<h3>1. Changes to the law on compulsory shares as of January 1, 2023</h3>
As of January 1, 2023, the first part of the ongoing revision of Swiss inheritance law will enter into force. The most important changes with regard to company succession are:
<ul>
<li>reduction of the compulsory share of descendants from three quarters to half of their statutory inheritance share: This increases the so-called freely available quota, i.e. the share of the estate that can be transferred without compulsory share restrictions.</li>
<li>abolition of the compulsory share of the testator&#8217;s parents.</li>
</ul>
The new rules on compulsory shares are applicable to testators who die after December 31, 2022.
Example 1: If a married testator with descendants dies before January 1, 2023, they have a freely available quota of 37.5%<a href="#_ftn1" name="_ftnref1">[1]</a>. If they die later, the testator may freely dispose of 50% of their inheritance at their own discretion<a href="#_ftn2" name="_ftnref2">[2]</a>.
Example 2: If a testator dies before January 1, 2023, leaving only their parents as statutory heirs, they have a freely available quota of 50%<a href="#_ftn3" name="_ftnref3">[3]</a>. If they die later, the testator may dispose of their entire inheritance at their own discretion<a href="#_ftn4" name="_ftnref4">[4]</a>.
Thus, as of January 1, 2023, testators will have more testamentory freedom. This will facilitate the integral assignment of a company to an heir. However, last wills drafted before January 1, 2023, should be reviewed, especially those referring to compulsory shares. Otherwise, interpretation disputes may arise between heirs.
<h3>2. Federal Council Dispatch of June 10, 2022 – Company succession</h3>
On June 10, 2022, the Federal Council submitted the Dispatch<a href="#_ftn5" name="_ftnref5">[5]</a> on the second part of the inheritance law revision to the Federal Assembly. Subject of the corresponding draft to amend the Civil Code (hereinafter referred to as D-CC)<a href="#_ftn6" name="_ftnref6">[6]</a> are specific measures to facilitate the succession of companies.
«Companies», as defined in the draft act, are economically active simple partnerships, individual companies and non-publicly listed commercial companies. The company may carry out its activities directly or through a company controlled by it (art. 616 para. 1 D-CC). Not included are companies that exclusively manage their own assets (art. 616 para. 2 D-CC). For the acquisition of agricultural companies and land, the Federal Act on Rural Land Rights (RLRA) will continue to be applicable.
Below, we look at the most important aspects of the draft act and address selected issues.
Possibility of integral assignment of a company (art. 617 D-CC)
Already under current law, a testator can assign an entire company to a specific heir with binding effect by means of a testamentary disposition (subject to the compulsory shares of statutory heirs). However, if the entrepreneur has not made a will, the heirs must reach an agreement on the succession of the company. Due to the principle of equal treatment of heirs, in general no heir can demand the integral assignment of a company to themself against the will of the other heirs. If the heirs cannot reach an agreement, the only option is often to sell or liquidate the company.
In order to facilitate the integral assignment of an undivided company to one of the heirs, the Federal Council proposes article 617 D-CC. Based on this, an heir may request to be assigned the entire company (or all participations belonging to the estate), provided the entrepreneur has not made a testamentary disposition in this regard. If several heirs apply for integral assignment, the court must decide which heir receives the company, giving preference to the heir who is better qualified to manage the company.
Article 617 D-CC thus allows the transfer of the entire company to an heir if no testamentary dispositions have been made. However, the potential for conflict between heirs is high if company succession is not discussed until after the death of the entrepreneur: Who may/must take over the company? Who is best suited? What would the deceased have wanted? At what value is the company to be taken over (in view of the multitude of possible valuation methods)? According to which valuation principles do the courts have to decide? Instead, it is more advisable to arrange the succession already during the lifetime of the entrepreneur, if possible, in a consensual and comprehensive manner. In this case, article 617 D-CC would not be applicable, since testamentary dispositions take precedence over the provision.
Granting a deferral of payment (art. 619 D-CC)
Once it has been established who is to take over the company, the question arises as to how the other heirs (with compulsory shares) are to be compensated. If the company is the most valuable asset of the estate, the heir who takes over the company often has to make compensation payments to their co-heirs. Under current law, these compensation payments are due immediately. A lack of liquid assets on the part of the heir taking over the company or of the estate can therefore effectively make the desired company succession impossible.
