One child takes over the company: how do you pay out the siblings?

Picture the owner of a successful Swiss GmbH. His daughter works in the business and wants to take over. Two other children have chosen different careers. For the father one thing is clear: the company should carry on, and none of his children should feel passed over.

That sounds like a clear starting point. It gets harder when it comes to the question of which funds the other children's shares should come from. Machinery, customer relationships and a production hall have a value. But they cannot simply be used to pay out the siblings.

In my view, a succession arrangement therefore has to answer three questions together: Who receives the ownership? What are the others entitled to? And who can actually finance the payments agreed?

1. Six million in assets, one million available

A simplified example of a later division of the estate: a widowed entrepreneur leaves three children. His shares in the GmbH are worth five million francs. He also owns one million francs in freely available private funds. The net estate amounts to six million francs. Debts, earlier gifts, pension benefits and tax consequences are left aside in the example. The daughter is to receive all the shares in the GmbH.

Without a disposition to the contrary, each child's statutory share is two million francs. Since 2023 the compulsory portion has been half of the statutory share. In this example that is one million francs per child.

The second variant requires a valid arrangement under inheritance law. It is a deliberate unequal treatment: the daughter receives more in economic terms. Protection of compulsory portions and equal treatment are two different goals. Which solution the family perceives as fair cannot be derived from the law alone.

The example also shows: even if the other children are limited to their compulsory portion, a financing gap remains. The reduction of the compulsory portions has widened the room for manoeuvre. It does not provide the missing money.

2. «My daughter gets the company» is not enough

Such a wording on its own settles neither the shares in the estate nor the financing. The allocation of an asset to one of the heirs is, in case of doubt, regarded as an instruction on how to divide the estate. Its value is then credited against that heir's share. If the daughter is to be favoured in addition, this must be stated clearly. The compulsory portions of the others still have to be respected.

A transfer during the owner's lifetime raises further questions: Does the daughter buy the shares at full value, does she receive a gift, or is part of the purchase price deliberately waived? A mixed gift can later become relevant for hotchpot among the heirs and for the protection of compulsory portions.

Nor does the declaration «exempt from hotchpot» remove a possible infringement of compulsory portions. This is why the transfer agreement, the will and any existing contracts of succession belong on the table together.

3. Which solutions are available to an SME?

Using other assets for the siblings

Private securities or a property held outside the company can help to transfer the company undivided. What matters are net values and availability. A house with a mortgage is not an equivalent alternative to immediately available cash.

If the property is already held by the GmbH or AG, taking it out can trigger taxes and further costs. Separating the business from the real estate needs its own economic and tax review.

Agreeing payments over several years

In a sale, the previous owner can leave part of the purchase price outstanding as a vendor loan. In the case of inheritance, the parties can agree to pay out the siblings in instalments.

This way the creditors share in the risk of the succession. In particular, interest, term, security, ranking relative to bank loans and the consequences of late payment need to be settled. A mere repayment schedule does not yet protect against default.

Financing the successor through a loan

A bank loan can close the gap if the successor brings in sufficient equity and the financing is sustainable. Business and takeover must be looked at together. The company still needs funds for investment, staff and weaker years.

In an AG or GmbH the company's assets belong to the company. Private obligations towards siblings cannot simply be paid out of the company's accounts. Distributions, loans and security must be permissible under company law and reviewed for tax.

Remaining co-owners

The siblings can keep shares while the daughter runs the business. That reduces the immediate need for cash. But it requires that those involved want this role and understand it.

It then takes clear rules on management, the salary of the daughter working in the business, dividends, information rights and a later exit. Otherwise the conflict shifts from the division of the estate into the company. Ownership can be divided. Expectations about income, say and risk must be discussed explicitly.

4. Can the financing survive a bad year?

Suppose the successor has to repay one million francs over seven years. With even repayment that is around CHF 143 000 a year, plus interest.

Suppose further that, after her own living costs and all taxes, CHF 240 000 a year is available to her for this debt service. This only counts legally permissible payments from the company after it has financed its investments, current obligations and necessary reserves.

In a good year this can work. If the available amount drops to CHF 120 000, it is no longer enough even for the repayment.

That is why succession planning includes a calculation for several scenarios: What happens if a key customer is lost? If a machine has to be replaced? If payments are delayed? A high annual profit or EBITDA alone does not answer these questions. What counts are the funds actually available at the level of the person who has to pay.

5. Settling the company value and the crediting properly

For the transfer, the first thing to clarify is which value is meant: the value of the business before deducting financial debt, or the value of the shares actually transferred. For the family wealth in the example, the share value counts. Debts must be neither deducted twice nor overlooked.

A comprehensible valuation takes into account, among other things, the sustainably achievable earnings, the dependence on the previous owner and the need for investment. The tax value is not automatically the right price for the succession.

In a gratuitous transfer during the owner's lifetime, the later crediting value must also be examined. For statutory hotchpot, the value at the time of the succession is as a rule decisive. Exceptions and permissible deviating instructions have to be assessed separately. A valuation report today therefore does not settle the later question under inheritance law.

A suitably drafted contract of succession involving the persons concerned can regulate valuation and hotchpot more bindingly. It must be publicly notarised. Fallback solutions belong in it too: What applies if the daughter dies first, the takeover fails or the company is sold on soon afterwards?

6. What is left for the previous owner?

In a transfer during the owner's lifetime, their own security must be calculated separately. How much will the owner need in future for housing, travel, taxes and the unforeseen? Which funds remain available even if the company earns less?

Whoever leaves most of the purchase price outstanding as a vendor loan remains economically dependent on the business. The same applies if living costs are to be covered mainly by future dividends or a consulting mandate. A succession can be bearable for the children and still endanger the parents' retirement provision.

7. You cannot count on a statutory payment deferral

The general revision of inheritance law of 2023 applies. The additional bill on business succession under inheritance law, however, was ended in Parliament in 2024. The special payment deferral for succeeding heirs proposed in it is not applicable law.

A payout over several years therefore needs a robust arrangement of its own. The consent of those concerned and the financing should be settled before a death puts the family under time pressure.

Five questions for your next family conversation

1. Who wants to and can take over the company, and who would prefer ownership, income or a complete exit?
2. Should all children receive the same, or should the person taking over be favoured within the legal limits?
3. How high are the entitlements, and which funds outside the business are actually available?
4. Who owes which payment, by when, with what security and from which income?
5. What happens if the successor drops out or the financing is no longer sustainable?

The answers show which combination of transfer, financing and agreement under inheritance law is needed. If a solution within the family overstretches the business or the retirement provision, external management or a sale to a third party also belong in the review.

Legal bases and further sources

• Swiss Civil Code: in particular Art. 457, 470 and 471, 494 and 495, 512, 522 et seq., 608 and 626 to 630.
• Courts of the Canton of Zurich: compulsory portion (in German).
• Courts of the Canton of Zurich: legacy and instruction on division (in German).
• Courts of the Canton of Zurich: formal requirements (in German).
• Federal Supreme Court, BGE 133 III 416, consid. 6.3.1: valuation date for hotchpot. The decision concerns a gift of land and is cited here only for the general valuation principle (in German).
• Federal Supreme Court, judgment 5A_425/2020 of 15 December 2022: requirements of a mixed gift (in German).
• SECO, SME portal: succession financing, basics and success factors (in German).
• Parliament, business 22.049: bill on business succession, closed after the Council of States again declined to consider it on 12 March 2024.
• Code of Obligations: in particular Art. 675 and 798 on distributions by an AG and a GmbH.