Establishing a family foundation can be a sensible means of preventing disputes from arising among heirs as well as resolving the issue of business succession.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: In the case of many family-run companies, the issue of business succession will need to be addressed in the coming years. This can prove to be a challenging issue for various reasons, e.g. there may not be a suitable successor on the horizon from within the family, disputes can arise among the heirs, or the assets might be broken up in the event of succession. This could in turn jeopardize the company’s existence and thus also put the financial security of close relatives at risk.

In cases such as these, setting up a family foundation could be a sensible alternative. In doing so, the founder contributes personal and/or business assets to the foundation. The foundation is then meant to ensure the firm’s continued existence, with disposal, voting and control rights going to the foundation’s governing bodies, e.g. the executive board. The foundation can take account of family members and therefore ensure their financial security. The assets can be contributed by the founder during his lifetime or not until succession takes place.

A family foundation has several advantages: it can prevent assets from being split up, for instance, as a result of divorce or inheritance cases. Moreover, relatives do not have the opportunity to dispose of their shares in the business assets and thus put the continued existence of the business at risk. A foundation can also entail tax advantages.

When it comes to foundations, great importance is attached to their statutes. They define the foundation’s purpose, set out its structure and its beneficiaries. Accordingly, they need to be prepared in suitable detail while adhering to the legal framework.

When establishing a foundation, lawyers who are versed in the fields of company law and tax law can be consulted. They can ensure that the statutes are drafted properly and the foundation’s purpose is clearly defined, thereby making it possible to avoid potential legal disputes.

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