To alleviate this problem, the Federal Council proposes article 619 D-CC. Based on this provision, the heir taking over a company may apply to the court for a deferral of payment to settle the claim of the co-heirs. This requires, however, that immediate payment of the claims of the co-heirs would cause the applying heir serious difficulties. Difficulties are «serious» if they could prevent the heir from taking over the company (for example, because they would have to sell parts of the company to do so). The payment period granted may be a maximum of ten years. According to the Dispatch, however, a maximum of five years should be granted as a general rule in order to protect the interests of the co-heirs. Claims of heirs with compulsory shares may also be deferred pursuant to article 619 D-CC.
To take the interests of the other heirs into account, the court may combine the deferral of payment with certain conditions (e.g., a binding repayment plan). In addition, the deferred amounts must be subject to appropriate interest payments. The appropriate interest rate is to be determined by the court.
Furthermore, the deferred amounts shall be secured unless this is impossible due to specific circumstances. In the latter case, no security needs to be provided. This will likely mean that precisely in cases where security would be needed most urgently, none needs to be provided. It also remains unclear what could be considered sufficient security.
In principle, article 619 D-CC could indeed facilitate company succession: The heir taking over the company is given the opportunity to generate the liquidity required for the compensation payments over an extended period of time. However, a testator cannot unilaterally decree that the heir taking over the company is granted a deferral of payment. Rather, the heir must apply for deferral of payment to the court, which has considerable discretion in the specific form of the deferral (duration, interest, modalities, security). While this allows for case-by-case solutions, it carries the risk of lengthy legal proceedings, which can complicate a successful succession.
Specific rules on the valuation of the company in the event of compensation (art. 630a D-CC)
In order to ensure seamless management of the company, entrepreneurs often transfer their companies to their successor during their lifetime. If the transfer is (partially) at no cost, a compensation obligation regularly arises in the event of death (art. 626 et seqq. CC). In other words, the value of the pre-received company is debited to the receiving heir in the context of the division of the estate. Under current law, the valuation of the pre-received company is to be based on the time of the inheritance (art. 630 para. 1 CC).
Because there might be a considerable time period between the transfer of the company and the original entrepreneur&#8217;s death, this can lead to inequitable results: If the value of the company increases in the meantime, the community of heirs benefits, even if the increase is only due to the entrepreneurial performance of the heir who took over the company<a href="#_ftn7" name="_ftnref7">[7]</a>. For this reason, the Federal Supreme Court does not subject the so-called industrial added value (i.e., the added value attributable to the entrepreneurial activity of the heir) to compensation<a href="#_ftn8" name="_ftnref8">[8]</a>. Rather, such added value remains solely with the heir who took over the company.
With the aim of transposing these considerations into law, the Federal Council proposes a nuanced rule (art. 630a D-CC):
<ul>
<li>Assets not required for business operations: Assets of the company that are not necessary for its operation (e.g., unused building land, art) continue to be valued at the time of the inheritance. The rationale behind this is that any fluctuations in value are not attributable to entrepreneurial activity and must therefore be borne by the community of heirs.</li>
<li>Assets required for business operations: The assets of a company necessary for its operation are valued at the time of transfer to the heir. From the moment that the heir gains control of the company, they shall bear the entrepreneurial risk alone.</li>
</ul>
However, the nuanced rule pursuant to article 630a D-CC only applies if a company valuation has been prepared at the time of the transfer of the company and has been submitted to the competent authority within one year. According to the Dispatch, the submission is made by the transferor or the heir taking over the company. The submission is irrevocable.
The decision to submit a company valuation pursuant to article 630a D-CC should be carefully considered by the heir taking over the company, as it entails considerable risks for them: When dividing the inheritance, the value of the assets required for business operations as of the time of the transfer of the company is taken into account, regardless of how much (or little) they are worth at the time of the division of the inheritance. The wording of the law does not provide for any exception. As a result, the heir taking over the company also bears risks that are not directly attributable to their entrepreneurial activity (e.g., an economic crisis). Unlike other pre-received estate items, the heir does not have the option of transferring the company back to the estate (art. 628 para. 1bis D-CC).
