Selling a craft business – legal, tax and practical tips for succession

A profitable craft business cannot be sold overnight. Over the next few years, thousands of skilled crafts businesses in Germany will be faced with company succession – often because the owners are retiring for reasons of age and there is no family succession in sight. Demographic developments and the lack of young talent in the skilled trades mean that more and more businesses will have to close due to a lack of successors if no solution is found. This comprehensive guide sheds light on how succession in the skilled trades can be successfully organized – from current challenges to legal particularities, company law, contract types and taxes through to strategic handover.

Entrepreneurs in the skilled trades sector (up to ~20 employees) receive well-founded, neutral and motivating information to prepare for the sale or transfer of their own business in the best possible way. Clearly structured sections, tables, lists and graphics convey the content in a concise manner – from initial planning through to completion at the notary’s office. The aim is to provide practical tips and show when it makes sense to seek professional advice from a specialist lawyer for business succession in the skilled trades sector in order to avoid typical pitfalls.

Succession situation in the skilled trades: demographic change and challenges

Many craft businesses – whether tanneries, painting workshops or construction companies – are due to be handed over in the coming years. The generational change affects all trades and requires forward-looking planning.

The German skilled trades sector is strongly affected by generational change. In many trades, the owners are already over 55 years old. The number of businesses looking for a successor in the next few years is correspondingly high: according to estimates, around 125,000 skilled crafts businesses will be handed over in the next five years because the owners are retiring. In the next 10 to 15 years, almost half of all current owners over 50 will probably have to hand over their business. These figures illustrate how urgent the issue of succession is in the skilled crafts sector.

At the same time, there are fewer and fewer potential successors. Due to the general shortage of skilled workers and changing career expectations, only around a third of master craftsman school graduates decide to run their own business. Many young tradespeople prefer employment to risky self-employment. Handing over a farm or business within families is also less common than it used to be – children are more likely to pursue other career paths or no longer live locally. This creates a succession gap that is likely to widen in the future.

Demographic change in the skilled crafts sector therefore brings with it two key challenges: on the one hand, the owner-managers are ageing (keyword: ageing businesses) and on the other hand, there is a lack of successors(lack of successors). The third factor is a certain unwillingness on the part of junior staff to take over: Bureaucracy, financial risks and pressure of responsibility deter many potential takeovers. This combination means that a significant number of established craft businesses are at risk of being closed down due to a lack of successors – with a loss of jobs and expertise.

Early planning is the be-all and end-all: in view of the current situation, tradespeople should start making arrangements for their succession in good time – ideally a few years before they plan to retire. If you approach the handover too late, you risk not finding a suitable buyer or transferee and ultimately having to accept poor conditions under time pressure. In addition, selling a business requires extensive preparations, from optimizing operations to finding a buyer, which cannot be completed in just a few weeks. Early succession planning makes it possible to choose the best time to hand over the business (e.g. when the order situation is good) and to make your own business attractive to successors.

The following section explains which steps and aspects are important when preparing the sale of a company. A structured checklist summarizes the most important points for transferors:

Checklist: Preparing the craft business for sale

• Clarify personal goals: When should retirement begin? Should the business be handed over internally (family/employees) or externally? Is a transitional solution (e.g. leasing) an option?
• Inform early on: Find out about the topic of succession at least 3-5 years in advance (Chamber of Crafts, experts, specialist literature) and plan the process.
• Prepare key figures and documents: Annual financial statements, order books, customer lists, contracts, personnel overview – keep all business-relevant data up to date, clean it up and make it available in an organized manner.
• Determine the company value: Carry out a realistic valuation of the business (possibly by experts or succession market tools) in order to have a basis for price expectations.
• Set up the business attractively: Eliminate weak points, document processes, reduce dependence on the owner (e.g. transfer skills to employees), reduce investment backlog – so that the business is in good condition for buyers.
• Obtain tax advice: Discuss structuring options with your tax advisor (e.g. use tax-free allowances, eliminate business splits, choose the optimal legal form) and check the tax consequences of different transfer options.
• Obtain legal advice: Consult a lawyer specializing in business succession in the skilled trades sector to review the legal form, prepare the necessary contracts, clarify liability issues and trade law requirements.
• Start looking for a successor: Identify suitable successors – within the family, among employees (MBO) or via external channels (industry colleagues, advertisements, successor exchanges). In the case of an external search, create an anonymized exposé if necessary and select interested parties.
• Draw up a timetable and handover concept: Draw up a rough timetable (e.g. phase 1: preparation, phase 2: search for buyer, phase 3: negotiations, phase 4: conclusion of contract & handover) and determine how the transition should take place (immediate exit or transition phase with collaboration as advisor).
• Maintain confidentiality: Proceed discreetly during the search for a buyer in order to avoid upsetting employees or customers. Only plan openly internally with close confidants and oblige all interested parties to maintain confidentiality (confidentiality agreement).

This checklist makes it clear that selling a business in the skilled trades sector is complex and requires foresight. From the personal decision to the operational handover, there are numerous points to consider. Legal and tax issues in particular should not be dealt with in passing – it is advisable to involve professional advisors to ensure that nothing important is overlooked.

The next section explains why a lawyer specializing in business succession in the skilled trades sector can be a valuable partner in the succession process.

Professional support: Why a specialist lawyer is important in the trade sector

The regulation of company succession affects many legal areas at once. It involves company law, contract law, tax law, employment law, possibly IT and media law (e.g. company image, website handover or software licenses) and, last but not least, inheritance law issues if a family handover is being considered. It is almost impossible for a layperson to have a complete overview of all these aspects. This is where the professional support of a lawyer comes into play.

A lawyer for succession in the skilled trades knows the typical pitfalls and special features of this sector. Skilled trades businesses in particular have a number of specific features – from registration in the skilled trades register to possible master craftsman obligations and trade law requirements (more on this later). A non-specialist advisor could overlook important points, which can be expensive in retrospect. Examples of why legal expertise is important:

• Contracts appropriate to the legal form: Depending on the legal form (sole proprietorship, GbR, GmbH, etc.), the sale or transfer agreement must be drafted differently. A lawyer ensures that all requirements under company law are met – e.g. notarization for GmbH shares, consent of all shareholders for partnerships, or special clauses for transfers within the family.
• Liability issues and warranty: Anyone handing over a business does not want to be liable for legacy issues after the sale. At the same time, the buyer wants to be protected in case defects are discovered later. A specialist lawyer will develop a contract structure that protects both sides: for example, through warranty clauses, exclusions of liability for certain legacy risks or provisions on the assumption of liabilities.
• Employment relationships and customer contracts: When businesses are transferred, statutory regulations automatically apply (keyword §613a BGB), according to which employment relationships are transferred to the acquirer. A lawyer ensures that these regulations are complied with and that employees are informed correctly. Existing customer and supplier contracts must also be taken over or newly concluded – legal advice is also helpful here to avoid the risk of a breach of contract.
• Trade law and trade regulations: If a master craftsman’s certificate is required in the trade of the business, it must be clarified how this requirement will be fulfilled in the future (e.g. by hiring a manager with a master craftsman’s certificate if the buyer does not have one himself). In addition, trade registrations, transfers and deregistrations must be carried out at the time of transfer. A lawyer who is familiar with trade law will take all these obligations into account.
• Data protection and IT issues: Nowadays, almost every business has IT systems, customer databases and a website. In the event of a handover, data protection regulations must be observed, e.g. when transferring customer data to the successor. If the company has software licenses or maintenance contracts, these must be transferred in a legally secure manner. Lawyers with knowledge of IT law (or cooperation with appropriate colleagues) ensure that digital assets are transferred cleanly.
• Conducting negotiations and mediation: The sales process can be emotionally stressful – for transferors who are letting go of their “life’s work” and for transferees who are investing a lot. A neutral legal advisor can moderate negotiations, objectively point out problems and suggest solutions. Especially in family successions, it is valuable to have someone who remains objective and prevents disputes (e.g. between siblings regarding inheritance claims).

Last but not least, an external lawyer creates trust among buyers. A professionally drafted contract and a transparent process signal to the potential successor that everything has been properly arranged. This increases the chances of successful negotiations. In addition, the lawyer works closely with other advisors – such as tax consultants or management consultants – to ensure a well-rounded concept.

