Amendment Inheritance Law Corporate Succession Part I – What has the legislator planned?

The Federal Council intends to lower the hurdles for family-internal business succession by revising inheritance law. The reform aims to promote the stability of Swiss SMEs and secure jobs. The proposal was predominantly welcomed in the consultation process. By early 2021, the Federal Department of Justice and Police (FDJP) should now submit the message to the Federal Council.

Over 99 percent of Swiss companies are SMEs, of which about 80 percent are family businesses or businesses with fewer than 10 employees. Altogether, SMEs create about two-thirds of the jobs in this country. According to an estimate by the University of St. Gallen, there are financing problems in 3400 business successions annually due to existing inheritance law regulations. These difficulties affect around 48,000 employees. Given the importance of SMEs and family businesses for Switzerland, the Federal Council has now decided to revise the inheritance law regulations for family-internal business succession. The preliminary draft proposes four specific measures.

Integral assignment – Business goes to only one heir

As a central measure, the preliminary draft envisages the so-called integral assignment of a business to only one heir (Art. 617 revCC). If an inheritance includes a business or share rights in such and the decedent has not disposed of it, each heir may request that the business or shares be assigned to them alone by the court. The heir in question thereby gains control over the entire business. Thus, a fragmentation or sale or closure of the business due to disagreement among the heirs can be prevented. If several heirs request the integral assignment, it should be granted to the one who is best suited for business management.

Payment deferment for the business successor

Furthermore, the preliminary draft stipulates that the heir who undertakes the business succession can request a payment deferment (Art. 619 revCC). If the immediate payout of the remaining heirs would bring the business successor into financial difficulties, payment deadlines can be granted. These regulations are intended to prevent liquidity bottlenecks.

Payout at the accounting value

The draft law stipulates that the accounting value of the business should no longer be tied to the time of inheritance, but to the time of transfer. This regulation is intended to take into account the risk assumed by the business successor. Deviating orders of the decedent remain reserved.

Enhanced protection for compulsory portion heirs

Last but not least, the new regulations should provide stronger protection for heirs entitled to a compulsory portion (Art. 618 revCC). It is excluded that a compulsory portion heir, against their will, receives a part of the compulsory portion in the form of minority shares while another heir holds control over the business.

What's next?

The preliminary draft was well received in the consultation process, as the Federal Council announced at its meeting on February 26, 2020. The FDJP will submit the message to the Federal Council. The new regulation is not expected to come into force before 2021.

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