If no company valuation has been submitted, the assets required for business operations will be valued at the time of inheritance. The current legal situation, which sometimes leads to inequitable results, remains in place. It is unclear whether the aforementioned case law of the Federal Supreme Court, which excludes added value attributable to entrepreneurial activity from compensation, would still apply.
Protection of heirs entitled to a compulsory share (art. 618 D-CC)
As a counterpart to the above measures, which primarily favor the heir taking over the company, the Federal Council proposes article 618 D-CC: A statutory heir may not be assigned minority participations against their will to be offset against their compulsory share. If no heir is willing to take over the participations and compensate the compulsory share of the statutory heir, the heir may demand the sale of the company. This provision is in line with the case law of the Federal Supreme Court, according to which statutory heirs with compulsory shares are entitled to easily realizable assets<a href="#_ftn9" name="_ftnref9">[9]</a>, which regularly does not apply to minority participations.
<h3>3. Conclusion – Will company succession be facilitated?</h3>
The reduction of compulsory shares, which will come into force on January 1, 2023, will give testators greater flexibility for succession planning. Although this does not solve the existing problems of company succession, it does alleviate them.
The measures proposed by the Federal Council in its Dispatch of June 10, 2022, could additionally facilitate company succession in individual cases. In particular, the possibility of granting a deferral of payment gives heirs more leeway. However, the proposed measures are not self-perpetuating. The potential for conflict remains high but is merely being shifted to other issues (such as the specific details of the deferral of payment).
In addition, the proposed regulations only do partial justice to reality in that they capture an ideal type of company succession. However, practice shows that there are many different ways of structuring company succession, such as partial company succession or succession by third parties already involved in the company.
Forward-looking entrepreneurs and companies are well advised to plan and implement their succession at an early stage – ideally with the inclusion of all statutory heirs with compulsory shares. Only this will ensure a seamless and smooth company succession.
<h6><a href="#_ftnref1" name="_ftn1">[1]</a>        Inheritance share of spouse: 50%, of which compulsory share 50%, resulting in a freely available quota of 25%. Inheritance share of descendants: 50%, of which compulsory share 75%, resulting in a freely available quota of 12.5%. 
The total freely available quota is 37.5%. 
<a href="#_ftnref2" name="_ftn2">[2]</a>        Inheritance share of spouse: 50%, of which compulsory share 50%, resulting in a freely available quota of 25%. Inheritance share of descendants: 50%, of which compulsory share 50%, resulting in a freely available quota of 25%. 
The total freely available quota is 50%. 
<a href="#_ftnref3" name="_ftn3">[3]</a>        Inheritance share of parents: 100%, of which compulsory share 50%, resulting in a freely available quota of 50%. 
<a href="#_ftnref4" name="_ftn4">[4]</a>        Inheritance share of parents: 100%, no compulsory share, resulting in a freely available quota of 100%. 
<a href="#_ftnref5" name="_ftn5">[5]</a>        BBl 2022 1637; available in German, French and Italian at <a href="https://www.fedlex.admin.ch/eli/fga/2022/1637/de">https://www.fedlex.admin.ch/eli/fga/2022/1637/de</a> (last accessed on December 27, 2022). 
<a href="#_ftnref6" name="_ftn6">[6]</a>        BBl 2022 1638, available in German, French and Italian at <a href="https://www.fedlex.admin.ch/eli/fga/2022/1638/de">https://www.fedlex.admin.ch/eli/fga/2022/1638/de</a> (last accessed on December 27, 2022). 
<a href="#_ftnref7" name="_ftn7">[7]</a>        On the other hand, the community of heirs also bears negative changes in value that are attributable to poor corporate management on the part of the heir who took over the company. 
<a href="#_ftnref8" name="_ftn8">[8]</a>        BGE 133 III 416 E. 6.3.4. 
<a href="#_ftnref9" name="_ftn9">[9]</a>        BGE 70 II 147 E.2.</h6>

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