Advantage “nationwide & digital”: In particular, a lawyer who works digitally and is active nationwide offers additional advantages. Location-independent advice by telephone, video conference and email makes it possible to choose the best possible specialist, even if they are not based in your own region. All documents can be exchanged electronically, which saves time. A transparent procedure – such as fixed prices or regular updates – gives the client certainty about costs and progress. This modern approach is ideal for smaller craft businesses that do not have their own legal department: they receive highly qualified support without having to be constantly present on site.

To summarize: Without legal support, transferors in the skilled trades sector risk making expensive mistakes which, in the worst case, could jeopardize the sale or lead to legal disputes later on. It is worth investing in an expert lawyer for business succession in the skilled trades sector in order to avoid legal pitfalls, organize the process efficiently and find the optimal solution for all parties involved. This way, the transferring entrepreneur can know that their life’s work is in good hands – and the successor takes over a legally secure business.

Legal forms in the skilled trades: Special features of sole proprietorships, partnerships and limited liability companies

Craft businesses can be run in different legal forms, which has a major impact on succession planning. Whether a business is operated as a sole proprietorship, in the form of a partnership (e.g. GbR, OHG, GmbH & Co. KG) or as a corporation (e.g. GmbH, UG) determines the legal steps to be taken when selling or transferring the business. The following is an overview of the most common legal forms in the skilled trades sector and their special features when it comes to succession:

• Sole proprietorship (registered trader or small business): The most common legal form in the skilled trades is the sole proprietorship, i.e. the business is tied to the person of the owner. Special feature: There are no business shares that can be transferred. Succession planning is therefore always carried out via an asset deal, i.e. the sale of all business assets (machinery, warehouse, company name, customer base, etc.) to the successor by means of a company purchase agreement. Alternatively, a gift or anticipated succession can take place within the family (transfer free of charge). Formally, the old owner must deregister his business and the successor must register a new business in his name. If the business is entered in the commercial register as an e.K., this entry is deleted or closed with the note “by transfer”, while the buyer may have to re-register if he continues the company (name). Liability: In the case of a sole proprietorship, the owner had unlimited liability – after the takeover, the buyer is liable for new debts and, under certain circumstances, also for old debts in accordance with §25 HGB if the company name is taken over unchanged. In order to avoid this automatic assumption of liability, an exclusion of liability for old debts can be agreed in the purchase agreement and subsequently published in the Federal Gazette. Notarial obligation: In principle, the sale of a sole proprietorship does not require notarization. However, there are exceptions if the business assets include land or real estate – a notary is then required for the transfer of these real estate parts.
• GbR (partnership under civil law): Many smaller craft businesses with several owners operate as a GbR (civil law partnership). In this partnership, the partners are personally liable (jointly and severally). Succession in the GbR: As there are also no free shares in the GbR (strictly speaking, the company is bound to its partners), a successor cannot simply “buy shares” as with a GmbH. In practice, succession is often implemented by adapting the existing partnership agreement: The successor joins the GbR as a new shareholder and at the same time the old owner leaves (against payment of a takeover price or as a gift). Alternatively, the old GbR is dissolved and a new company is formed with the successor to continue the business. Contractual regulation: It is advisable to include succession clauses in the GbR partnership agreement that regulate the procedure in the event of death or withdrawal (e.g. pre-emption rights for co-partners or entry of heirs). If such clauses are missing, the succession must be regulated by mutual agreement between all parties involved. A separate transfer agreement may be necessary in which the old partner assigns his share to the successor (whereby the GbR is usually created anew in legal terms if the number of employees changes). Liability: The incoming successor is also liable for all existing liabilities of the GbR (unless otherwise contractually agreed), so a careful list of debts and liability agreements are important. Notarial obligation: No notarial form is required for the transfer of GbR shares per se. Exception: if the GbR owns real estate, a change of company share may require notarization (because real estate is also transferred in economic terms). In practice, however, a notary is often involved in complex constellations in order to create legal clarity (e.g. when partners entered in the land register leave the company).
• OHG (general partnership): The OHG is a partnership like the GbR, but entered in the commercial register and operating commercially. Some larger craft businesses may be organized as OHGs. Succession is similar to the GbR: a successor can only enter by changing the shareholder structure, not by purchasing shares as with a GmbH. In the event of a change of partners, the OHG generally continues its entry in the commercial register; changes (leaving/joining) must be registered in the register. Liability: analogous to GbR, full personal liability also of the successor for old liabilities (unless contractually agreed otherwise internally, but the new partner is also liable to third parties). Notary: Register applications (change of shareholders) must be notarized, but the purchase or transfer agreement as such is form-free (except for real estate ownership, etc.).
• GmbH (limited liability company): Many craft businesses opt for the GmbH as their legal form for reasons of liability and succession. The GmbH is a legal entity, i.e. the owner of the business is the company itself and the owner holds shares in it. Succession in the GmbH: There are two main options here – a share deal or an asset deal. In a share deal, the departing shareholder (often the master craftsman) sells his shares in the GmbH to the buyer. The GmbH itself remains unchanged, only the owners change. Advantage: Business operations continue seamlessly, all contracts and employment relationships remain with the GmbH. It is important to note that the transfer of the GmbH shares must be notarized (§15 GmbHG). The notary draws up a share purchase and assignment agreement and reports the changes to the list of shareholders to the commercial register. In an asset deal, on the other hand, the GmbH itself sells its assets to a buyer (or to a new company of the buyer). The old GmbH can then be liquidated or remain as an empty shell. The share deal is generally preferable in the trade sector as it is simpler: the buyer joins the company and takes over all rights and obligations. In a share deal, however, the buyer indirectly assumes all existing liabilities of the GmbH (because the company retains its debts, only the shareholders change). A serious buyer will therefore always carry out due diligence and demand extensive guarantees in the purchase agreement (e.g. that there are no unknown liabilities). Liability: Liability remains limited to the GmbH assets as before; the selling former shareholder is no longer liable after the sale (unless, for example, he has assumed guarantees privately, which must be redeemed separately). Special features: In handicraft GmbHs, the previous owner was often also the managing director. In this case, it must be determined whether the former owner is immediately removed as managing director or, if necessary, continues to act as managing director or authorized signatory in an advisory capacity for a transitional period until the successor can fully take over the management of the business. Such transitional solutions should be clearly contractually agreed (incl. remuneration, powers, duration). Notarial obligation: As mentioned, every sale of GmbH shares requires a notary. Changes to the managing director and the articles of association (if necessary) are also registered with a notary.
• UG (haftungsbeschränkt): The Unternehmergesellschaft (UG) is a mini-GmbH with a small share capital that is occasionally used in the skilled trades. In principle, the same applies to succession as for the GmbH: a sale is made by transferring the shares (notarized) or by selling the assets. The UG can be sold in the same way as the GmbH. However, buyers of a UG pay particular attention to whether there is sufficient capital for liabilities, as the share capital can be very low. A UG is often converted into a “fully-fledged” GmbH (through a capital increase) before it is sold in order to be more attractive – but this is not mandatory.
• GmbH & Co. KG: This hybrid form is less common in the skilled crafts sector, but does occur (e.g. if a partnership was desired for tax reasons, but with limited liability). A GmbH & Co. KG consists of a KG (limited partnership) whose personally liable partner is a GmbH. The previous owners are usually limited partners and at the same time shareholders of the general partner GmbH. Succession: The transfer is more complex here, as two levels are involved: The limited partnership shares and the shares in the general partner GmbH must be transferred. The selling entrepreneur often holds 100% of the GmbH shares and, for example, 100% of the limited partner’s share. In this case, the buyer would have to acquire both. The transfer of the limited partnership shares can be made by contract without any formal requirements, but the GmbH shares must be notarized. Sometimes it is structured in such a way that the general partner GmbH is sold first and then the limited partnership shares are transferred in one step (or vice versa). It is important that the continued existence of the KG is ensured – the new owner joins as a limited partner and the old owner leaves. Liability: In principle, a new limited partner does not have unlimited liability for existing liabilities of the limited partnership (because limited partners are only liable to the extent of their contribution). However, the general partner GmbH remains the same legal entity – its liability is borne by the new owner. All in all, buyers should carefully check what obligations are inherent in the KG and the GmbH. Special features: Entries in the commercial register are also necessary here (change of limited partners and, if applicable, managing directors of the GmbH). This legal form therefore requires close consultation with a notary and experienced lawyer in order to complete all steps properly.

