Succession of a Family Owned Company

Abstract

The purpose of this master thesis is to clarify the rules and illustrate the process of succeeding ownership, of a family owned company from one generation to the next. Within this subject, the thesis will mainly focus on the tax-free succession options.
Family owned businesses is a big part of the Danish corporate life. A lot of these company´s need to make changes in ownership within the next years.
In 2016 the former government in Denmark, decided to issue changes regarding the tax-fees and charges, that one had to pay during the process of handing over ownership of a family owned business. The changes were made so that yearly cuts in charges from 2016 till 2020, would reduce the taxation on the family from 15% till 5% in 2020.
The new government have decided to withdraw these rules and go back to the rules that where implemented before the tax cuts. This means that the family needs to pay 15% of the company’s value in charges and taxes, if they wish to entrust the “new” generation of the family with the company.
Succession of a company often enhances the pressure on the company´s liquidity because of the great changes in management. Furthermore, the taxation adds to the pressure, and can end up having a negative impact on the planning of the succession.
This thesis will cover a situation where a business owner is starting to consider the options for succession of his company to his daughter. The thesis will therefor cover the relevant Danish law regarding the subject.
This includes regarding the general Danish tax laws, in specific when it comes to taxation of stocks, assessing and making a valuation of the company that is going to be succeeded. Furthermore, it includes the options the owner has for putting the process of succession in motion, and through which means he can change the constellation of the company so that the company transfer will be as efficient as possible.
All of the rules and regulations listed above have to be considered, and at the same time the succession has to be done so that father and daughter are satisfied with the terms, and there is a minimum of liquidity loss.
The thesis ends of with a list of options that can be used to succeed the company. The main conclusion is that the best option is to make division of the company´s assets (Option 6). By doing this, the daughter can succeed the part of the company where the core, is the main business. Property´s would be sub divided into another company. By doing this, they fulfill their own requirements, and the minimize the loss of capital.