Many business successions do not go according to plan. Business owners often give too little thought to the potential consequences of an unexpected death. As a result, companies often find that succession plans and rules for leadership succession are simply not in place when an emergency arises. Understandably, this issue of emergency management is often swept under the rug. To ensure that an already tragic situation isn’t made worse by a lack of planning, we—as tax advisors based in Düsseldorf and Oberhausen—recommend an emergency kit for business owners.
What is the emergency kit for business owners?
An emergency kit can help answer some important questions following the entrepreneur’s death. There is no one-size-fits-all answer to what this emergency kit must contain. Rather, the key is for the business owner to give this thought early on and prepare for the “worst-case scenario” in a way that meets their specific needs. It is particularly important that the emergency kit is kept up to date at all times.
If the entrepreneur passes away, the surviving family members and heirs are left to fend for themselves. They are quickly faced with questions that typically no one has adequately addressed:
- Where is the will?
- Which advisors are in the know and can help?
- Are there any points of contact within the company?
- Do other people need to be notified immediately?
To ensure these questions can be answered quickly and without obstacles, it makes sense to maintain the aforementioned emergency kit. This should, of course, be easily accessible and known to the heirs. If, for example, the emergency plan is located in an inaccessible locker, this creates avoidable difficulties for the next steps.
A risk management system in the form of an emergency kit requires relatively little effort and is therefore a sensible and valuable resource. In many cases, there is even a legal obligation to establish an emergency system. This includes, for example, provisions for the entrepreneur’s incapacity (Section 91(2) of the German Stock Corporation Act (AktG)—applicable mutatis mutandis to limited liability companies (GmbHs); Sections 289, 317(4), and 321(4) of the German Commercial Code (HGB) for medium-sized companies).
One advantage is that loan terms often improve during the entrepreneur’s lifetime if a solid emergency plan is in place. An emergency kit enhances overall planning security.
The emergency kit includes optional “may” measures and mandatory “must” measures. Mandatory measures include, for example, ensuring the ability to act and securing the company’s continued existence.
Legal Succession
First, business owners must determine who their legal heirs are. Without a will, spouses and biological children are automatically entitled to inherit. If you have no children, your parents—or, if your parents are already deceased, your siblings—are entitled to inherit. If there are no siblings either, distant relatives inherit. Therefore, you should ask yourself whether the statutory order of succession aligns with your wishes or whether an adjustment is necessary. The desired succession within the company should be secured through a contractual arrangement.
As an entrepreneur, you must also consider that corporate law provisions can partially override inheritance law provisions. For example, if you stipulate in your will that your daughter is to continue the business, it may happen that the articles of association exclusively name your spouse. In such a case, the articles of association take precedence, and the heir named in the will receives only a settlement. It is therefore always important to reconcile inheritance law with corporate law to avoid problems later on.
Ensuring the Company’s Operational Capacity
Often, various individuals (employees, business partners, etc.) depend on a company. It is therefore particularly important that business owners ensure in a timely manner that their company remains capable of operating in the event that they themselves are no longer available. Employees and family members may be able to keep the company running without leadership in the short term. In the long term, however, it is necessary to ensure that the company’s ability to operate remains guaranteed beyond this minimum level.
It is particularly important to grant sufficient powers of attorney (bank powers of attorney, powers of attorney for acting on behalf of the company). Time and again, we see that business owners tend not to grant postmortem powers of attorney for bank accounts. For family members, this can quickly lead to significant liquidity problems if access to company accounts is not possible. In such cases, it often takes weeks for a certificate of inheritance to be issued in order to obtain the necessary access. In addition to the required power of attorney, the authorized representative must also be provided with the necessary login credentials.
In addition to a power of attorney, it is particularly important that key business processes be documented. If a company has important recipes, for example, these must not be lost with the owner. Any relevant information is recorded in a minimum document and made available to the next of kin. Important contracts must also be stored in an accessible location to ensure the ability to act.
Checklist – Contents of the Emergency Kit
If you are among the business owners without an emergency kit, we hope you will follow our advice and put together a business emergency kit as soon as possible. To help you succeed in this, we have clearly summarized below what must be included in the emergency kit. If you have any questions or would like professional assistance, we are your point of contact as tax advisors in Düsseldorf and Oberhausen. We look forward to hearing from you.
