Unlocking the secrets of successful generational change in your business: 3 expert tips

In Finland, there are hundreds of thousands of companies, and the majority of them are small and medium-sized enterprises. Entrepreneurs are resilient, but no one can work tirelessly forever. For many, a generational change and related arrangements come into play at some point. The process is complex, and seeking the assistance of an expert in planning is advisable. This ensures the best possible conditions for continuing the business and may result in significant tax benefits. Explore our experts’ three tips when planning for the generational change in your company.

1. Thorough planning is key

In the generational change of a business, ownership shifts among family members or close relatives. The method of execution depends on the situation of the business, and there are no strict guidelines. Due to the relatively free nature of the implementation, meticulous planning becomes even more crucial. Generational change differs from selling a business to an outsider, especially concerning tax relief.

Careful planning and a calm execution allow the successors to familiarize themselves with running the business and learn everything needed from the previous generation. Additionally, tax consequences can be efficiently planned, leading to substantial savings. Customers and stakeholders also have time to adapt to the change, preserving trust.

2. Clear goals at the center of everything

When an expert from Administer assists your company in a generational change, they initiate the planning with a joint definition of goals. It’s crucial to know:

• Expectations of different parties involved.
• How the well-being of the retiree is considered in the change.
• Who owns the company after the change and in what proportions?
• Who takes on which roles?

Clear goals provide a solid framework for exploring financial, tax, and legal alternatives.

3. Tax planning equals savings

The taxes payable in a generational change can be significantly lower if the change is well-planned and executed on time. From a tax perspective, it’s often beneficial to gradually gift or transfer the business to the successor as an advance inheritance. If certain conditions are met, exemptions can be obtained from inheritance and gift tax. These conditions include:

• Business structure
• Family relationship
• Purchase price
• Ownership period
• Timely request for exemptions

Changes can also influence tax consequences in the company’s legal form or partnership agreement, dividend distribution, division, directed share issue, and acquiring own shares. The tax authorities’ view of the business’s fair value is crucial because, for instance, the gift tax is determined based on it. Fair value refers to the likely transfer price at which the property would be sold and bought in a transaction between unrelated parties.

We are here to help you navigate through change – get in touch!