What does succession planning mean?
A succession planning in SMEs means that ownership, leadership or both are transferred to a new person or group. This can happen within the family, through a sale to employees, through a sale to an external buyer, or through a combination of different models.
The distinction between ownership and leadership is important. Sometimes a child or employee takes over the operational management while the previous owner still remains involved. In other cases, the shares or company shares are completely sold. Other solutions envisage that only individual parts of the business are transferred.
Particularly in the case of SMEs, these levels are often closely linked. The owner is also the managing director, customer relationship manager, know-how carrier and person of trust for employees. That is why a purchase contract alone is rarely enough. A good succession needs a clear strategy, a clean valuation and a realistic handover plan.
Transfer or sell a company: What is the difference?
In the case of a transfer, the focus is often on passing the company on to a trusted successor. In the case of a sale, the market price and the transition to a buyer are more central.
Legally, there are different paths. In the case of a stock corporation or LLC, the succession can take place via the sale of the participation rights. This is often referred to as a Share Deal. Here, the shares or company shares change owners, while the company itself remains the same.
Alternatively, individual assets, contracts, machinery, stock, trademark rights or parts of the business can be transferred. This is often referred to as an Asset Deal. For companies and sole proprietorships registered in the commercial register, a transfer of assets under the Merger Act is also an option. In this case, assets or parts thereof can be transferred with assets and liabilities to another legal entity (Art. 69 Abs. 1 FusG). The transfer agreement must include, among other things, an inventory of the assets and liabilities to be transferred and a list of the employment relationships being transferred (Art. 71 Abs. 1 FusG). The transfer of assets becomes legally effective upon registration in the commercial register (Art. 73 Abs. 2 FusG).
For laypeople, the rule of thumb is simple. In a Share Deal, the company is sold as a legal entity. In an Asset Deal, selected components of the company are transferred.
Which form of succession fits your SME?
The appropriate form of succession depends on who is to take over, how the company is structured and what goals you are pursuing. A family-internal handover is often the obvious choice if a suitable and motivated successor is available. It can be designed as a sale, gift, inheritance advance or mixed solution.
A sale to employees, often called a management buy-out, can work particularly well if the operational know-how is already available internally. The buyers know the customers, processes and culture. At the same time, financing is often challenging because employees cannot always pay the purchase price immediately.
A sale to external buyers, investors or competitors can be financially attractive. On the other hand, the requirements for preparation, confidentiality, valuation and contract negotiation increase. The Federal Supreme Court typically describes M&A transactions as a multi-stage process with preparation, search, negotiation including due diligence, signing, closing and subsequent integration (BGer 9C_154/2023 E. 3.2.1).
For succession planning in SMEs, the purchase price is therefore not the only decisive factor. Equally important are the continuation of the business, the financing, the tax consequences and the question of whether the new ownership fits the company.
Share Deal: When does the sale of shares make sense?
A Share Deal is particularly obvious if your company is run as a stock corporation or LLC and the buyer is to take over the company as a whole. Contracts, permits, employment relationships and business relationships generally remain with the same company because only the ownership status changes.
In a stock corporation, registered shares are in principle freely transferable unless the law or articles of association provide otherwise (Art. 684 Abs. 1 OR). In many SME stock corporations, however, there are statutory transfer restrictions. In the case of non-listed registered shares, the company may refuse to consent to the transfer if there is an important statutory reason or if it offers to acquire the shares at their real value (Art. 685b Abs. 1 OR). Such rules are particularly important for family companies or companies with a close circle of shareholders.
In the case of an LLC, the transfer is more formal. The assignment of company shares and the obligation to do so must be in writing (Art. 785 Abs. 1 OR). In addition, the assignment generally requires the approval of the shareholders' meeting (Art. 786 Abs. 1 OR). If this approval is required, the assignment only becomes legally effective with approval (Art. 787 Abs. 1 OR).
Anyone wishing to sell an LLC or stock corporation should therefore check the articles of association, shareholder agreements, partnership agreements and commercial register details at an early stage. Otherwise, a seemingly simple succession can fail due to an approval clause, a right of first refusal or an unclear valuation rule.
Asset Deal: When does the transfer of individual parts of the business make sense?
An Asset Deal makes sense if the entire company is not to be sold or if specific assets and liabilities are to be transferred in a targeted manner. This can be relevant, for example, for sole proprietorships, the spin-off of a business unit or in preparation for a subsequent succession.
The advantage lies in the selection. The buyer only takes over what is contractually agreed. This can limit risks, for example if old liabilities, non-operating assets or private elements are not to be transferred.