In addition to these common cases, it should be mentioned that there are even more exotic constellations (e.g. craft businesses as cooperatives or the transfer to a foundation for the purpose of succession). These hardly play a role in the practice of small and medium-sized businesses. Most craft businesses are run as a sole proprietorship or GmbH, sometimes as a GbR/OHG if there are several owners. The following applies to each of these forms: it must be checked individually how the transfer is to be implemented in a legally correct manner. A lawyer can show whether, for example, a prior conversion of the legal form makes sense in order to facilitate the succession. In individual cases, it may be advisable to incorporate a sole proprietorship into a limited liability company before the sale (conversion in accordance with UmwG) in order to enable a share deal – this can bring tax advantages and more clearly limit the liability for the buyer. Such structuring considerations should be discussed with legal and tax advisors at an early stage.

Trade law aspects of handing over a business in the skilled trades sector

In addition to company law issues, trade law regulations must not be forgotten. Craft businesses are subject to the Crafts Code (HwO) and often certain licensing requirements. The following points under trade law must be observed when handing over a business:

• Business registration: Every business takeover must be reported to the responsible authority (usually the trade office of the municipality). The old owner submits a business deregistration or re-registration at the time the business is given up. The new owner submits a business registration for the continuation of the business. In the case of legal entities (e.g. limited liability companies), no new business registration is required if there is a change of shareholder, but it is required if there is a change of business premises operator (e.g. if another company or person takes over the business). The authorities should be informed in good time to ensure seamless continued operation.
• Trade register entry: In trades requiring a license (Annex A of the HwO, e.g. electricians, bakers, roofers, etc.), the business owner or an employed business manager must be entered in the trades register and have the corresponding master craftsman qualification. If a craft business is sold, the successor must fulfill this qualification requirement. If he does not have a master craftsman’s certificate in the relevant trade himself, he can ask the Chamber of Crafts for an exemption permit or – more commonly – employ a master craftsman as technical manager who is responsible for technical management. This requirement is often business-critical: a sale to a person without a master craftsman’s title can fail if no solution is found for the master craftsman requirement. In the case of trades not requiring a license (Annex B1) or trades similar to trades (Annex B2), the master craftsman requirement does not apply, but the registration must still be adapted. The Chamber of Skilled Crafts must always be informed of the change of business owner so that the entry in the Register of Skilled Crafts (name of the business manager/owner) can be updated.
• Operating licenses and concessions: Some craft businesses require special permits or concessions in addition to the general craft roll registration. Examples: A butcher with a store may need permits under food law, a painting company with scaffolding may need a scaffolding permit, a gas and water fitter may need certain entries in the utilities register. An entry in the commercial register (for e.K., OHG, GmbH etc.) is also relevant under commercial law. When handing over the business, care must be taken to ensure that all these aspects of licensing law are seamlessly transferred to the successor. Where necessary, new applications must be submitted (e.g. the restaurant license for a bakery with a café is personal and must be reapplied for by the successor).
• Change of name and naming rights: If the successor continues to run the business under the same name (which often makes sense in order to maintain a good reputation), it must be clarified whether the old owner agrees to this and whether the name is protected. In the case of sole proprietorships, the successor can often take over the previous company name with consent; in the case of registered companies (§22 HGB), it should be noted that a succession clause (“Owner: Max Müller, Nachf. Klaus Schmidt”) can be entered in the commercial register. In the case of GmbHs, the name remains the same anyway, unless you deliberately want to change it – but if the name contained the personal name of the previous owner, for example, the question arises as to whether this name should be retained or changed. Trademark rights to logos or business names should also be checked: Are these to be transferred to the successor (via a trademark transfer agreement)? This is where industrial property rights come into play, which must be contractually regulated.
• Environmental, safety and Chamber of Crafts requirements: Companies with environmentally relevant activities (e.g. paint shops, electroplating) or special occupational health and safety requirements must comply with regulations. In the event of a handover, it is important that the new operator is aware of and complies with these obligations – otherwise there is a risk of operating bans. Theoretically, the authorities could refuse the business license if there are doubts about the reliability of the successor (§35 GewO for unreliability). Therefore, the transferor should also ensure that the successor is professionally and personally suitable to continue the business. The Chamber of Skilled Crafts often offers advice to accompany the takeover phase and ensure that all the necessary formalities are fulfilled.

All in all, business transfers in the skilled trades sector are not just matters of private law between the seller and buyer, but also a process that affects the state and the chambers. Anyone who observes the formal framework – i.e. trade and Chamber of Crafts registrations, compliance with the master craftsman obligation, licenses, etc. – creates the basis for the business to continue operating in a legally secure manner even after the transfer. The Chamber of Skilled Crafts usually provides support here with checklists for handing over the business and personal advice for those involved. Nevertheless, the legal advisor should also have these points on their radar and, in case of doubt, coordinate that, for example, the purchase agreement specifies who informs which authorities and by when the successor must submit the necessary licenses.

Contract forms and notarial requirements: Asset deal, share deal, transfer agreement & lease

The actual conclusion of the contract is the core of every company succession. Depending on the initial situation, different types of contracts and transfer models can be considered. The most common variants in the skilled trades are presented here – from the classic sale for a one-off payment to leasing – as well as the question of when notarization is required.

Asset deal vs. share deal: These two terms describe the basic forms of a company sale:

• In an asset deal, the individual assets of the business are transferred from the seller to the buyer. In the trade sector, this means that machinery, equipment, inventories, possibly the company name (company logo), customer relationships, current contracts, etc. are sold by means of a purchase agreement. The buyer thus acquires the business assets and either continues to run the business himself (as the new sole owner) or incorporates the acquired assets into his existing new company/companies. Advantage: The buyer can define exactly what he takes over (and what not). Unwanted inherited liabilities can be excluded – e.g. the buyer only expressly takes over selected contracts and liabilities. Disadvantage: The transfer is complex, as every contractual partner (customers, suppliers, landlords) must agree if contracts are to be transferred and, for example, employment relationships are transferred by law (§613a BGB), which triggers special information obligations. For the seller, an asset deal can be unfavorable for tax purposes (more on this in the tax section), and he may have to liquidate his legal form afterwards. Notarial requirements: A pure asset deal does not in itself require notarization except in special cases (e.g. transfer of real estate, which is part of the deal, requires a notary; or the transfer of a GmbH share in an asset deal of a subsidiary). However, the asset purchase agreement is often voluntarily notarized if it is very extensive, if only to facilitate register entries etc.
• In a share deal, the successor buys company shares from the previous owner. Naturally, this option is only possible if the business has a legal form with shares (GmbH, AG, possibly GmbH & Co. KG). In the trade sector, this usually means buying the GmbH shares from the previous shareholder. Advantage: The buyer acquires the entire company with a single act, including all contracts, employees and licenses, as the company as a legal entity remains unchanged. The continued existence of the company is least disturbed; customers often hardly notice that a transfer has taken place. Disadvantage: The buyer assumes all known and unknown liabilities of the company, as he takes on the position of shareholder. This requires intensive insight (due diligence) in advance and safeguards in the contract (guarantee catalog on the condition of the company, balance sheet guarantees, etc.). For the seller, a share deal is often attractive from a tax perspective (partial income procedure, possibly reduced tax rate for >55 year olds). Notarial obligation: When purchasing GmbH shares, the law requires the purchase and transfer agreement to be notarized. This means that a notary must read out the text of the contract and certify the signatures. Without this form, the share purchase is invalid. The notary will then also update the list of shareholders in the commercial register. In the case of shares (AG), the notarial obligation does not apply – a transcription in the share register is sufficient, but this is hardly relevant in the trade.

Which of the two variants is used depends on many factors: Legal form, preferences of the parties, tax optimization, liability issues. It is not uncommon for a combination to be made – e.g. a buyer takes over certain assets via an asset deal and also takes on company positions, or in the case of a GmbH & Co. KG, a mixed process is necessary anyway. It is important to clarify at an early stage which transaction structure will be chosen, as this influences the entire process (e.g. effort involved in preparing the contract, involvement of a notary, necessary consent of third parties, etc.).

