Generational Succession in Business: How to Organize It

In this guide we look at how to plan generational succession in a business: the tax aspects, the legal tools available, and how to involve successors in the most effective way.

Generational succession is one of the most delicate moments in the life of a family business: let’s look at what it is, what tools exist, and why it’s important to start planning it early, in accessible terms.

Generational succession in business: the key points

Generational succession in a business needs to be planned well in advance, weighing up the family pact, holding companies, and other planning tools. Our firm supports the entrepreneur and the family at every stage of generational succession in the business.

What generational succession is

Generational succession is the process by which the leadership and ownership of a family business are transferred from one generation to the next, typically from parents to children. It’s not just about a single moment, such as a gift or an inheritance, but a path that touches on governance, tax matters, and more personal issues tied to family dynamics. Businesses that go through this transition without adequate planning risk being unprepared exactly at the most delicate moment, the one in which the entrepreneur can no longer personally take care of running the business.

Why it pays to plan ahead

Planning generational succession while the entrepreneur is still fully active makes it possible to calmly choose the most suitable legal and tax tools, to gradually prepare successors for their roles, and to reduce the risk of conflict among heirs. Conversely, unplanned generational succession, dealt with only at the time of inheritance, exposes the business to concrete risks: co-ownership among multiple heirs of shares that aren’t easily divided, disagreements over management, and tax effects that adequate planning could have partly avoided.

The main tools

The family pact (patto di famiglia)

A contract by which the entrepreneur transfers the business or shares to one or more descendants while still alive, with the participation of the other forced heirs, who receive an agreed settlement. It allows the transition to be stabilized without waiting for the inheritance to open.

Gifting shares, including with reserved usufruct

Allows the ownership of shares to be transferred while keeping, if desired, the economic or voting rights with the donor for a transitional period, gradually accompanying the transfer of responsibility.

The family holding company

A company that holds the shareholdings in the family’s operating businesses, useful for separating ownership from operational management and for defining shared governance rules among family members.

Wills and shareholder agreements

Complementary tools that make it possible to regulate the succession of shares not yet transferred during the entrepreneur’s lifetime and to define in advance the management rules among future partners.

The tax side: the relief for generational succession

Italian law provides a specific relief for the transfer of businesses or controlling shares to descendants or a spouse, through gift or inheritance: where certain requirements are met, the transfer can benefit from exemption from inheritance and gift tax. The relief, however, requires the descendants to acquire or supplement control of the company and to maintain it for a minimum period of five years, making a declaration to that effect in the deed of succession or gift.

As confirmed by the tax authorities’ more recent practice, the relief does not apply if the transfer does not allow the effective control of the business to be acquired or maintained: for this reason, the structure of the succession needs to be carefully designed, not left to chance.

FAQ – Frequently Asked Questions

When is the best time to start planning generational succession?
The best time is while the entrepreneur is still fully active: it allows the most suitable tools to be chosen calmly and successors to be gradually prepared.

What is the family pact?
It’s a contract by which the business or shares are transferred, while the entrepreneur is still alive, to one or more descendants, with the participation of the other forced heirs, who receive an agreed settlement.

Is generational succession always tax-exempt?
No: the exemption applies only when specific requirements are met, in particular when the transfer allows descendants to acquire or maintain control of the business for at least five years.

What happens if generational succession isn’t planned?
Without planning, the business or shares fall under ordinary inheritance rules, with the risk of co-ownership among multiple heirs and possible conflicts over management.

The legal basis for the relief is Article 3, paragraph 4-ter, of Legislative Decree 346/1990 (the Consolidated Act on inheritance and gift tax), which exempts from tax the transfer, by inheritance or gift, of businesses or business branches, company shares, and stocks in favor of descendants (or a spouse), provided the beneficiaries continue the business activity, or hold control in the case of capital companies, for a minimum period of 5 years from the transfer, making a specific declaration to that effect in the deed of succession or gift.

A more recent and restrictive line of interpretation, both in practice and case law, requires that this commitment be explicit and formal, not merely presumed: one more reason to plan generational succession with the necessary lead time and with adequate professional support.

Let’s build the right path for your family business together

If you’re considering how to set up the generational succession of your business, we can help you analyze your specific situation and identify the most suitable tools, with an initial, no-obligation discussion.

Prefer to talk it through? Call the firm on +39 011 349 0809 (Mon–Fri 8:30 am–1:00 pm / 2:00–5:30 pm CET) or message us on WhatsApp.