Foundation law provides various forms of foundations for company succession, among other things. With the help of this legally compliant vehicle, company values can be secured and shaped in the long term and transformation processes can take place within the company thanks to tax benefits.

When transferring to a family foundation, foundation law offers the opportunity to preserve the substance of the company, which would otherwise be jeopardised by tax burdens, while at the same time assuming entrepreneurial responsibility. The advantage for very wealthy entrepreneurs is that they can transfer their assets to the family foundation tax-free with the help of the inheritance tax exemption test.

Corperate succession and Foundation law 

When it comes to the efficient, individualised and responsible structuring of the transfer of a sometimes large company, the German legal system offers a significant vehicle in the form of foundation law with a wide range of structuring options for company succession.

In particular, foundation law has the advantage that a company is not fragmented by transferring it to a foundation, for example in the event of inheritance. Different structuring options in foundation law open up room for manoeuvre and control options with regard to the continued existence of the entire company after the death and during the lifetime of the founder.

The type of foundation that makes sense under foundation law generally depends on the purpose of the foundation and the intended business succession. For this reason, a responsible and precautionary examination of the various structuring options for company succession under foundation law should be carried out.

A foundation with legal capacity is an independent pool of assets that uses its income to permanently and sustainably pursue a purpose defined in the articles of association (see §§80 et seq. of the German Civil Code; BGB). After being recognised by the state, this independent foundation itself holds the endowed assets, is represented by its board of directors or managing director and is generally established for an indefinite period (see §80 (1) BGB).

This means that under foundation law, assets can be dedicated to a specific, arbitrary purpose in an uncomplicated manner with the help of the foundation charter. For example, there are foundations under foundation law that pursue a charitable purpose (see §52 of the German Fiscal Code; AO). 

It is also possible under foundation law to dedicate the foundation to a private (family-) purpose and transfer the founder's assets during his or her lifetime. This offers the possibility of setting up a family foundation. In the case of a family foundation, the purpose of the foundation thus includes the private financial interests of the entrepreneurial family.

The family foundation

A family foundation is established under foundation law by recognising the foundation business, which consists of the foundation's assets and purpose, and transferring the assets to the foundation. The foundation's assets can also consist of the participation of a company.

With the family foundation, foundation law opens up the possibility for a family to protect the company from fragmentation in the event of inheritance and to sustainably organise the company structure and its existence in the event of a transfer to a new generation. This vehicle in foundation law can ensure entrepreneurial participation and a long-term opportunity for the family to influence the company.

The family foundation under foundation law is an important vehicle for families precisely because it is able to secure the continuation of the business in a professional manner close to the family. The family foundation is fundamentally in the private family interests of the founder, as it serves to permanently preserve the family's assets as well as cohesion and strengthening of the company over many generations.

Another significant advantage is that it safeguards the company's continued existence. Since the assets or the company are not broken up or bequeathed, but are in principle permanently tied to the private purpose of the family foundation, foundation law offers a useful vehicle for securing the company's continued existence.

In addition, the transfer of a company to a family foundation provides significant planning security, as the date of creation of a family foundation under foundation law can be planned and predicted, unlike an unforeseeable death.

This is because a family foundation under foundation law can prevent the fragmentation of a sometimes large company in the event of an unforeseeable inheritance. If a company is transferred to a family foundation during a person's lifetime, the continuity and cohesion of the company values for the family is ensured across generations.

On the other hand, the continuation of the company can also be specifically and individually secured with the help of forward-looking planning in foundation law. For example, the company structure can be adapted and, if necessary, restructured during a person's lifetime, working towards the date of creation.

Family members can plan in advance whether and to what extent they wish to have ongoing control and influence over the company. 

Which Family foundations exist in Germany?

If the company is transferred to a family foundation under foundation law during the founder's lifetime, the founder can continue to develop it as an active entrepreneur.

In 1987, the top German entrepreneur Reinhold Würth decided to transfer the entire business assets of the Würth Group, world market leader in the manufacture and assembly of fastening and assembly materials, to four family foundations.

Würth said: „If I die, nothing happens. The company just carries on the next day. The company is like a steel ball, a construction in itself, no family member can touch it. It's sacrosanct." This makes Würth just one example of a successful entrepreneur who knows how to use the family foundation under foundation law not only to secure private assets, but also to secure entrepreneurial freedom and long-term organisational options.