In addition to the asset/share distinction, there are other contract models specifically for successions in SMEs and the skilled trades:

• Sale in return for a one-off payment: The standard case – the business is transferred by means of a purchase agreement in return for a one-off purchase price payment. The buyer pays the negotiated price (less any debts assumed) in one lump sum upon conclusion of the contract or transfer. This is ideal for the seller (he receives his money immediately, regardless of the success of the successor), but involves high financing requirements for the buyer. Here, the purchase price and payment modalities (e.g. due date, collateral until payment) must be clearly regulated. Payment is often made promptly after the notarized contract and handover, either from the buyer’s own funds or via a bank loan. If the purchase price is very high, financing conditions can be included in the contract (e.g. contract only valid if a loan is approved).
• Sale in installments: Instead of a one-off payment, it can be agreed that the buyer pays the price in installments over a certain period of time. In the simplest case, this could be 5 annual installments, for example. Advantage for the buyer: lower initial capital requirement, financing possible from the current profit of the acquired business. Disadvantage for the seller: he bears a default risk, as he receives his money stretched over years and is dependent on the business being successful enough under the new boss to service the installments. Collateral is often agreed as security – such as a transfer of ownership of machinery or a mortgage on a business property. Installment payment models are particularly common in family successions (“Junior pays the purchase price to parents over 10 years”). The contract should stipulate what happens if the buyer defaults (withdrawal clause? contractual penalty? due date for the remaining amount?).
• Purchase in exchange for an annuity (pension annuity): A special form of installment payment is the life annuity. Here, instead of a fixed purchase price, the seller receives an ongoing annuity payment for life (or for a very long period). In principle, he sells the business in return for an annuity, which is often paid until the end of his life. This structure is sometimes chosen if the successor comes from the family and the senior wants to finance his living from the business. The advantage for the buyer: no high one-off debt, but ongoing payments that are ideally covered by the operating profit. For the seller, there is a risk that the business will not generate sufficient income at a later date (in which case the pension could become uncertain unless secured by a mortgage) or that he will live a very long time (in which case the successor will pay more in total than the actual purchase price value). Conversely, the buyer bears the “longevity risk”: if the seller dies early, the business can be taken over comparatively cheaply; if he lives a very long time, it becomes more expensive. There are variants such as time annuities (limited pension payments over 10 or 20 years, for example) or life annuities for life. From a tax perspective, some pension annuities are tax-privileged (income taxation). Important: The pension should be sufficiently secured by contract (e.g. by registering an annuity debt in the land register if real estate is available).
• Management buy-out (MBO): This refers to the purchase of the company by internal employees or managers. In the skilled trades, for example, this means that the long-standing workshop foreman or a non-family managing director takes over the business. The contract is similar to a normal sale (share or asset deal), but there are a few special features to consider: Internal buyers often do not have enough capital, so staggered models (partial takeovers, earn-outs, vendor loans) are used here. In addition, the buyer knows the business very well, which can simplify negotiations – but can also create an imbalance if the buyer is aware of problems. As a rule, an MBO is structured in such a way that the employee first acquires shares or the owner gradually hands over the company to him (e.g. first 30%, later 70%). A phased plan can be set out in separate contracts or a single contract with conditions precedent. Notarial obligations then again depend on the chosen form (notarial in the case of a GmbH share purchase). Advantage of MBO: The acquirer knows customers, employees and processes, which creates trust and enables a smooth transition.
• Management buy-in (MBI): This is where an external manager or entrepreneur takes over the business. This is the classic sale to a buyer from outside the industry or with knowledge of the industry who was not previously part of the company. From a contractual point of view, an MBI is no different from a regular sale; the special feature lies in the handover process: the external successor may have a longer training period. It may make sense to contractually oblige the former owner to be available as an advisor for a certain period of time.
• Leasing the business: If no immediate buyer can be found or the transferor does not want to give up the business for good, leasing may be a solution. In this case, the owner hands over the entire business to a tenant for independent management in return for a lease fee. The lessee acts as the manager vis-à-vis customers, uses the machines, rooms, etc., but does not acquire ownership of them. The lessor remains the legal owner of the business. Such a lease solution can be limited in time, e.g. “Lease for 5 years, then option to buy”. Advantage: The transferring entrepreneur can withdraw and still participate in the earnings (through the lease), and the potential successor can get to know the business without having to pay the full purchase price immediately. Disadvantage: As long as the business is only leased, ultimate responsibility and ownership remain with the previous owner. The latter must rely on the tenant receiving the value of the business. In addition, a lease is legally deemed to be a cessation of the lessor’s business if it is permanent – this can reveal hidden reserves for tax purposes (taxation of the previous increase in value). It is therefore important to plan well for tax purposes before leasing out your business. Contract: A lease agreement should regulate all details in writing (amount of rent, tenant’s maintenance obligations, takeover of staff, etc.). No notary is required, unless land is also leased (then in writing with possible notarization, depending on the duration).
• Transfer agreement within the family: In the case of intra-family successions, the business is often not sold at the market price, but transferred as a gift or in return for benefits. A special transfer agreement is drawn up for this purpose, which stipulates, for example, that the son or daughter takes over the business and in return undertakes to provide financial security for the parents (maintenance payments, right of residence, etc.). Such contracts – similar to farm transfer agreements in agriculture – should be notarized due to their scope. Especially if real estate or land is included (which is often the case, e.g. farm buildings), a notary is mandatory anyway. The transfer agreement may also contain clauses such as rights of reclaim (if the successor sells the business prematurely or becomes insolvent) or compensation provisions for siblings (waiver of compulsory portions). This is a complex issue that needs to be tailored to the family. The lawyer, in cooperation with a notary, ensures a fair and secure contract that also takes into account the effects of inheritance and tax law (see Inheritance tax later).

Notarization obligations summarized: In Germany, certain contracts must be notarized by law. In the context of the sale of a company, this applies above all:

• Sale of GmbH shares: always notarized (§ 15 GmbHG).
• Transfer of limited partnership shares in a GmbH & Co. KG if GmbH shares are transferred at the same time: de facto yes, as the GmbH part is included.
• Sale of land or real estate: notarized (Section 311b BGB). In the case of business sales with real estate ownership, the relevant parts of the contract must be notarized. The entire company purchase agreement is then often notarized as a whole.
• Gift agreement for a company (or gift of a GmbH share): notarized (§ 518 BGB for gifts and again GmbHG for shares). Family transfers that are free of charge should therefore always be made with a notary.
• Entry in the commercial register: Changes such as new managing directors, changes of shareholders in OHG/KG etc. require public certification – the notary usually does this automatically when the contract is concluded.
• Lease agreements are generally form-free, but if land is also leased and the contract term is >1 year, the written form requirement applies (Section 585a BGB) – a notary is optional here, but makes sense for complex operating leases.

In practice, a notary is often involved at an early stage as soon as it is clear how the transfer is to take place. However, the notary is not a substitute for legal advice: he is obliged to remain neutral and does not provide one-sided advice in favor of one party. The lawyer drafts the contract in the interests of his client and the notary then checks and notarizes it. Both work hand in hand to draw up a legally secure, balanced contract that reflects the will of the parties.

Tip: Notarization may be advisable in advance (letter of intent, preliminary agreement). For example, a preliminary agreement can be concluded that sets out the rough purchase price and conditions – this can also be notarized, which is particularly necessary for real estate or GmbH shares to be binding. A notary appointment is therefore a key milestone in the sales process. The purchase agreement is often signed at the notary at the same time and, if necessary, the closing is carried out immediately, provided all conditions are met. In some cases, however, conditions precedent are also agreed (e.g. “contract effective if buyer provides proof of financing”), in which case the final transfer takes place later. All of this is recorded in the notarial deed.

In summary, the wide range of contract models offers the option of customizing the succession solution – whether it is an immediate transfer in return for cash, a smooth transition with a pension or an interim solution via a lease. Legal expertise ensures that the chosen option is implemented in a watertight manner and meets the economic requirements. In the next section, we look at the tax issues that naturally play a major role in all these models.

