Family succession

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CORONA effects family business successions

Lower corporate earnings can have significant consequences for companies and their shareholders. Financial ratios become less favourable, the rating deteriorates - many companies lose their investment grade status. At the same time, there is a greater need for credit. More difficult corporate financing and higher financing costs are the result - sometimes over-indebtedness and the need to file for insolvency arise.


Consequently, company values fall according to common methods of company valuation - including valuation in the context of family succession arrangements.

In the context of inheritance tax, the enterprise value can be determined by the simplified capitalised earnings value method pursuant to §§ 199 ff BewG. Basis for the valuation are the operating results of the last three financial years prior to the valuation date. The result of the current year may also be used if this is of significance for the derivation of the annual income to be achieved in the future. The sum of the operating results is to be divided by three and results in the average earning. The capitalisation factor of currently 13.75x is to be applied to this.

Many family businesses will experience significant earnings losses in 2020 and probably also in 2021. The resulting decrease in goodwill can be used to transfer company shares to successors in a tax-efficient manner. If it is possible to reduce the company value below the maximum amount of EUR 26 million, it is possible to use the inheritance tax relief, which is usually 85% and 100% in the case of the option model.

Entrepreneurial families can use the reduced company values to transfer business assets tax-free to the next generation. In this situation, equity partners are also gladly taken on on a temporary basis who provide the liquidity required for the further development of the company and at the same time act as sparring partners for the juniors.

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