Transfer of businesses

SUMMARY OF:

Communication (COM (2006) 117 final) - Transfer of Businesses - Continuity through a new beginning

WHAT IS THE AIM OF THE COMMUNICATION?

• It highlights how a successful business transfer offers significant prospects for growth and employment and that it is thus very important to prevent businesses from closing as a result of legal and tax obstacles blocking their transfer.
• This European Commission communication includes recommendations to European Union (EU) countries on the creation of suitable conditions for the transfer of businesses.

KEY POINTS

• When a business owner retires, his business all too often comes to an end. Owing to legal, fiscal and psychological difficulties, many transfers of thriving businesses fail. It is not easy to find a successor, especially as businesses are now generally transferred to third parties rather than to a family member. Furthermore, most Europeans prefer to be employed, and entrepreneurs are more interested in creating than in taking over a business.
• Yet taking on an existing business offers many advantages (an established production structure, a client network, know-how, business reputation, etc.). A successful business transfer also benefits growth and, consequently, plays a crucial role in working towards the goals of the Europe 2020 strategy. For instance, existing businesses provide five jobs on average for every two provided by a new business.
• The transfer of businesses is a practice which will gain ground over the next decade, with one third of business owners in the EU retiring over the next ten years. It is estimated that 690,000 small and medium-sized enterprises (SMEs) and 2.8 million jobs will be affected each year. It is therefore essential to create suitable conditions for transfers of businesses.
• In order to do this, the Commission is proposing a number of improvements to the EU countries, including:

• 1.

  More sustained political attention to transfers

EU countries should systematically promote the transfer of businesses as an alternative to business creation. They should, for instance, consider introducing support measures for transfers similar to those available for business creation.

• 2.

  Awareness-raising among stakeholders

• At present, insufficient effort is made to raise awareness. Only half of the EU countries have taken relevant action. Like retiring business owners, potential new entrepreneurs should receive special attention because taking over an existing business often offers an interesting alternative to creating one. The Commission therefore recommends more action to raise awareness among business owners, for example through chambers of commerce and other points of contact such as tax advisers, accountants or banks, of the need to plan transfers sufficiently in advance.
• The Commission also calls on EU countries to encourage mentoring systems with a view to assisting business owners at the time of transfer.
• EU countries should envisage direct approaches to raising awareness among business owners, such as sending letters to business owners over a given age.

• 3.

  Making it easier to change the legal status of a business

Succession contracts, partnership agreements, the establishment of limited liability companies and restructuring are all legal tools which can be used to prevent business closure. For example, the succession contract, which is prohibited in many countries, the partnership agreement or the establishment of limited liability companies make it possible to ensure business continuity in the event of the owner's or an associate’s death. When changing legal status, a business about to be transferred can undergo legal restructuring in order to avoid liquidation.

• 4.

  Improved financing of transfers

• The financial environment is rarely favourable for transfers of businesses. Indeed, transferring a business leads to a number of difficulties:
  • it requires more capital than business creation, but the financial facilities designed for creating businesses often prove insufficient for transfers.
  • banks often consider financing transfers to be too costly and too risky, particularly for small businesses.
  • it is sometimes difficult to find a financial solution on time, as such a solution often takes the form of a combination of equity and loan.
• The Commission therefore recommends that EU countries provide suitable financial conditions such as start-up aid, loans and guarantees. Guarantees for equity in SMEs should include investments of local or regional funds to supply the initial and/or start-up capital, and mezzanine financing (a combination of equity and debt capital).

• 5.

  Tax incentives for business transfers

Although transfers within families have been made easier in many countries, transfers to third parties must receive greater encouragement through exemptions from tax on income generated by the sale of a business, specific tax relief on income reinvested in another business or used to finance the retirement of the business owner, or tax exemptions for employees investing in their own business.

• 6.

  Transparent markets for business transfers

The provision of impartial services to act as mediators between potential buyers and sellers should make it possible to organise transparent markets for business transfers. In some countries, the chambers of commerce take on this responsibility.

In order to implement all of these recommendations, a support infrastructure needs to be created to reach the hundreds of thousands of businesses which will be affected by a transfer over the next few years. This implementation infrastructure will make use of the EU countries, their national, regional and local administrations, and business support organisations. It will involve in particular the dissemination of information to those providing support, the training of trainers and the development of teaching material.

BACKGROUND

• In 1994, the Commission published a recommendation on the transfer of SMEs. This communication assesses the implementation of the 1994 Recommendation.
• For more information, see:
  • ‘Transfer of businesses’ on the European Commission's website.

MAIN DOCUMENT

Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions - Implementing the Lisbon Community Programme for Growth and Jobs - Transfer of Businesses - Continuity through a new beginning (COM (2006) 117 final, 14.3.2006)

last update 01.12.2016