Tax aspects of the sale of a craft business (income tax, trade tax, inheritance tax, land transfer tax)

A business transfer is also a significant event from a tax perspective. Several types of tax can be affected: income tax of the seller (or gift tax in the case of a gratuitous transfer), trade tax, possibly corporation tax (in the case of corporations), VAT, inheritance and gift tax in the case of family succession, as well as real estate transfer tax if real estate is involved. Forward-looking tax planning can bring considerable financial benefits – wrong decisions, on the other hand, can lead to unnecessary tax burdens. Below are the most important tax issues and consequences by scenario:

1. income tax of the business seller:
Anyone who sells their craft business generally generates a capital gain that is subject to income tax. In the case of a sole proprietor or co-entrepreneur (GbR/OHG/KG), the profit from the sale of the business is part of the income from business operations. It is roughly calculated as the selling price minus the book value of the business assets minus the selling costs. Businesses that have been run for many years often have considerable hidden reserves (e.g. depreciated machinery, real estate with capital appreciation, goodwill) that must be disclosed and taxed upon sale. However, income tax law grants relief for selling entrepreneurs, especially if they are older:

• Tax allowance in accordance with § 16 EStG: Entrepreneurs over the age of 55 or permanently unable to work can receive a one-off allowance of €45,000 on the capital gain. Prerequisite: The profit does not exceed €136,000; above this amount, the tax-free allowance is reduced and does not apply at all for profits of ~€181,000. Each taxpayer is only entitled to this allowance once in a lifetime for the cessation/sale of a business.
• Reduced tax rate (so-called half tax rate in accordance with § 34 EStG): Alternatively (or additionally, if the tax-free amount has already been offset), a reduced rate can be claimed for the capital gain. In practice, this means that the profit is taxed at the rate that would apply to half of this profit under the normal rate. In the past, this was roughly equivalent to halving the top tax rate – today the effect is less, but there is still noticeable relief. This rate reduction is also only available once in a lifetime per taxpayer for the sale of an entire business.
• Payment in installments and § 34 EStG: If the purchase price is paid in installments, the seller can apply to pay the income tax spread over the years (inflow principle applies, but be careful: there are regulations on immediate taxation if installments are spread over more than 5 years, the details are complicated). In any case, it can make things easier if the tax is not due in full immediately.
• Start of the pension: In the case of pension annuities as consideration, a large profit is not taxed all at once for income tax purposes, but the pension payments are subject to the income portion (depending on age, a certain percentage of the pension is taxable). This can lead to a significantly lower current tax burden. However, the €45,000 tax-free allowance is then not applicable, as this is not a classic sale of a business, but a current income.

In the case of corporations (GmbH), no income tax is payable by the company if the shareholder sells his shares – because it is he as a private individual who is selling. In this case, the flat-rate/partial income taxation applies: If the seller holds the shares as private assets and had a stake of at least 1% (which is usually 100% for owners), 60% of the profit from the sale of shares is taxable at the individual tax rate (partial income method). Effectively, 40% is tax-free. In addition, the €45,000 tax-free allowance and half the tax rate can also be applied from the age of 55 if the entire qualifying share is sold – however, this must constitute the cessation of a business for tax purposes, which requires some interpretation in the case of a pure sale of shares (in principle, however, a shareholder with a significant shareholding is treated in the same way). If the seller holds the GmbH shares in the business assets of another company or in a holding company, other regulations apply (e.g. 95% tax-free if shares are sold by a corporation, §8b KStG, but no rate reduction). These structures (holding company) can be created in advance in order to save taxes, but are rather rare for small tradespeople.

Summarized by legal form: The following table outlines typical income tax consequences by legal form:

2. trade tax:
Trade businesses pay trade tax on current profits during their operation. When a business is sold, the question arises as to whether trade tax is also payable here.

• Sole proprietorship/partnership: In principle, the capital gain is subject to trade tax as it is part of the trade income. However, there is a trade tax allowance of € 24,500 for sole proprietorships and partnerships. For many sales, however, the profit significantly exceeds this amount so that trade tax is levied on the remainder (approx. 10-17% effective, depending on the municipal assessment rate). However, trade tax can be offset against income tax to a certain extent (§35 EStG), which reduces the overall burden. If the business is given up completely, the trade tax liability ends at the end of the transfer year. In some cases, it may make sense to avoid trade tax by giving up the business – there is a tax arrangement: if the business is discontinued and, for example, liquidation taxation is applied, no trade tax is payable on the profit from the discontinuation (provided there is no longer any current commercial income). However, this requires careful coordination and does not work if sales proceeds are generated (in which case it is precisely trade income). For smaller profits, the tax-free amount may be sufficient to avoid trade tax.
• Corporation (GmbH): If a GmbH owner sells his shares, no trade tax is payable at GmbH level, as the company has not sold anything. The shareholder himself only pays income tax (see above). The share deal is therefore neutral from a trade tax perspective. In the case of an asset deal, where the GmbH itself sells its business, the GmbH generates a high profit that is fully subject to trade tax (without an allowance, as it is a corporation). In this case, the tax burden can quickly amount to 30% (corporation tax + trade tax) of the profit. This is why this option is usually unattractive for net proceeds, unless you plan to offset losses carried forward or similar.

3. sales tax:
The sale of an ongoing business or part of a business is considered a sale of the business as a whole for tax purposes (Section 1 (1a) UStG). This means that it is not subject to VAT – no VAT is charged on the purchase price if the business is continued by the buyer. Practically important: The purchase contract should explicitly state that the business is being sold as a whole and therefore no VAT will be charged. In this case, the buyer does not have to pay 19% VAT and the tax authorities treat the transaction as non-taxable (i.e. no input tax deduction, but also no tax burden). If VAT is incurred in individual cases (for example, if only individual items are sold without continuation, e.g. sale of machinery), then the seller would have to declare and pay the VAT and the buyer could deduct it as input tax if necessary. In the case of complete business takeovers, however, VAT is usually not payable – which is a considerable relief. Please note: If a part of the business is carved out and sold separately, you must check whether it is an independent business (in which case it is not taxable) or not.

4. inheritance and gift tax:
Inheritance/gift tax regulations come into play in the case of an intra-family succession without (full) consideration. If business assets, e.g. a craft business, are given or bequeathed to the next generation, there are generous tax concessions for business assets in Germany:

• Personal allowances: Each child has an allowance of €400,000, spouses €500,000, grandchildren typically €200,000 before gift/inheritance tax is payable. Often the value of smaller craft businesses fits within these allowances, so no tax is payable.
• Exemption discount: In addition, there is a discount of 85% on the business assets if the business is continued (seven-year payroll period etc. must be observed). Under certain conditions, it is even possible to opt for 100% tax exemption (option exemption) if certain criteria are met (in particular payroll and retention periods). This means that a transferred business up to a value of €26 million can remain almost tax-free in the family if the successor continues the business in the long term and essentially retains the payroll.
• Tax against condition: If inheritance tax is nevertheless payable (e.g. because of very high values or no continuation), the transfer agreement can often be drafted in such a way that the transferee assumes any tax burden. In this case, the lawyer should take care to regulate this so as not to burden the transferor (e.g. father/mother).

Important: For these privileges to apply, business assets must actually exist. In the case of a GmbH, shares >25% are considered preferential; there are restrictions for subordinate administrative assets (e.g. rented real estate in the business). Precise planning with a tax advisor is essential here. If a partial sale is made to the children instead of a gift, mixed models can be used (transfer for partial consideration) in order to make optimum use of any allowances and keep the residual purchase price low.

5. real estate transfer tax (GrESt):
If the company has real estate or land, the question of real estate transfer tax arises. This tax is always incurred when real estate changes hands. There are various constellations when a company is sold:

• Asset deal with real estate: If the successor also purchases the company’s own real estate, real estate transfer tax is levied on the portion of the purchase price attributable to the land/building. The tax rate is between 3.5% and 6.5%, depending on the federal state. In most cases, the buyer pays this tax (this is stipulated in the contract). Example: A painting company sells its workshop property as part of the sale for €200,000 – in Brandenburg, 6.5% = €13,000 land transfer tax would be due on this.
• Share deal (purchase of shares in a company with real estate): A special circumstance applies here in order to avoid or complicate RETT. In principle, the purchase of company shares does not trigger RETT unless the buyer acquires at least 90% of the shares in a real estate-owning company (until 2019, the limit was 95%). In the classic case (100% takeover of a GmbH that owns real estate), real estate transfer tax is therefore payable as if the property were to change hands directly. There are ways of getting around this (e.g. 94% to buyer A and 6% to buyer B, and transferring the 6% after 10 years – to bridge the deadlines), but this is often not practical for small businesses. This tax must therefore be factored in. The same applies to partnerships (e.g. ownership in a limited partnership): if more than 90% of the shares are transferred to new partners within 10 years, transfer tax is due on the property. In the case of family transfers (parent ->child) there is NO exemption from real estate transfer tax – this is different from inheritance tax. Only spouses and registered partners are exempt from RETT, unfortunately children are not. This means that if parents give a company with land to a child, there is no inheritance tax, but there may be real estate transfer tax (you can play a trick here by first taking the property privately or something – but this has other tax consequences).
• Lease models: Since there is no change of ownership, no RETT is incurred. But beware: If, for example, the business property remains the private property of the previous owner and is only rented out, the successor will of course have to pay RETT on the purchase of this property at a later date.

