Corporate foundations for business succession

Stiftung & Co. KG: the foundation as general partner

A third variant provides for the foundation to act not as a shareholder but as a general partner in a limited partnership. The Stiftung & Co. KG replaces the general partner (GmbH) with a foundation. This combines the flexibility of a partnership with its income tax transparency and its treatment for inheritance tax purposes as a partnership, whilst ensuring the permanence of the management structure in the foundation’s articles of association. The limited partners may be family members whose shares are inheritable, whilst the power of management and representation remains permanently with the foundation.

This model is suitable where the family is to retain an economic stake, but control must be stabilised, for example because the shareholder base is growing and deadlock situations are foreseeable in the future. However, careful coordination of the limited partnership agreement and the foundation’s articles of association is required, particularly with regard to withdrawal rights, succession clauses and the composition of the foundation’s governing bodies.

How is the corporate foundation taxed?

The tax treatment depends on the model chosen. As a holding entity, the family foundation is liable for corporation tax at a rate of 15 per cent plus the solidarity surcharge. In accordance with Section 8b of the Corporation Tax Act (KStG), 95 per cent of dividends from the subsidiary are received tax-free, provided the holding requirements are met. The mere management of shareholdings does not, as a rule, trigger trade tax. Payments to beneficiaries are subject to capital gains tax. The establishment of the foundation itself constitutes a transaction subject to gift tax. In the case of a family foundation, the tax class is determined by the relationship between the founder and the most distant beneficiary in accordance with the articles of association (Section 15(2) of the Inheritance Tax Act (ErbStG)). The group of beneficiaries should therefore be structured with the tax class in mind. For business assets held as beneficiaries, the exemptions under Sections 13a and 13b of the Inheritance Tax Act (ErbStG) also apply in the event of a transfer to a foundation.

A distinctive feature of family foundations is the substitute inheritance tax: in accordance with Section 1(1)(4) of the Inheritance Tax Act (ErbStG), a notional inheritance is assumed every 30 years, in which the foundation’s assets are taxed as if they were passing to two children. This is based on a corresponding double tax-free allowance and the tax rate for tax class I. In the case of foundations linked to a business, the business asset exemptions generally offset this cycle; however, it can only be planned for with long-term liquidity provision. By contrast, charitable foundations are exempt from inheritance tax, corporation tax and trade tax, and donations to them are exempt from gift and inheritance tax (Section 13(1) No. 16 of the German Inheritance Tax Act (ErbStG)). In return, the law governing charitable status permanently ties assets and income to the tax-privileged purpose.

Which type of foundation is suitable for which succession scenario?

The choice of model depends on three questions. Firstly: Is the aim to ensure the family’s long-term financial security? If so, a family trust or a limited partnership interest for the family is essential, as a purely charitable solution only provides for the family within the one-third limit set out in Section 58(6) of the German Fiscal Code (AO). Secondly: How large is the estate, and how significant is the inheritance tax liability? The larger the company, the more the structural complexity of a dual foundation is justified. Thirdly: How definitive should the solution be? Once a foundation has been recognised, it can only be amended under very strict conditions. Its purpose and the restrictions on the use of its assets are largely set in stone. Whilst the wording of the articles of association can provide flexibility, it does not allow for reversal.

In advisory practice, therefore, the starting point is never the foundation itself, but rather the succession analysis: Are there successors within the family? How sustainable is the shareholder structure? What risks exist regarding statutory shares and compensation payments? And what role should external managers play? Only once these questions have been answered can a decision be made as to whether a foundation is the right vehicle, or whether the objectives can be achieved more simply through a transfer agreement by way of anticipated succession. The page ‘Asset Succession and Foundation Law’ provides an overview of our advisory services in this area.

Legal status: July 2026.