What happens to a business on death is decided by the articles of association, the testamentary disposition and the powers of attorney. These three levels are almost always written at different times and by different advisers.

They do not stand on the same footing: inheritance law distributes the estate, the articles of association decide how much of that distribution actually arrives inside the business, and the powers of attorney decide whether anyone can act at all. From that follows a working order that cannot be rearranged: first read what applies, then write what is to apply.

You can change a will at any time, alone, without anyone finding out. A contract of inheritance binds: it is concluded notarially with the other party and can only be dissolved unilaterally under narrow conditions, for example by virtue of a right of withdrawal reserved in the contract or in cases provided for by statute. For a succession, that binding effect is often precisely the point.

A child who takes over the business works for years below market rates. In return they want a commitment that does not depend on the mood of the next decade. A will does not provide that commitment; a contract of inheritance does. The flip side: the binding effect also applies if the successor turns out to be the wrong choice. That is why a contract of inheritance should contain named rights of withdrawal and amendment.

The compulsory share amounts to half the value of the statutory share of the estate and is a claim for money against the heir, not a participation in the estate (section 2303 German Civil Code). Descendants and the spouse are entitled to it, and parents only where there are no descendants, in each case only where they are excluded from the succession by a disposition upon death.

Anyone who gives the business to one child and points the others to the private assets has not thereby secured peace; an account remains open. The amount depends on the value of the business, that value sits in machinery, stock and orders, and what is owed is money. Three drafting routes stand against this, and they are not mutually exclusive.

Waiver of the compulsory share against a settlement

The most reliable route is an agreement with the entitled person themselves. A waiver of the compulsory share has to be notarially recorded and is usually concluded in return for a settlement: a payment of money, a property, a non-voting shareholding, the funding of an education. In practice the waiver is frequently limited to specific assets, so that it only covers the business.

What carries this route is the negotiation beforehand rather than the wording of the contract. A waiver signed at the kitchen table by a twenty-year-old without their own advice is a risk you are buying into. A waiver where the other side had their own legal advice, knew the figures and received a recognisable consideration is an arrangement that holds.

Lifetime transfer with a direction that it be credited

Transferring shares early is often right, but it does not shake off the compulsory share on its own. What matters is a sentence missing from many transfer agreements: a benefit is only credited against the recipient's compulsory share if the deceased so directed when making it. It cannot be added later.

The consequence of that missing sentence is absurd and happens regularly. The successor child has already received the business and, after the father's death, additionally demands their full compulsory share of the remaining estate, because the transfer is credited nowhere. The siblings who gave up the business then pay a second time.

Melting away: ten years, and for a spouse the period starts later

For gifts, the supplementary compulsory share applies as well, and there a sliding scale operates: the gift is taken into account in full within the first year before the death, and by one tenth less for each further year (section 2325(3) German Civil Code). After ten years it is left out of account.

That is the real reason a succession does not begin at 78. One exception is often overlooked: for gifts to a spouse, this period only begins when the marriage ends. Anyone who transfers the business to their wife and then stays married for fifteen years has not even started the period, let alone shortened it.

An estate without an executor is administered by the heirs jointly. With two heirs that is laborious; with four heirs and a business running, it is deadlock. Executorship appoints a person who is allowed to act: they administer the estate, satisfy legacies and divide it up according to the deceased's directions.

Two forms are to be distinguished. Winding-up executorship completes a limited task and ends. Continuing executorship administers the shareholding over years and is the instrument for successors who are minors or not yet ready, and for families in conflict. With interests in partnerships, executorship runs into limits, because partner's rights cannot readily be exercised by a third party.

The more frequent case is not death but incapacity. A stroke, an accident, an operation with a long rehabilitation, and the owner is unreachable for weeks. A private advance power of attorney covers healthcare and private financial matters. For the business it is as a rule not enough.

Several building blocks are needed: a power of attorney for the operational level, a power of attorney to exercise the shareholder rights, separate banking authorisations, and a power of attorney in certified form for anything that has to go to the commercial register or the land registry.

The case that most often stays unresolved is the sole shareholder who is also the sole managing director. If they are incapacitated, there is nobody who could appoint a new managing director.

In most families one child works in the business and the others do not. The principle that resolves this is simple: the business goes into one pair of hands, and the equalisation happens outside the business. Property, securities portfolios, life insurance policies with a named beneficiary, annuity legacies and usufructs all work as equalisation assets. What does not work is a community of heirs holding the business.

Two questions decide whether there is peace. First, value: anyone who only puts the figures on the table after the death has programmed the dispute. Second, what the successor gives in return, as someone who is liable, gives guarantees, ties up their own assets and cannot sell.

The spouse is a separate item. Provision and control can be separated: income through a usufruct or a legacy, voting rights with the successor.

Inheritance and gift tax help determine in what order and in what form assets are transferred. I do not advise on that; I am not a tax adviser. What I do: identify the tax side as a separate workstream, involve the tax adviser, and word the inheritance law document so that it does not destroy a tax arrangement.

I take the same approach to company law. If the articles of association have to be amended, I bring in the appropriate specialists.

Where a residence, a shareholding or a property lies abroad, the applicable inheritance law is as a rule determined by the deceased's habitual residence at the time of death (Article 21 EU Succession Regulation). A choice in favour of the law of one's nationality is possible (Article 22).

This is the mistake that derails most successions, and it is invisible from the outside. A business owner has a careful will drawn up. Nobody reads the articles of association from 1994 while doing so. Yet those articles say who can become a shareholder at all, and that clause prevails over the testamentary disposition.

The will then provides for a succession that cannot happen as a matter of company law.

Partnerships: the clause decides who can step in

In a GbR, OHG, KG or GmbH & Co. KG, the partnership agreement determines the succession. A continuation clause: the partnership continues among the remaining partners and the interest does not pass to the heirs. The heirs receive whatever the agreement provides as a settlement. A simple succession clause: all heirs step in. One partner becomes four.

A qualified succession clause: only certain people can step in, for example descendants. If the will appoints someone that clause does not cover, no partner's position arises for that person. An entry clause: the beneficiary receives no interest, but the right to be admitted to the partnership. They have to exercise that right, and until they do it is open who the partner is.

Corporations: inheritable, but not immune

Shares in a GmbH are inheritable, and that cannot be excluded in the articles. Many owners therefore consider this level unproblematic. The articles work with other tools: they can provide for redemption of the share against a settlement, for compulsory assignment to certain people, and they can make any transfer conditional on the consent of the company or the other shareholders.

The effect is the same as with a partnership, only delayed. The heir becomes a shareholder and then loses the shareholding against a settlement that is set out in the articles and frequently lies below market value. For the family that means money in the estate instead of the business. For the company it means an outflow of liquidity at the worst possible moment.

What follows from this

Alignment is not a finishing touch at the end, it is the beginning. I read the articles of association with all amendments before writing a single line of a will. If the two do not fit together, there are two routes: the testamentary disposition is adapted to the articles, or the articles are amended, which requires the other shareholders' consent. Leaving the two side by side unaligned does not work.

There is a fourth document that is readily forgotten: the successor's prenuptial agreement. A shareholding on clean tracks in inheritance law can become an issue again in the successor's equalisation of accrued gains. That is why the business owner's prenuptial agreement belongs in the same plan.