6. further tax points:

• Depreciation for the buyer: One advantage of an asset deal for the buyer is that he can depreciate the purchased assets at the purchase price. In a share deal, the company retains the old book values, i.e. there is no “step-up”. Especially if there are a lot of fixed assets, an asset deal can bring the buyer annual depreciation benefits for tax purposes (higher depreciation due to higher acquisition costs, e.g. revalued machinery, goodwill capitalized and depreciable over 5/10 years). This is often factored into the price negotiations. Conversely, an overstatement of goodwill can be a burden for the seller (more taxable profit) – a balance must be found here.
• Assumption of business debts: If the buyer assumes the debts of the business, this reduces the purchase price from the seller’s perspective, but liabilities are often already taken into account in the balance sheet values for tax purposes. It is important to determine how the purchase price is to be allocated (inventory value, goodwill, etc.), as this has different tax consequences (for GrESt, for VAT, for depreciation). The allocation should be recorded in the contract, preferably in consultation with tax advisors, in order to avoid later disputes with the tax office.
• Tax clauses in the contract: It is common for company purchase agreements to stipulate who bears any tax risks. For example: If a tax audit for previous years is still open, the tax office could make additional claims. As a rule, tax liabilities for the period prior to the transfer remain with the seller (even if the company is formally liable in the case of a GmbH, the buyer will obtain an assurance that the seller is liable for old taxes). It will also be agreed who will prepare the tax returns for the short year, how a possible business split will be resolved (so as not to provoke any additional tax), etc. These clauses are very important to avoid surprises and disagreements later on.

All in all, it is clear that tax considerations play a major role in the choice of succession solution. The decision as to whether to sell immediately or hand over in stages, convert a company beforehand, take part of the price as a pension, etc., often depends to a large extent on tax effects. For this reason, an experienced tax advisor should be consulted at the latest during the preparation phase – ideally working hand in hand with the lawyer. In this way, legal structuring and tax optimization can be dovetailed. After all, what ultimately counts for the entrepreneur is what is left over from the net proceeds of the sale and what tax burdens arise for the successor. Good planning can help both sides to manage the succession financially.

Business valuation in the skilled trades: net asset value, capitalized earnings value and market value

A key question when selling a business is: “What is my craft business worth?” The company valuation is often the basis for negotiating the purchase price. Especially in the skilled trades sector, the value depends heavily on the owner’s personal commitment, the customer base and the regional market. There are various valuation methods, each of which emphasizes different aspects:

• Net asset value method: Here, the value of the company is derived purely from the substance, i.e. the tangible assets. All assets (machinery, vehicles, buildings, inventories, etc.) are recognized at current values and debts are deducted. The result is the adjusted equity, plus the value of hidden reserves if applicable. This can play a role in trades with a high investment in machinery. However, the net asset value does not take the earning power into account – but a business is worth more than its bare assets if it makes a profit. The net asset value therefore serves more as a lower limit (“liquidation value”). No buyer will pay less than he would get if he sold the individual parts. For small craftsmen without large tangible assets (e.g. service providers, consultants without much inventory), the net asset value is correspondingly low and not meaningful.
• Income capitalization approach: This is the classic method for company valuation in Germany and is also recognized by the courts. It is based on the idea that the value of a company represents the present value of future profits. One looks at the expected annual surpluses (profits), takes into account an appropriate interest rate level and risk and calculates a capital value from this. Specifically, the average profit of the last few years is often used or a forecast future profit, which is then valued with a capitalization interest rate (e.g. 10% p.a.). Example: Earnings surplus of €100,000 per year – a capitalization rate of 10% would result in an earnings value of €1,000,000 (because €100k/0.10). This calculation is based on assumptions about future stable profits, the interest rate market and company risk. There is a special variant for craft businesses, the so-called AWH method (developed by the Arbeitsgemeinschaft der Wertermittler im Handwerk), which takes into account industry-specific risk premiums and valuation parameters so that the special features of SMEs are better captured. The capitalized earnings value reflects the sentimental value and profitability of the company – buyers are strongly guided by this because they want to know: “What will I earn with this business in the future?”.
• Market value/multiplier method: In practice – especially for smaller companies – multiples are often used pragmatically. This means that empirical values from comparable sales are used. For example, a craft business can be valued at approximately X times the annual profit or Y% of the annual turnover. Industry publications or company stock exchanges provide such guide values (e.g. “Electrical installation companies achieve around 3-5 times EBIT as the purchase price”). In the trade sector, you often hear rules of thumb such as “around one year’s turnover” or “5 times annual profit”. These multiplier methods are easy to apply, but very rough – individual differences (region, customer structure, owner dependency) are not taken into account. Nevertheless, they are a reality check: if the earnings value via the formula is €2 million, but the market shows that comparable businesses were only sold for €1 million, the price will probably have to be adjusted downwards. The market value is ultimately what a buyer is prepared to pay. This can be above or below theoretical values, depending on supply and demand. Someone may pay more than the theoretical value for a very profitable business with a long-standing clientele (because synergies can be exploited or competitors are interested). Conversely, if the market is difficult (many businesses, few buyers), discounts will have to be accepted.
• Goodwill / intangible value: Especially in the skilled trades, a lot depends on personal value – the reputation of the master craftsman, the customer relationships, the know-how in the team. This is difficult to put into figures. Nevertheless, it flows into the purchase price. Some businesses have intangible assets such as an excellent location, a famous name or exclusive contracts that are worth more than the balance sheet figures suggest. This goodwill is implicitly valued in the capitalized earnings method (because it leads to higher profits). It is not included in the net asset value. In negotiations, the seller must emphasize such plus points, while the buyer questions whether these values are transferable (will customers remain loyal to the new boss? etc.).

Comparison of valuation methods:

For small and medium-sized craft businesses, a mix of methods is often used to determine the purchase price. For example, you could say: “The net asset value is €200,000, the capitalized earnings value is €500,000. The market reports around 4 x annual profit (profit €120,000 -> €480,000). We agree on a purchase price of € 450,000.” Ultimately, the valuation is also a matter of negotiation. Sellers tend to overestimate the value of their life’s work, while buyers point out risks and investment requirements in order to push the price down. A neutral valuation by a third party (e.g. an expert) can help to find a fair value – this is often accepted by both sides as a starting point.

Tip: Precisely because people and businesses are often closely intertwined in the skilled trades, sellers should take measures to increase value: This includes detaching the company from your own person as much as possible (so that the value is transferable). For example: building up a strong second link (foreman, master craftsman) who maintains customer contact, creating documentation of work processes so that know-how remains within the company, maintaining a broadly diversified customer base, not just one major customer, etc. These things increase the market value considerably because the buyer sees that the business can run well without the previous boss.

Financial valuation vs. strategic value: One more point – sometimes a business has a strategic value to a particular buyer that goes beyond the financial value. Example: A competing craft business in the region wants to expand its market share and therefore prefers to take over an existing colleague rather than have new competition. In such cases, higher prices can be achieved as synergies (access to new customers, cost savings through merging) make the purchase particularly attractive for the acquirer. So if you sell to a competitor or major player, this can have a positive effect on the price. Conversely, if the sale is made “under time pressure” or due to a lack of alternatives, this will depress the price (distress sale).

In any case, the purchase price and its derivation should be clearly set out in the contract, as well as whether it can be subsequently adjusted (sometimes there are clauses such as earn-out: part of the price is based on future sales or profits). This occurs when there is uncertainty about customer response – for example, it is then agreed that the seller will receive a bonus if there is no drop in sales >X% within a year. Such variable components must be clearly defined.

