Company succession is something completely natural and also something necessary within our lifetime. The dangers, which hardly anyone is aware of, lurk in three different corners: the transferor, the transferee and the company.
The 3 dangers of company succession: Part III
The company's special protective covering as an independent legal entity is often ignored. This legal independence has consequences, because in the event of damage such as delayed insolvency, the entrepreneur or the managing directors are liable with fines or imprisonment. Insolvencies mean the end of the company, including employment relationships, economic activities and successes. A particular challenge arises when managing directors are established in the company and the actual owners have transferred their authority.
With the founding of a company - provided it is a corporation (such as in Germany GmbH, AG, KGaA) - a legal entity was created. What sounds advantageous for every entrepreneur in the first step, because tax advantages and limited liability are tempting, can also become a trap in the event of a successor or company transfer. The rules on delay in bankruptcy vary from country to country in Europe, but may share principles similar to those mentioned above.
Because what many entrepreneurs are not aware of is the special protection of the company. A GmbH, AG, KGaA in Germany is regarded by the legislature as independent and worthy of protection. A company therefore exists like a natural person and thus also shows its own ego. Gabler's business dictionary defines it as follows:
A legal person is an "association of persons or special-purpose funds with legal independence recognized by law. The legal person is the bearer of rights and obligations, has assets, can be used as an heir, sue and be sued in its own name."
This also explains why if damage is caused to the company, such as delaying insolvency (§ 15a InsO), the entrepreneur is punished with a fine or, in the case of intent, with imprisonment. Incidentally, liability for damages arising from liability for delaying insolvency only becomes statute-barred after three years.
Insolvencies and liquidations are logically the death of the company. All employment relationships, all economic activities, all defeats, but also all successes "die" with it. What remains are the memories of glorious times.
Here is a prominent example:
Alno AG
Alno AG, a German manufacturer of kitchen furniture, filed for bankruptcy in 2017 and was later liquidated. After the death of Albert Nothdurft, the company's founder, in 1997, the company experienced a changeable development with ups and downs. In 1999, Alno generated a record result of 500 million DM. In 2015, with a turnover of 522 million euros and around 2,100 employees, it was even one of the world's largest kitchen furniture manufacturers. Until Alno went bankrupt just two years later and, after unsuccessful rescue attempts, finally went into liquidation in 2021.
There were several reasons for the bankruptcy, such as a lack of innovation strategy and a limited product range, which led to a drop in demand. But high debt, unfavorable cost management, and poor cash flow management also led to financial constraints and made it difficult to keep the company competitive. Internal disputes, due to insufficient strategic planning, bad decisions and a lack of implementation competence, led to an unclear management structure that destabilized the company.
Only recently (03 August 2023) it became known in the press that the public prosecutor's office in Stuttgart is now investigating nine people two years after the liquidation of the company on suspicion of intentional delay in insolvency, credit fraud, bankruptcy and breach of trust. If found guilty, the individuals concerned could face a prison sentence of between six months and ten years.
Quelle: https://www.capital.de/wirtschaft-politik/groesste-insolvenzen-in-deutschland Quelle: https://www.zeit.de/news/2023-08/03/alno-insolvenz-staatsanwaltschaft-erhebt-anklage?utm_referrer=https%3A%2F%2Fwww.google.com%2F
It should be clear that a company alone - as a legal entity - cannot exist. It needs a leader to lead and direct it. A major risk in corporate succession is maintaining continuity and corporate culture. The company has built up a specific identity over the years and it is important to ensure that this identity is maintained through succession. New leaders and business owners must understand and carry forward the company's values and goals in order to maintain the trust of employees, customers and suppliers.
The employees play a central role in a successful company succession. It is important to gain their acceptance and support. However, it can happen that employees resist or fight back against the changes. This can complicate the implementation of succession plans. Well-timed communication, authenticity, and involving employees in the process can help address their concerns and maintain their loyalty to the company. This requires good tactics so that no damage occurs during the implementation of the succession process.
Conclusion
The identity of the company and its associated ego are a neuralgic point that is far too often neglected. I have seldom experienced a consultant who addresses the needs of the company in a succession process and integrates them into the process. Instead, entrepreneurs - and especially successors - are advised to "conduct a workshop for employee retention" before or after the change of entrepreneur. This is not necessarily wrong, but the balance between maintaining the corporate identity and the further development of the company must be maintained. At the same time, one must not remain in the comfort zone, but should use the opportunity to bring in fresh ideas and new impulses. It is important to involve the employees in this process (well dosed). They are the ones who live and embody the corporate culture every day. Employee retention should not be seen as an isolated goal, but as a natural part of meaningful corporate identity evolution.
My Advice
When planning a company succession, do not neglect the power of the company. There are many more people involved in the success of the succession than just the transferor and the transferee. Use the operational support during the planning of the handover process and enable a knowledgeable, neutral third party to gain insight into your implementation strategies and tactics. Because the discrepancy between your own perception and reality can lead to costly challenges that are difficult to escape from.
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