Death of a Limited Liability Company (GmbH) Shareholder: What Happens to the Share?

The GmbH is one of the most popular legal forms for small and medium-sized enterprises in Germany—there are currently around 1.9 million GmbHs. In many cases, these are family-owned businesses. But what happens if one of the shareholders dies? Who takes over the share? And what tax implications need to be considered?

Especially in the context of business succession, such cases raise complex civil and tax law issues. Those who fail to make timely provisions here risk protracted disputes, tax disadvantages, or even jeopardizing the company.

1. Heir or Community of Heirs as New Shareholder

As a general rule: If a shareholder dies, the GmbH is not dissolved. Shares in a GmbH are inheritable (Section 15(1) GmbHG). If a single person inherits, they automatically become the new shareholder. However, it is often the case that several people inherit jointly—resulting in what is known as a community of heirs.

This situation carries the potential for conflict, as the heirs must act in unison: voting rights, participation rights, and property rights may only be exercised jointly. Managing the shareholding is often difficult, especially when there are disagreements among the heirs. Furthermore, the settlement of the community of heirs or a lawsuit to partition the estate can drag on for years—with potential consequences for the company.

2. Provisions in the Articles of Association: Redemption and Assignment Clauses

Those who wish to avoid disputes should take precautions early on—specifically, in the articles of association. So-called redemption or assignment clauses are frequently found there. These allow the company share to be redeemed in the event of death, e.g., in exchange for a settlement payment, or transferred to another shareholder.

Important: Testamentary dispositions (e.g., a bequest) cannot override such corporate law clauses. The provisions in the articles of association take precedence.

Tax implications: If the shares are transferred to third parties through redemption or assignment, this constitutes a taxable sale transaction from the heirs’ perspective under § 17 EStG. Each co-heir must pay tax on the profit in proportion to their share of the inheritance.

3. Tax Classification: Income Tax and Inheritance Tax

From a tax perspective: The death of a shareholder does not result in a deemed sale. Rather, the heirs assume the legal position of the deceased in accordance with the so-called “footsteps theory” (Section 45 AO).

However, caution is advised in the case of business splits: If, for example, real estate from the holding company is transferred to non-shareholders through inheritance, hidden reserves may be realized—and thus subject to taxation.

In the case of inheritance tax, however, a generous tax exemption may apply: If the deceased held more than a 25% stake in the GmbH, this constitutes so-called “favored business assets.” Under certain conditions, this is 85% or even 100% tax-exempt (Sections 13a, 13b of the Inheritance Tax Act). However, it is important that the share be held for at least five years after the inheritance—otherwise, there is a risk of retroactive taxation.

4. Conclusion: Plan succession in a timely manner—with the support of a tax advisor

The death of a GmbH shareholder is not only a personal crisis but also a highly complex matter from a tax and legal perspective. Failing to make timely provisions—such as through a well-thought-out articles of association or clear testamentary arrangements—not only jeopardizes the company’s financial stability but also risks tax disadvantages for the heirs.

Comprehensive succession planning that takes into account both corporate law and tax aspects is therefore particularly recommended for family businesses.

As tax advisors in Düsseldorf and Oberhausen, we assist you in structuring your business succession in a legally sound manner. Whether it involves inheritance, a GmbH share, a business split, or tax optimization—we know the pitfalls and will present you with customized solutions for your specific situation.

Are you planning a succession or are you yourself the heir to a GmbH share?
Please feel free to schedule a consultation with our firm in Düsseldorf and Oberhausen.