Conclusion Valuation: Know both the material value of your business and its earning power. If in doubt, ask an expert to help you with the valuation. This creates realistic expectations. Excessive asking prices are one of the main reasons why successions fail – buyers and sellers do not find each other. With a well-founded valuation, you can make a convincing case and find a fair solution for both sides.

Strategic handover: employees, customers, liability and warranty

The actual transaction – legal and financial – is one thing. However, the practical and strategic aspects of the business transfer are just as important for the long-term success of the succession. These include, in particular, how to deal with employees, communication with customers and business partners and the liability and warranty arrangements between the seller and buyer. The following section addresses these points and explains how to hand over a craft business in such a way that the success of the business and business peace are maintained.

Engaging and retaining employees:
The workforce is the backbone of any craft business. For employees, the news of a change of ownership is often associated with uncertainty: What happens next? Will everyone keep their jobs? Will the management culture change? – This makes a sensitive approach all the more important. As the transferor, it is a good idea to get a core of trusted people on board at an early stage (e.g. foremen, supervisors), at least as soon as the sale is certain. These key people can support the transition internally and prevent rumors.

Legally, employees are automatically taken over in the event of a transfer of business (in an asset deal, Section 613a BGB applies: all employment relationships are transferred to the acquirer with all rights and obligations; in a share deal, the same employer remains in place anyway). Employees have a right to object to the transfer (in the case of an asset deal), but in a well-managed process this is rarely used if communication is transparent and reassuring.

It is advisable to hold a joint employee meeting with the successor as soon as the time is right (usually shortly after signing the contract, possibly close to the handover date). In this meeting, the departing boss should personally explain to his employees that he is placing the business in trustworthy hands and why he has chosen this successor. The successor can introduce himself, outline his plans and reassure the employees that they are still needed. New employment contracts or changes (e.g. new company address, bank details) are often distributed during this process – these formalities should be prepared.

If there are to be changes for employees (e.g. new working hours regulations, modernization of operational processes), the successor should communicate this openly, but sensitively so as not to create resistance right away. It may be a good idea to motivate deserving employees by offering them conditions for staying on – such as small bonus payments if they stay for a certain period of time after the handover to ensure the transfer of know-how. Nothing would be worse than important specialists quitting shortly after the takeover because they don’t feel valued or don’t trust the roast.

The previous owner can also offer (and stipulate in the purchase agreement) that they will assist with communication with the workforce. For example, it could be agreed that they will visit the business once a week in the first few months or be available to answer questions – if the buyer wants this and it reassures the employees. However, responsibility should clearly lie with the successor in order to avoid conflicts of competence.

Inform customers and suppliers:
Regular customers are worth their weight in gold, especially in the skilled trades. There are often long-standing relationships and personal contact with the boss has contributed a great deal to trust. A clever communication strategy is necessary to ensure that customers do not drop off when the boss changes:

• Address key clients personally: If the business has some large customers (e.g. clients such as housing associations, regular commercial customers), they should be informed personally by the seller about the succession – ideally before they find out “through the grapevine”. A meeting or at least a phone call in which the previous owner explains: “I have found a successor, Mr. X will take over from date Y. I am convinced that he will take over the business. I am convinced that he will continue to run the business in my interests. Your contacts and the usual high quality will remain the same.” – This creates trust. It is best to introduce the successor directly or take him along to the meeting. This makes the customer feel taken seriously and allows them to build up a relationship with the newcomer straight away.
• General customer notification: A customer letter can be prepared for the general customer base that briefly and positively communicates the change. For example, as a letter or e-mail in the name of the old and new owner together: “We would like to inform you that our company Max Mustermann GmbH will be handed over to Mr. Meier on 01.10.2025. Mr. Meier and his proven team will continue to reliably carry out all orders. Nothing will change for you – except perhaps that you may welcome a new face. We thank you for your trust…”. Such an announcement should only be made once everything has been finalized (contract signed) and ideally shortly before handover to avoid a long period of uncertainty.
• Marketing & appearance: The successor should consider whether to leave the name and brand unchanged or change it carefully. Often an established name is retained and possibly only supplemented (“Malerbetrieb Schulze – Inh. Meier”), at least for a transitional period. Changes to the logo, design, website, etc. should also be communicated so that customers recognize the company. A joint marketing phase (e.g. advertisement “We are handing over into new hands – the quality remains”) can create trust.
• Suppliers and partners: Important suppliers, lenders (bank!) and other partners also need information. The bank in particular, as it may have collateral or loans that need to be rescheduled. Suppliers want to know, for example, whether the conditions and contractual relationships will remain in place. A proactive approach is recommended here so that there are no delivery difficulties or credit crunch because one side was uncertain.

Liability and warranty between buyer and seller:
In every business sale, the question arises as to what the seller is still liable for after handover. The buyer wants to be covered in case, for example, hidden defects come to light (such as incorrect information in the accounts, hidden debts, contaminated soil, legal disputes with customers that were not known, etc.). The seller, on the other hand, does not want to have to bear any further risks after completion, as he is handing over the business completely.

These interests are balanced by detailed warranty and guarantee clauses in the purchase agreement. Typically, the seller declares certain guarantees: e.g. that the submitted balance sheets are correct, that there are no tax debts other than those mentioned, that all important customer orders have been disclosed, that the machinery has no defects of which he is aware, etc. If one of these guarantees subsequently proves to be false, the buyer has a claim for damages or a claim for a reduction in the purchase price. Limitation periods are often set for this (e.g. tax and social security guarantees 5 years, others 2 years). The scope of this liability is a major point of negotiation: an experienced seller’s lawyer will try to limit the guarantees tightly and include maximum liability amounts (caps); the buyer wants the most comprehensive cover possible. In the trade sector, where the circumstances are manageable, practicable clauses with a fair balance are often agreed.

A practical example: The seller guarantees that all employees are registered with social security and that no bogus self-employed persons have been employed. If the buyer later discovers that a problem employee has been working illegally and social security contributions have to be paid, the seller may have to bear these costs. Such scenarios are examined.

Old liabilities: In a share deal, the company remains liable for all debts, regardless of when they were incurred – ergo the buyer is indirectly liable. The buyer therefore requires guarantees or even indemnities for certain known risks. In the case of asset deals, the contract may specify which liabilities are assumed (e.g. machine leasing and trade credit yes, personal loans of the senior partner no). The seller retains any debts not assumed and must service them. In general, the contract should clearly regulate who bears which burdens. If, for example, a long-standing legal dispute with a customer is pending, it can be agreed that the former owner will bring it to a conclusion at his own expense and the buyer will not be affected. Or you can draw the line at the cut-off date: all liabilities incurred up to the handover date (including warranty cases for orders that have already been completed) are still borne by the seller, everything after that by the buyer.

Product liability and warranty towards customers: There are statutory warranty periods in the trades (e.g. 5 years for buildings according to VOB/BGB). What happens if a defect appears after the handover that dates back to the time of the previous owner? Example: A skylight installed by the old boss is leaking, a complaint is made in the new era. In an asset deal, the new business owner is legally responsible for subsequent performance because he has taken over the business (and customer contracts) – BUT it can be agreed internally that the old owner will take over such cases or bear the costs. In a share deal, the same company is formally responsible, but the buyer will also say: “That was before my time, I want recourse from the seller.” Ideally, such constellations should be covered by recourse provisions. In practice, this could mean, for example, that for all warranty cases involving work carried out before the handover date, the seller will reimburse the buyer for half of the costs of rectifying defects, if any, up to a maximum of X amount and until Y months have elapsed. Or it can be agreed that the seller will help out again on call in the first few months if there are complaints because he may know the customer and can help quickly.

Insurance: An often overlooked point: business insurances (liability, machine breakage, etc.) must be adjusted or newly concluded. The buyer should have seamless insurance cover. Any old damage or ongoing insurance claims should be clarified as to who benefits or is liable.

Exemption from liability when taking over a business (§25 HGB): The law stipulates that anyone who continues a commercial business under the previous company name is liable for the previous debts of the business, unless otherwise agreed in the purchase agreement and published in the commercial register or the press. This is important for craft businesses operating as an e.K. or OHG: In order to exclude this subsequent liability, the purchase contract an exclusion of liability according to §25 Abs.2 HGB and made public. The buyer is then not liable for old liabilities. Nevertheless, this only applies between the buyer and the creditor; internal regulations may differ as to who bears what financially.