The disadvantage lies in the complexity. Individual assets must be identified and transferred. Depending on the situation, contracts require the consent of the contracting partners. For companies registered in the commercial register, the transfer of assets under the Merger Act can help because the assets and liabilities listed in the inventory are transferred by operation of law upon entry in the commercial register (Art. 73 Abs. 2 FusG).
If a business or part of a business is transferred, the employees must be given special consideration. If the employer transfers the business or part of the business to a third party, the employment relationships transfer with all rights and obligations to the acquirer, unless the employees object to the transfer (Art. 333 Abs. 1 OR). According to case law, it depends on whether an organizational unit essentially retains its identity and the same or a similar business activity is continued (BGer 4C.316/2002 E. 2.1).
In addition, the employees must be informed in good time about the reason for the transfer as well as the legal, economic and social consequences (Art. 333a Abs. 1 OR). If measures are planned that affect employees, they or their representatives must be consulted in good time (Art. 333a Abs. 2 OR).
What role do taxes play in SME succession?
Taxes can strongly influence the structure of the succession. Under direct federal tax, capital gains from the sale of private assets are tax-free (Art. 16 Abs. 3 DBG). This can play an important role when selling privately held shares or company shares.
The situation can be different if a sole proprietorship sells assets or if silent reserves are realized. For restructurings, tax law contains special rules. Silent reserves of a partnership are not taxed in the case of certain restructurings if tax liability continues in Switzerland and the previous tax values are taken over (Art. 19 Abs. 1 DBG). In the case of the transfer of a business or part of a business to a legal entity, there is also a five-year blocking period, which can become relevant in the event of a subsequent sale (Art. 19 Abs. 2 DBG).
In the case of legal entities, too, silent reserves can be transferred in a tax-neutral manner in the event of certain restructurings if the legal requirements are met (Art. 61 Abs. 1 DBG). In the case of certain transfers, a subsequent sale within five years can lead to subsequent taxation (Art. 61 Abs. 2 DBG).
For succession planning in SMEs, this means: The legally best solution is not automatically the best solution for tax purposes. And the tax-attractive solution is not automatically feasible for buyers, family or employees. Therefore, the structure should be defined early and coordinated with valuation, financing and contract.
How do you prepare your SME for the handover?
A good succession begins long before the contract is signed. The first step is an honest assessment of the situation. What role do you want to play after the handover? Should the name remain? Are jobs more important than the maximum price? Are there family members who must be treated equally? Are there co-shareholders, rights of first refusal or blocking provisions in the articles of association?
This is followed by the transferability of the company. This includes clean accounting, clear contracts, documented processes, resilient customer relationships, protection of trademarks and know-how, and management that does not depend entirely on one person. The less the company depends on the previous owner, the better it can be transferred or sold.
In the sale phase, valuation, information memorandum, confidentiality agreements, due diligence, purchase contract and handover plan become important. For smaller SMEs, this process can be leaner than for large transactions. However, the basic logic remains the same: Buyers want to know what they are buying, what risks exist and how the company will continue to run after the acquisition.
Conclusion: The best succession is planned, not improvised
The succession planning in SMEs is not a single contract, but a process. Whether you transfer the company to a family member, sell it to employees or sell it to external buyers depends on your goals, the legal form, the financing and the future of the company.
The most important decision is the structure. In a Share Deal, the participation rights change hands. In an Asset Deal or a transfer of assets, individual assets, liabilities or parts of the business change hands. This choice affects contracts, employees, taxes, liability and the practical transition.
Those who plan early gain room for maneuver. Those who wait until time pressure arises often lose buyers, value and bargaining power. A good succession therefore protects not only the sales price, but also the company itself.
Frequently asked questions about succession planning in SMEs
When should I start succession planning?
Ideally, several years before the planned handover. The earlier you start, the better you can optimize the legal form, taxes, contracts, valuation and operational dependencies.
Is a Share Deal always better than an Asset Deal?
No. A Share Deal is often easier if a stock corporation or LLC is sold as a whole. An Asset Deal can make more sense if only certain parts of the business are to be transferred or certain risks excluded.
What happens to employees in a business transfer?
If a business or part of a business is transferred to a third party, the employment relationships generally transfer with all rights and obligations, unless the employees object to the transfer (Art. 333 Abs. 1 OR).
Does the succession have to take place within the family?
No. In addition to a family-internal handover, a sale to employees, a sale to external buyers, a management buy-in or a strategic acquisition by another company are possible options.
