In our newsletter “New Swiss Inheritance Law” we provided information on the latest changes in Swiss inheritance law. Today we look ahead to the second stage of the inheritance law revision – the planned simplifications in the succession of companies.

1. What will change regarding the statutory compulsory portions?

With the abolition of the compulsory portion for parents and the reduction of the compulsory portion for descendants, which came into force on 1 January 2023, the freely available portion of the inheritance has been expanded. We have already published a newsletter on this, which you can find here.

2. How does the inheritance law reform affect succession in companies?

The testator can now transfer a larger part of their business to one or more successors. The scope for design continues to find its limits at the compulsory shares of the heirs. This means that the transfer of a business to a successor is only possible if the successor can settle the compulsory share claims of the other heirs. If they do not have the financial means and no agreement is reached between the heirs, the business must be sold or liquidated. With the aim of avoiding such drastic measures and favouring successful business successions, various adjustments are proposed:

3. Can the business be assigned to one heir alone?

Under the current law, the testator can issue binding division provisions and assign the business to one heir alone. If they fail to do so and the heirs cannot agree, a court must make the allocation.

Newly, and provided that the testator has not made any division provision, each heir may demand that the entire business be allocated to them. If several heirs request the allocation, the enterprise shall be allocated to the heir who appears to be the most suitable for the management of the enterprise. Several heirs may also jointly request the allocation.

4. When are compensation payments to be made to the other heirs?

Upon the death of a married entrepreneur, the marriage is dissolved, and the assets of the spouses are divided under property law. If the immediate payment of a claim arising from the division causes serious payment difficulties for the surviving spouse, they can demand that payment deadlines be set. To facilitate business succession, under the new law the heirs of the deceased spouse should also be able to demand payment deadlines from the surviving spouse if a business is involved.

Under current law, the heir who takes over the business must immediately pay out any compensation payments to the other heirs after the death of the deceased. Newly, the successor to the business is to be granted payment periods of a maximum of ten years if immediate payment causes them serious difficulties.

5. What applies with regard to the valuation of the business?

Even if the business was transferred to a successor before the death of the deceased, the valuation is based on the market value of the business at the time of the deceased’s death. Since the valuation at the date of death can lead to unsatisfactory results, under the new law the possibility is to be granted to credit the enterprise at the fair market value at the time of the donation or the assumption of control. For this purpose, a company valuation according to recognised principles is to be prepared at the time of the transfer and submitted to the competent authority within one year.

6. What rights are available to the heirs of the compulsory portion?

As a counterbalance to the proposals for a simplified business succession, the co-heirs who do not take over the business are to be better protected. For example, an heir whose compulsory part is to be fulfilled through the allocation of a minority share in the company is now to be able to refuse this. Furthermore, additional rights and obligations of the heirs of the compulsory portion are introduced for minority or majority shareholdings received during the lifetime or upon the death of the testator.

7. To whom and from when do the new provisions apply?

The proposed provisions on business succession are to apply to economically active sole proprietorships, simple partnerships, and unlisted commercial companies. Holding companies that do not control an economically active company and companies that exclusively manage their own assets are not covered.

The Federal Council adopted the dispatch on corporate succession in inheritance law on 10 June 2022. The next step is the parliamentary discussion of the revision bill in the National Council and the Council of States. It is currently not possible to estimate when and in what form the draft revision will enter into force.

8. Take-Home Message

• Succession and estate planning in a company should be planned and implemented at an early stage and whenever possible before the death of the entrepreneur.
• To ensure optimal use of the extended structuring options regarding a company succession since 1 January 2023, existing dispositions by reason of death (inheritance contract / will) should be reviewed and adjusted if necessary.

Our specialists will gladly advise you on succession planning and on drafting or adapting a testamentary disposition or a contract of inheritance.

Our in-house notary is available to provide notarial services in the Canton of Schwyz.