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10. November 2020 | GmbH Managing Director Liability: Duty of Care – Damage & Liability Risks

22. April 2022 | Company continuation: Limit liability of the heir! (this contribution)

You inherit a company of the decedent and want to continue it but limit your liability for liabilities of the company? We explain how this is possible under civil law and what commercial law has to consider when continuing the company.

If you inherit a sole proprietorship or partnership and want to continue this, then of course it is crucial how you yourself are liable for the old liabilities of the company and whether you can limit this liability. In doing so, the civil law but above all the commercial law regulations for the continuation of the company must be observed.

As heir, you are the universal successor of the deceased. This means that you enter the legal position of the decedent. Therefore, you assume all the rights and obligations of the decedent. Hence also the liabilities of his company, for which the heir is liable pursuant to § 1967 (1) BGB. This liability is unlimited for the heir. Consequently, he is liable both with the estate and with his own private assets. Depending on how high the old liabilities are, this can lead to the destruction of the heir.

But also commercial law knows in § 27 HGB precise rules on the liability of the heir in the company continuation. Accordingly, the heir is liable for the former business liabilities of the commercial business in accordance with § 25 HGB. The latter standard governs liability for the acquisition of a commercial transaction among living. Therefore, the following statements also apply to the liability of the legal acquirer in the context of a company purchase.

In summary, it is first necessary that the acquired company is a commercial sector within the meaning of §§ 1 to 5 HGB.

1.3.2. Business continued under previous company

Furthermore, liability requires that the heir continue the business and maintain the previous company. The reason for this is that the legacy thus makes the name that the company has made for itself and a corresponding company value. Therefore, it should bear the disadvantage of adhesion.

The prerequisite for the continuation of the company is that the essential core of the company’s activities is taken over. Therefore, the continuation of the company is not prevented if certain assets or activities are not taken over.

In addition, a literal or literal takeover of the company is not necessary. Therefore, it is only important that business transactions still identify the new company with the old one. Consequently, it is sufficient if the core of the company or its formative additives are adopted. A family name and the first name belong to such formative components. Therefore, it is not a takeover of the company, but a serious change if the inheritance exchanges the undertaking. On the other hand, the change in the legal form is irrelevant.

Liability is not considered even if the company is no longer in the estate. This is the case if the inheritance was effectively rejected in accordance with §§ 1944 following BGB or the acceptance of the inheritance was contested in accordance with §§ 1954 following.

Nevertheless, it is possible to limit the liability of the heir in the continuation of the company. The consequence is that the heir is no longer liable with his private property, but only with the estate, i.e. with the property acquired through the inheritance. It should be noted that both civil and commercial law regulations apply here.

The heir may limit liability by applying for estate administration or estate insolvency under the conditions of §§ 1975.

Nevertheless, a civil limitation of the liability of the heir has no compelling effect on the liability of the heir in the context of a company continuation. § 27 HGB gives rise to a stricter liability than under civil law. Consequently, commercial liability does not preclude estate administration and estate insolvency. A limitation is therefore only possible under narrow conditions. This must always be known and observed in a company continuation. Nevertheless, the limitation can only be effective if civil liability is also limited. Otherwise, you are not liable under commercial law, but still under civil law.

2.2.1. Business continued under another company

First there is the commercial exclusion of liability if the company continues under another company. But you have to change the company immediately after the inheritance and not wait for a few months. However, you must carefully check whether this design is actually suitable for you. Since no conclusion can be drawn about the old company from the new company, the good image of the former company and the original company value no longer benefit you. Economic aspects must therefore also be considered.

2.2.2. Termination of the company

A further possibility to escape liability is opened by § 27 paragraph 2 HGB. Accordingly, there is no liability if the heir ceases the company three months after obtaining knowledge of the inheritance. The company is discontinued when it is disposed of or ceases operations.

The sale or cessation is not the same if the company is subsequently changed within the three months. This is already proven by the wording of § 27 (2) HGB, according to which the “continuation of the business” must be discontinued.

In the three months, for example, you can check the company’s balance sheets and find out if it yields income. If it does not do this and it is not possible for you to create liquid funds in the company, then the hiring is a useful way to escape liability. Nevertheless, no way has yet been shown how you can limit liability in a solvent company with a valuable company.

2.2.3. Limitation of liability in case of company continuation in the commercial register

In this case, you can use our last suggestion well. Since § 27 HGB refers to § 25 HGB in its entirety – thus also to its paragraph 2 – you can enter the civil liability exclusion in the commercial register. In the literature, this possibility is sometimes rejected on the grounds that there is no continued liability of the previous owner, so that the creditor of the company is unduly put at a disadvantage. However, this appearance is deceptive, since the previous owner is still liable now only in the form of the estate. In addition, it is incomprehensible why the heir should be more strictly liable than the legal acquirer by forcing him to hire the company or change the company. Furthermore, the entry in the commercial register also provides clarity in the liability issues, so that the purpose of § 27 HGB is also sufficiently satisfied. An elegant design is therefore to enter the civil liability limitation in the commercial register.

We have outlined some ways in which you limit liability for legacy liabilities as an heir in the company’s continuation. Ultimately, it seems most sensible to limit the liability under civil law by applying for the estate insolvency or estate administration and then enter this limitation in the commercial register.

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