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Passing on a family business in Switzerland: what options are open to entrepreneurs today?
LO Patrimonia SA
Lombard Odier Group
Protecting loved ones is non-negotiable for owners of family businesses. We explore the various options open under Swiss law to ensure a harmonious and successful transition.
Every year, between 14,000 and 16,000 businesses in this country need to find a new owner, according to federal government data. This can be a very painful process, particularly in the case of intra-family transfers.
Despite that, the topic of passing on one's business, either during the CEO’s lifetime or as part of their estate, is rarely high on entrepreneurs’ agendas. They tend to be preoccupied with developing their business and can sometimes find it hard to broach such an emotive subject.
At Lombard Odier, we always recommend starting to talk about these matters as early as possible. That way, you can protect your family and loved ones – this is especially important where the company is the family's main asset.
Investing a little time now can forearm you against the consequences that can arise without proper planning. It is important to keep in mind that passing on a business within the family or selling it to a third party is an inevitable part of a business's lifecycle. That makes it all the more important to think ahead.
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The first steps that entrepreneurs can take right now
We advise entrepreneurs to gain some objectivity by taking a step back and asking themselves:
- What do I want to achieve in passing on my business on to family members?
Then following on from that:
- As things currently stand, if a problem arose that meant I was unable to manage the business, what would actually happen?
This two-step process enables them to gauge the gap between what they would like to happen and what will come to pass if they take no action. In other words, the gap constitutes the plan for the corrective measures to be taken.
Taking time out to reflect in this way is a very positive first step. However, it is important not to overlook the complexity that can be involved in putting the necessary arrangements into place.
A business is an asset unlike any other: difficult to split up, and generally involving a strong emotional attachment. Plus the operations, and hence the valuation, can suffer if there is bad blood between the owners.
That is why it is so important to get family governance in place without delay. An organisational structure like this defined by its members will enable the relationships between the different parties to be formalised – and thus pacified.
It also provides some tangible avenues to explore in response to one of the first questions an entrepreneur must ask themself: who should take over my business? The answer will of course be different in every case: one or more children, a spouse, a son or daughter in law, a stepchild, a cousin, etc. Non-family members such as employees, competitors or partners might also be in the running. The sale price is obviously of central importance. Of course, each individual case will need different actions, with the objective being to avoid the need to work all these details out when it comes to the crunch time, if that is even still a possibility.
Levers for succession planning in Switzerland
More than half of the Swiss population have witnessed disputes over inheritance involving people they know, and nearly a third have experienced this type of quarrel within their own family, according to a 2019 survey by Demoscope cited in our complete guide to inheritance in Switzerland.
Here is a brief summary of the inheritance options that are open under Swiss law:
- Wills
A will is a unilateral declaration of your wishes. The Demoscope survey mentioned above found that three-quarters of Swiss people recognise the importance of having a will in place, but that only one-quarter have actually written one. Nevertheless, it is a vital tool for protecting your spouse, unmarried partner or stepchildren.
- Statutory entitlements
This principle requires the testator to allocate a part of their estate to specific heirs. Swiss inheritance law was made more flexible with effect from 1 January 2023, allowing testators greater autonomy. For example, if an entrepreneur dies, one-quarter of their estate must go to their spouse and a further quarter to their descendants; the testator is free to leave the remainder, termed the "disposable part", as they choose (until 31 December 2022, the shares were one-quarter, three-eighths and three-eighths respectively).
- Contracts of inheritance
In entering into one of these contracts, all the parties make a joint declaration of their wishes. A contract of inheritance allows the statutory entitlements of one or more heirs to be reduced or annulled with the express consent of the heir(s) in question.
Clearly, this is an area where proper planning is crucial. If nothing is in place, intestacy rules will apply: the risk is these will not match up to the wishes of all the parties involved and could even place the family business at risk.
If you are interested in this subject, we invite you to read our complete guide to inheritance in Switzerland, which deals not only with private assets, but also with pension assets and tax considerations.
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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