Tourism – Leading Family Businesses into the Next Generation Safely

Attorneys Barbara Egger-Russe and Franz Pegger  were interviewed by the magazine “netzwerk tirol” on the question of which aspects -from a legal point of view – are essential for the further development of tourism in Tyrol in the future. (The interview can be read in full or downloaded here).

Tourism in Tyrol: A success story with a future?

Tourism in Tyrol is based on the work of generations. The many family businesses in Tyrol make a very significant contribution.  From our point of view it is essential – as it has been in the past – to lead family businesses into the next generation in a regulated manner.

What are the legal possibilities for transferring a family business?

In principle, a business can be transferred among living parties or after death. It must therefore be decided whether the business is to be handed over, or transferred by way of testamentary disposition. In both cases, precautions should be taken at an early stage.

In the life cycle of a business, a transfer process can be a critical phase. When handing over a ” life’s work “, it is therefore of vital importance to consider the needs of each individual case and to work on a tailor-made solution.

There are many factors that influence the type of transfer; for example, the legal form of the company or the number of successors are essential factors in finding a tailor-made solution.

In your opinion, which mistakes should be avoided under all circumstances?

We believe doing nothing is the biggest mistake.

In our experience, a common problem is that entrepreneurs only start thinking about succession far too late. Often, the owners of family businesses wait until they reach an advanced age before they do so. In any case, we can only recommend thinking about succession early enough and coordinating  fully with all parties involved.

A company doesn’t have to be handed over in its entirety from one day to the next. It often makes sense to transfer the company step by step to the next generation.

Particularly when a company is transferred among the living, there is a wide range of options for shaping the transfer. A step-by-step transfer also enables the successors to grow slowly into the ir new positions; this can be done by granting a type of power of attorney (Prokura), granting managing director powers or even minority shareholdings.

This procedure also allows the entrepreneur to withdraw slowly and still have the feeling of being able to help shape the future course of the business.

Of course this is not always the best option. There are also a large number of companies where it makes more sense to make a clear break.

To find the “right” handover takes time, a lot of thought and discussion. Therefore, our clear recommendation is to deal with the topic of handover early enough and to include the parties involved. Every handover requires a tailor-made legal solution.

What points should be considered when passing on a business??

There are number of things to know about transfer by inheritance.  If someone dies without a last will and testament, legal succession is applicable. This can lead to the co-ownership of a business; the business is divided up according to the statutory inheritance quotas. Whether this is desirable or sensible in individual cases should be considered in advance. For example, if an entrepreneur has three children as legal heirs, in the absence of a last will each child will inherit one third. Whether each owner then pursues the same goals is questionable. In any case,  there is definitely potential for conflict.

In order to avoid such situations, it is advisable to consider these things when drafting the articles of association. For example, to avoid all heirs joining a business, the remaining shareholders can be granted rights of seizure or pre-emption or other precautions can be taken.

If not all legal heirs are to inherit the business, the right to a compulsory portion for the other entitled persons also has to be considered.

What tips can you give family businesses?

Inadequate preparation can be the cause of the failure of business transfers. There is no uniform recipe for success. On the contrary: When handing over a business, a tailor-made solution for the parties involved should always be sought.

In any event, handover processes should be legally accompanied and a sufficient amount of time should be planned.

Photo: (c) Blickfang