Family business succession planning: a EUR 3 million generational handover

A sixty-two-year-old entrepreneur, founder and sole director of an SRL in the precision metalworking components sector, based in the province of Brescia. The company, founded thirty years earlier, has fifty employees, an annual turnover of about five million euros and an estimated overall value of three million euros (net assets plus goodwill). The entrepreneur held 100% of the shares.

The family situation:

• The wife, fifty-nine years old, who contributed to the company in the early years as head of administration and who now takes care of family management. Property regime: separation of assets, chosen at the time of the marriage on the advice of the accountant of the day
• Marco, thirty-seven years old, the eldest son. A mechanical engineer, he has worked in the company for fifteen years, is effectively the operations director and knows every aspect of production. His expectation is clear: to inherit the leadership of the company and take it to the next stage of growth
• Chiara, thirty-four years old, a surgeon in a hospital in Turin. No interest in the company, but the legitimate expectation of receiving a fair share of her father’s estate. She clearly states that she would not accept receiving shares in a company that does not interest her and that she would not know how to manage
• Luca, twenty-four years old, a recent economics graduate, still looking for his own path. He does not work in the company and does not express a clear preference, but he does not rule out future involvement

The entrepreneur’s overall estate, in addition to the company, comprises: the family home in Brescia (value 550,000 euros), an apartment held for investment (value 250,000 euros), accounts and financial investments of about 400,000 euros, a life insurance policy of 300,000 euros. Estimated total estate: about 4.5 million euros.

The entrepreneur turns to the Firm with a precise request: to build a generational handover that guarantees the continuity of the company under Marco’s leadership, that does not penalise Chiara and Luca, that protects his wife, and that is fiscally efficient. All of this without waiting for his own death.

The Firm would set out a structure articulated over several coordinated legal instruments, built over three months of preparatory work and family meetings, with the aim of obtaining the consent of all forced heirs before formalisation.

1. Family pact for the transfer of the company

• Preparation of the family pact pursuant to artt. 768-bis and following c.c., by which the entrepreneur transfers 100% of the company shares to Marco.
• Determination of the company’s value by means of an independent appraisal accepted by all forced heirs, with an agreed value of 2.9 million euros, the result of a mediation between the entrepreneur’s initial valuation and the expectations of the other family members.
• Buy-out of the non-assignee forced heirs, by means of asset attributions and financial equalisations calibrated on the basis of the company’s value and of the forced shares theoretically due.
• Chiara: overall compensation of 350,000 euros, settled by immediate assignment of the investment apartment (250,000 euros) and a cash equalisation of 100,000 euros paid by Marco in three annual instalments.
• Luca: compensation of 350,000 euros through a cash equalisation paid by Marco in five annual instalments, with a renegotiation clause in the event of future entry into the company.
• The wife: waiver of the buy-out within the family pact, compensated by means of separate asset instruments (see next point).
• Provision of an option clause in favour of Luca, with the right to acquire a minority shareholding in the company (up to 20%) within five years of the pact’s execution, at a value determined according to predetermined criteria and with a proportional reduction of Marco’s residual debt.
• Execution of the family pact by public notarial deed, with the participation of all forced heirs, as required by the legislation.

2. Protection of the wife through extra-succession instruments

• Amendment of the life insurance policy beneficiary designation (300,000 euros) in favour of the wife alone, as an asset protection instrument external to the estate and not subject to inheritance tax.
• Preparation of a will attributing to the wife the family home (550,000 euros) and the disposable share of the remaining movable assets. Since the family pact governs the transfer of the company with the consent of the forced heirs, the residual estate that is the subject of the future succession is more limited and easier to manage.
• Assessment of the option of granting the wife a lifetime right of habitation over the family home, as an alternative to the transfer in full ownership, in order to guarantee housing stability without permanently removing the asset from the children’s future succession. The entrepreneur, however, preferred the transfer in full ownership, considering the spouse’s economic security a priority.

3. Corporate governance and shareholders’ agreements

• Amendment of the SRL’s articles of association to introduce governance clauses consistent with the new ownership structure: pre-emption clause on shares, approval clause for the entry of third parties, drag-along and tag-along clauses in the event of transfer of the shareholdings.
• Preparation of a mentoring plan: the entrepreneur retains an advisory role for the first three years, with a formal advisor mandate and participation in the board of directors as a non-executive director.
• Definition of the arrangements for Luca’s possible entry: the option right provides for a gradual path of insertion (first as an operational collaborator and subsequently as a minority shareholder), in order to prevent an early entry from generating management conflicts with Marco.

4. Tax optimisation

• Application of the exemption from gift tax on the transfer of the company or of the shareholdings, pursuant to art. 3, comma 4-ter of D.Lgs. 346/1990: Marco formally undertakes to continue the business and to maintain control of the company for at least five years.
• Application of registration tax at a fixed amount on the family pact, as an act subject to registration but not falling within the cases of proportional taxation.
• Settlement of the compensation to the non-assignee forced heirs exempt from gift tax, as carried out within the family pact and functional to the arrangement of the rights of the participating forced heirs.
• Transfer of the apartment to Chiara with application of the property taxes under the ordinary regime, with proportional registration tax and mortgage and cadastral taxes at a fixed amount, save for any application of the first-home relief.
• Overall estimated tax saving of more than 120,000 euros compared with a scenario of ordinary succession without prior planning.

“I spent thirty years building this company and the idea that it could fall apart after me kept me awake at night. Marco was ready, I knew it, but I couldn’t simply leave him everything and ignore Chiara and Luca. The problem is that the company is the big piece: three million out of four and a half. How do you give one of them the big piece without wronging the others? The Firm built a structure I didn’t even know existed: the Family Pact allowed me to transfer the company to Marco now, during my lifetime, with everyone’s consent, giving Chiara and Luca their share in another way. The hardest part was sitting everyone around a table and talking about inheritance with my children: it is not an easy conversation. But the lawyer handled it with a competence and a sensitivity that made possible an agreement we would never have reached on our own. Today I sleep peacefully.”