In 2012, the German entrepreneur Günther Fielmann also transferred the majority of shares in his company, one of the largest optician chains, to a family foundation. This was because Fielmann attached particular importance to passing on and preserving his life's work within the family.

Inheritance tax

In principle, the transfer of assets or companies to a family foundation is subject to taxes under foundation law. These basically correspond to the regulations on inheritance and gift tax. However, there are some special features.

This is because some tax benefits apply to family foundations under foundation law. In particular, the German legislator grants some special features in foundation law in order to minimise the tax burden when a company is transferred. This is intended to protect the company from going under due to the impending tax burden.

Due to the preferential inheritance tax treatment for business assets, the transfer of business assets of up to 26 million euros can take place with a tax relief of 85% or 100% (§13a and §13b (2) of the German Inheritance and Gift Tax Act, ErbStG). The conditions must be met for this, according to which, among other things, there must be assets eligible for preferential treatment and the retention period and minimum wage amount must be complied with (§13b (1); §13a (6) and (7), (3) sentence 1 ErbStG).

What is the inheritance tax exemption test?

If favoured assets of more than 26 million euros are to be transferred to the family foundation, an inheritance tax needs test  pursuant to §28a ErbStG can also be carried out upon application. This is called Verschonungsbedarfsprüfung. If it can be proven that the family foundation is not in a position to pay inheritance tax from its available assets, no tax is to be paid.

Pursuant to §28a (2) ErbStG, the available assets of the family foundation under foundation law include 50% of the sum of the fair market value of the donated assets and the non-beneficiary administrative assets already held by the foundation. 

The advantage for very wealthy entrepreneurs is that, from assets of 26 million euros, all higher assets, including assets of several hundred million euros, can be transferred to the family foundation tax-free. Of course, the requirements for the tax exemption test must be met.

These two options for tax relief mean that important liquidity is created or retained for the company when it is transferred to a family foundation under foundation law.

And the financial resources saved open up room for manoeuvre, especially for large companies. With the help of this room for manoeuvre, entrepreneurs can face up to the responsibility that a large company and high assets entail when they transfer their company to a family foundation (More about Corporate Social and Corporate Cultural Responsibility).

They can fulfil their entrepreneurial responsibility by using these financial resources for new investments within the company and planning for the long term. Companies in family foundations can also initiate transformation processes in this way, as tax savings can be used for digitalisation and renewal projects, for example.

When transferring sometimes large companies with high asset values to family foundations under foundation law, these tax exemptions can therefore be used to shape company values in a sustainable and innovative way. The tax exemption test protects companies from going under or stagnating due to excessive tax burdens.

Does it apply to the inheritance substitute tax?

As a family foundation with legal capacity can exist forever under foundation law, the foundation's assets are subject to inheritance substitute tax (Erbersatzsteuer) in accordance with §1 (1) number 4 ErbStG. This means that the inheritance is fictitious every 30 years and inheritance substitute tax is generally due.

However, the tax relief requirement test and the tax relief discount also apply to the inheritance substitute tax pursuant to §13a (11); §28a (7), §1 (1) number 4 ErbStG.

In view of the objectives of the family foundation under foundation law, which include the preservation of corporate values and active and innovation-promoting corporate management, these tax benefits are significant. This is because a high tax burden due to inheritance tax without exemption rules may in turn mean that the family has to structure the company differently and fragment it.

On the other hand, if a high tax burden does not have to be feared every 30 years, transformation processes can continue to take place on an ongoing basis, which maintains the planning security of the family foundation. Foundation law with its family foundation can therefore serve as a vehicle for planning the continuation of the business over the long term and across generations, whereby subsequent generations can benefit from transformation processes instead of having to face tax burdens.

Resumé

With its family foundation, foundation law offers a vehicle for the preservation of a company and for the efficient and responsible organisation of company succession with a view to the family's asset interests. The family foundation also creates an active planning opportunity across generations for entrepreneurs who want to think about and secure innovation opportunities during their lifetime.

„If an entrepreneur wants to take responsibility beyond their own lifetime, they can plan the fate of the company in a forward-looking and sensible way.“ Bertold Schmidt-Thomé, dtb-partner and expert in foundation law, says: „Taking on entrepreneurial responsibility also means developing strategies and creating room for manoeuvre in order to drive innovation in the company in a targeted manner and across generations.“

Status 24.04.2025