. The new law provides for a reduction in legal reserves, which is the intangible portion guaranteed to certain legal heirs, such as descendants and spouses. Heirs will still see their inheritance protected by the hereditary reserves, but these will be less important, which will have the effect of increasing the available share, i.e. the balance of the estate once all the legal reserves have been deducted. Today, the De cujus can only dispose of a quarter of his estate, compared with half under the new law.

From January¹, 2023, entrepreneurs will be free to dispose of half their estate. This new feature therefore undeniably facilitates the transfer of a family business to one of its descendants.

The succession of a family business can unfortunately give rise to conflicts between the heirs, which can lead to the company being split up or even liquidated in order to pay off all the heirs. As soon as the new law comes into force, an entrepreneur who wishes to settle his estate by means of a will will have greater freedom to dispose of his assets, and will be able to give greater preference to a descendant who wishes to take over the business, which can then be safeguarded.

The transfer of a business on the death of the entrepreneur is not regulated by law at present. If you wish to ensure that your business is passed on to your heirs upon your death, you will need to draw up a will or an inheritance agreement.

The coming into force of the new inheritance law is an ideal opportunity to take stock with our lawyers, so as to carefully consider all your succession and planning options.

Conversion of a sole proprietorship into a corporation

As your business grows, it may be worthwhile to convert your sole proprietorship into a limited company, such as a Sàrl or SA.

Many businesses start out as a sole proprietorship, which means they can be set up more cheaply, with less red tape and the tax advantage of not having their profits taxed twice (by the business and the entrepreneur).

However, a sole proprietorship is not always the best way to grow a business. Liability is not limited, and the entrepreneur is liable for the company’s debts using all his personal assets. What’s more, sole proprietorship does not allow access to new investors and partners. Finally, customers and business partners tend to equate sole proprietorships with small structures.

The new joint-stock company is founded by the “contribution in kind” of the sole proprietorship. In practical terms, there are a number of steps involved in converting a sole proprietorship into a limited company. A balance sheet of the sole proprietorship must be drawn up, followed by a contribution-in-kind contract, a foundation report and finally an audit report, before moving on to the constituent assembly stage.

Numerous conditions need to be met, and many legal issues addressed, to ensure that this transformation protects your interests and does not have any adverse, and in particular unidentified, consequences. For example, it is imperative that the proportions of shareholdings are not altered by the transformation of the sole proprietorship into a joint-stock company, since the entrepreneur will have to hold all the capital, at least initially. Indeed, bringing an investor into the transformation stage could be considered as a partial transfer, which may have civil as well as tax implications.