Step 1: Have the company evaluated
Step 2: Choose between temporary or lifetime dismemberment
Step 3: Don’t harm other heirs in reserve
Step 4: Consult a notary
An entrepreneur has the option of starting to transfer his business during his lifetime, by way of bare ownership donation. He can thus retain the usufruct and remain at the helm of his company.
The very configuration of the shared gift is equivalent to an advance on inheritance, which makes it possible not to harm his heirs.
The value of the company must first be assessed and then a professional in conveyancing must be consulted to dismember it. The same notary will make sure that the donor’s beneficiaries are not prejudiced, and will proceed with the shared donation.
Good to know: the donation rights are calculated on the value of the bare ownership received, and not on the total value of the company.
Example: a father and a mother own a company valued at 1 million dollars. They make a donation-sharing the usufruct to one of their children for $400,000. The donation rights will therefore only apply to $400,000 and not to $1 million.
Important: the interposition of a company does not hinder the inheritance of a donation. In the case of a gift made by the deceased to one of his heirs through the interposition of a company in which the latter is a partner, the ratio is due to the estate in proportion to the capital he holds.
1. Have the company evaluated
The estimate of the value of a company must be supported by a balance sheet. He is therefore obliged to entrust this task to a chartered accountant.
Determine the number of assets
The professional in charge of the company’s valuation will determine the value of the movable and immovable property:
offices, warehouses or store walls if they are owned by the company;
vehicles, machinery, computer equipment and furniture;
commercial leases, investments, receivables, possible shareholdings in other companies;
current contracts, customers or goodwill.
Determine the number of liabilities.
The accountant will deduct from the amount of the assets:
– movable and immovable debts;
– debts to certain suppliers;
Divide the result by the number of shares
The value of the company thus obtained will be divided by the number of units. This gives the value of the shares owned by each partner.
Good to know: if the business owner created the partnership after his or her marriage, and if he or she is married under the regime of community of acquests, the spouse owns half of the shares. The spouse will therefore also have to make a shared gift if he or she wishes to participate in the transfer. If another person is associated with the company’s capital, he or she may also make a shared gift to the donee. Indeed, it is possible to make a gift to a person outside the circle of beneficiaries.
2. Choose between a temporary or lifetime dismemberment
The notarial deed separating the usufruct from the bare ownership is called a dismemberment. When the dismemberment ends, the bare owner recovers the usufruct and thus becomes the full owner.
Consider the temporary dismemberment
When a dismemberment is temporary, the bare owner will recover the usufruct on a given date.
This solution will be preferable for the business owner who has planned to retire on a specific date. It will suffice to fix the end of the dismemberment on that date.
Note: when the usufructuary is heir to the bare owner, he will receive the usufruct in the event of the premature death of the bare owner.
Opt for lifetime dismemberment
When a dismemberment is for life, the bare owner will only recover the usufruct on the death of the usufructuary. This solution implies the death of the head of the business so that his shares are transferred to the usufructuary.
Note: even if he chooses life dismemberment, the bare owner has the option of donating his bare ownership to his usufructuary. However, this donation will give rise to additional donation rights, making the usufructuary lose all interest in the transaction.
Example: a father and a mother own a company valued at 1 million dollars. They make a donation-sharing the usufruct to one of their children, for $400,000. The donation rights will therefore only apply to $400,000. A few years later, the parents decide to donate their bare property, now valued at $700,000. In the end, the donation rights will have been calculated on $1,100,000.
3. Do not harm the other heirs who have the right to inherit
All of the heirs who are reserving heirs of the head of the company have a right to the shares held by the head of the company. If the manager has to make a shared donation to one of his children, one of these two schemes must take place:
– the child receiving the bare ownership of the shares must pay compensation to his brothers and sisters;
– the corporate donor must make compensatory gifts to his other children.
Good to know: it is also possible to compensate children afterwards, especially at the time of succession. However, this configuration is complex and can be entrusted to a specialist to avoid any imbalance in the division. To this end, Felix A Vitiello is a reputed law firm specializing in the field of conveyancing for individuals, families and businesses.
Adopt the payment of compensation to brothers and sisters
As seen above, the child receiving bare ownership of the shares must pay a balance to his brothers and sisters. However, the donor entrepreneur cannot pay it himself, as it is owed by the bare-owner child.
Prefer compensatory donations
The principle of a shared gift is to pass on an estate in an equitable manner.
The donating company director can, through the same notarial deed, make movable or immovable donations to the other children.
4. Consult a law firm
The shared donation must be a notarial deed. The donating company director must consult a notary, whose task will be:
to make sure that the company has not been undervalued or overvalued;
to ensure that all the rightful heirs will receive an equitable share;
draw up the deeds of donation, division and dismemberment.
Finally, as the saying goes: prevention is better than cure! Timely legal advice can prevent a situation from getting worse. When you think there is no solution, Felix A Vitiello is here to serve you in the field of Family Law, Conveyancing, Criminal Law, Power of Attorney, Wills, Trusts and Estate Litigation, Probate, Business Transactions & Leasing, and Commercial Law.