Non-compete covenants: It is customary for the selling craftsman to enter into a post-contractual non-competition clause. This means that he should not open a new business tomorrow and poach the customer base. For example, the contract may stipulate that the seller will not operate a new craft business in the same trade or poach customers within a radius of X km for 2 or 3 years. A contractual penalty may be provided for in the event of a breach. Such clauses must be reasonable, otherwise they are ineffective (prohibitions that are too extensive in terms of time and place are ineffective). However, a limited prohibition is almost always possible, especially for smaller craft businesses, because goodwill is also sold and the buyer must protect himself.

Succession for ongoing projects: Often, unfinished orders are still running at the time of handover. It must be agreed how these will be handled. Does the buyer take them over in full and the seller issues a clean final invoice by date X? Or do they share the proceeds proportionately? That depends on the case. It is important that no customer has to pay twice or that there are gaps in performance. The same applies to warranty guarantees, advance payments, etc. – all this should be regulated in a transfer balance sheet (who takes over existing advance payment liabilities and guarantees?).

As you can see: The interpersonal and organizational components of the handover are extremely important. A well-planned process ensures that employees remain motivated, customers have confidence and the business continues to run smoothly. The previous owner should be able to let go, but still ensure orderly conditions; the successor should show respect for what has been achieved, but also set their own priorities. Liability and warranty issues must be clearly regulated so that there is no bad blood afterwards.

Last but not least, there is also the emotional component: a craft business is often built up over decades, and the bond with employees and customers is personal. It is therefore legitimate for the former owner to want to know that his life’s work is in good hands. If all the aforementioned aspects are well regulated, there is a good chance that this will succeed – to the satisfaction of both generations.

Advantage of a specialized, digital lawyer for craft businesses

Finally, it should be emphasized once again what added value a specialist lawyer can offer in this entire process – especially if he is digitally positioned and knows the needs of small and medium-sized craft businesses.

A lawyer who specializes in corporate law in the skilled trades, contract law and IT/media brings extensive expertise and industry knowledge to the table. Specifically, skilled trades entrepreneurs benefit from the following advantages:

• Industry experience: A lawyer who regularly advises craft businesses on succession issues understands the typical structures (e.g. family business with compulsory master craftsman status, high owner loyalty) and can develop tailor-made solutions. He knows the requirements of the Chamber of Crafts, knows about exceptions in the HwO and speaks the language of the craftsmen. As a result, the advice is more targeted and nothing relevant is overlooked.
• Comprehensive advice: By combining corporate law (legal form, contracts, liability), basic tax law knowledge, employment law (transfer of employees) and contract law, a specialized lawyer covers all facets. He or she can also oversee interfaces with IT law – e.g. what happens to the website, domain, software license in the event of a sale – and media law, for example when it comes to the transfer of advertising material, photos, social media accounts of the company. In this way, the client receives integrated advice from a single source instead of having to coordinate numerous individual advisors.
• Nationwide availability: A lawyer who works digitally is not limited to local clients. Crafts businesses can find the right expert, even if they are based in a different city. Video conferences, electronic files and digital signatures make it possible to handle contracts and agreements regardless of location. This is particularly practical for busy master craftsmen – they save travel time and can flexibly integrate consultations into their daily routine.
• Transparency and efficiency: Modern law firms rely on clear processes and a transparent cost structure. This can mean: a fixed price package for the support of a standard business sale or at least a cost estimate in advance. Communication is also efficient: documents are shared online, questions are answered promptly by email and appointments are held virtually. For the client, this means traceability of the process and control over the costs. The times when you had to be afraid of incalculable legal fees are over – a reputable specialist lawyer makes his work steps and fees transparent.
• Contact at eye level: Specialized lawyers for SME trades know the typical situation of the master craftsman who may be confronted with such legal issues for the first time. They explain the facts without unnecessary legalese, take the time to answer questions and are also available in the evenings or early mornings when there is no time in the day-to-day business. This understanding and accessibility creates trust. The entrepreneur feels that he is in good hands and knows that someone has his back while he has to take care of day-to-day operations until the handover.
• Network of specialists: Such lawyers often work closely with tax advisors, notaries and financial experts. If a question goes into great detail – such as complex inheritance tax models or a property valuation – the lawyer can quickly obtain expert opinions or consult relevant colleagues. For the client, the lawyer remains the main point of contact who coordinates everything (a kind of succession project manager). This relieves the entrepreneur enormously.
• Support beyond the contract: A good succession lawyer not only advises until the contract is signed. He or she often accompanies the transition phase: provides advice on communication with employees (legally correct information letters), helps with the registration of the new management in the commercial register, is available if questions of interpretation subsequently arise from the contract or minor points of dispute need to be clarified. This comprehensive after-sales service is worth its weight in gold, because unforeseen issues sometimes arise in the first few months after the handover.

Finally, a specialist lawyer in the skilled trades also serves to minimize risk: he thinks of things that the entrepreneur might never have thought of. For example, he ensures that a severability clause is included in the contract so that the entire contract is not overturned if one detail is invalid. Or he makes sure that marital problems (divorce) are taken into account in the partnership agreement. In short, he anticipates problems before they arise and creates contractual solutions.

All of this positions the lawyer as a competent contact and trustworthy partner during one of the most important phases in the entrepreneur’s life – letting go of their own business. Precisely because it is an emotional and complex matter, it pays to have an experienced legal advisor at your side who is familiar with both the law and practice.

Free initial consultation and next steps

Many specialized law firms offer a free initial consultation – a non-binding appointment in which the selling entrepreneur can describe their situation and receive an initial assessment. This low-threshold introduction is ideal for building trust and checking whether the chemistry is right. Basic questions can already be clarified in the initial meeting: What are the broad options for my succession? What time frame should I expect? What documents should I prepare?

Such an initial meeting can take place by telephone or video, often lasts 30-60 minutes and gives the entrepreneur an orientation without immediately incurring costs. They can then decide whether they want to commission the professional or perhaps clarify internal matters. In many cases, this conversation helps to break down inhibitions – you realize that the legal hurdles can be taken off your hands and that you don’t have to manage the process alone.

After the initial meeting, the lawyer would typically make an offer or outline the next steps: For example, analyzing the legal form and contracts, drawing up a timetable, putting together a team (tax advisor, etc.), then working through the to-dos step by step (checking the valuation, accompanying the search for a buyer from a legal perspective, conducting contract negotiations). The entrepreneur always remains in control – the lawyer provides the basis for decision-making and implements the decisions legally.

The first step towards a successful succession is therefore to seek advice. Nobody is obliged to implement the advice, but being informed simply gives you a big advantage. Especially in the skilled trades, where succession is challenging, early legal advice can make the difference between an orderly business handover or a hectic business closure.

Conclusion: Business succession in the skilled trades is a challenging task, but with timely planning, professional support and clear communication, it can be managed successfully. The demographic facts make it necessary to address the issue – and those who take an offensive approach can place their life’s work in good hands and ensure its continued existence. All areas – from legal form to contracts and taxes – should be considered. Equally important are the “soft” factors: employees and customers.

As a trades business owner, you don’t have to be an expert in all of these areas, but you should know who to ask. An experienced lawyer who is familiar with the special features of craft businesses can act as a guide through the process. Together with tax advisors and the Chamber of Skilled Crafts, this creates a network that optimizes the transition.

In the end, everyone benefits: the transferor sees his business successfully continued, the successor takes over a well-prepared company with future prospects, the employees keep their jobs and the customers keep their trusted service provider. In this way, the potential problem of “ageing and lack of succession” becomes an opportunity for a new beginning that combines tradition and innovation in the skilled trades.

So if you are faced with the question of how to sell or hand over your craft business, take on the challenge – find out early on, get professional help and actively shape the succession. Then there is a good chance that your life’s work will be continued in your interests and you will be able to start your retirement or the next chapter with peace of mind.

Note: This article provides an overview and does not replace individual advice. Every business is different – legal and tax details should always be examined on a case-by-case basis. Do not hesitate to arrange a non-binding initial consultation with ME for your specific case in order to set the right course. We wish you every success in organizing your business succession in the skilled trades sector!