Succession of a one-person business: succession management, will, gift

A sole trader business (JDG) is the most common form of running a business in Poland, entered in the Central Register and Information on Business (CEIDG). It is cheap, simple and flexible. But it has one fundamental flaw: the business is tied to the person of the owner. When the owner dies, without proper preparation, the business ceases to exist.

The Act of 5 July 2018 on the succession management of a natural person’s enterprise changed this fundamentally. Today, with proper preparation, a business can continue after the owner’s death, on the same terms, with the same employees, contracts and licences. The article shows how to plan this.

Three ways to protect the business

The owner of a sole trader business has three main instruments for succession planning, which can be combined:

1. Succession management: naming the person who will take over management after death
2. A will: determining who inherits the business assets
3. A gift during your lifetime: handing the enterprise over to a person (or people) while you are still alive

Each of these tools serves a different purpose. Succession management gives operational continuity (the business keeps going), while a will and a gift are tools of asset planning. In practice the best results come from combining them.

Succession management: the most important instrument

Succession management is a mechanism introduced by the 2018 Act.

Appointing it during your lifetime

The entrepreneur enters a succession manager in CEIDG, a person who automatically takes over management of the business at the moment of death. The simplest and safest route:

1. Choosing the person: a family member, a partner, an employee, a trusted person
2. Obtaining written consent from the future manager
3. Notification through CEIDG-1 (online or in person)
4. Automatic activation after death (on the basis of the death certificate)

What succession management gives

The Act on succession management (Articles 29–33) ensures continuity of the key elements of the business:

| Element | Without succession management | With succession management | |---------|---------------------------|-----------| | NIP (tax identification number) | Expires | Stays | | Business name | Used with the addition “in the estate” | Used normally | | Employment contracts | Expire automatically | Continue | | Contracts with business partners | Expire | Continue | | Leasing, rental | Expire | Continue | | Licences and permits | Expire | Continue for the period of management | | Bank accounts | Frozen | The manager has access | | VAT and JPK | Blocked | Continued |

Succession management generally expires 2 years after the entrepreneur’s death. The court can extend this period, to a maximum of 5 years in total. During that time the heirs can decide what to do with the business: take it over, convert it into a company, sell it, liquidate it.

A will: asset planning

A will determines who inherits the business assets. It makes sense when:

• The assets are to be divided in a way other than the statutory one (for example excluding a particular heir)
• The business is to pass to a particular heir (usually the one most active in the business)
• There are people you want to give something to outside the statutory circle (for example an employee, a partner)

Forms of will: holographic (handwritten), notarial (the safest), allographic (before an official). For businesses it is worth choosing a notarial will: hard to challenge, with the meaning certainly clarified.

A vindication legacy

Especially useful for businesses is a vindication legacy, an institution of inheritance law that makes it possible to pass a specific item (for example the whole enterprise) to a specific person, bypassing the division of the whole estate. The legacy must be in a notarial will.

A gift during your lifetime

The third option is to hand over the business during your lifetime, by a gift or by a contract providing for a benefit. The benefits:

• Certainty: there is no risk of the will being challenged
• A smooth transition: the owner can assist the successor in the first years
• Tax optimisation: exemption from tax for the closest family

Conditions for the tax exemption

The closest family (spouse, descendants, ascendants, stepchild, siblings, stepfather, stepmother, the so-called zero group) is exempt from inheritance tax if it reports the acquisition to the tax office within 6 months (Article 4a of the Inheritance and Gift Tax Act). For a gift of an enterprise within the meaning of Article 55¹ of the Civil Code:

1. Notification to the tax office on form SD-Z2 within 6 months of the date of the gift
2. No tax arrears of the deceased / the donor

Selling the business: the last option

Sometimes the best solution is to sell the business, after the owner’s death, during succession management. The heirs gain cash instead of managing a business they are not prepared for.

Succession management makes it possible to sell the enterprise as a whole, with licences, employees and clients. The sale price depends on the state of the business at the time of sale, not on the circumstances of the death. That is why it is important for the succession manager to run the business “as usual” for the first months.

Combining the instruments

In practice, combinations give the best results:

| Plan | Use | |------|--------------| | Succession management + a will | Continuing the business + dividing the assets according to the will of the deceased | | A gift + succession management | A son / daughter receives the business, and the parent stays as manager until they come of age | | Succession management + a family foundation | The assets go to the foundation, with management for the first years | | A will + a sale (after 2 years of management) | Operational continuity + realising the financial value |

A practical checklist for a sole trader

What every owner of a sole trader business should do “just in case”:

1. Notify a succession manager to CEIDG: the simplest step, 15 minutes online
2. Talk to the potential manager: make sure you have their consent
3. Write a will (preferably a notarial one): set out your wishes for the business and assets
4. Prepare an operating manual: passwords, contacts, procedures, a list of clients
5. Life insurance: it will help the heirs cover the business’s arrears
6. A bank power of attorney: for the spouse or the manager
7. Update every 2 years: changes in life require the plan to be revised

Summary

Succession of a sole trader business is one of the most often overlooked topics in Polish business. Businesses that have operated for 15–20 years often have no succession manager notified. In the event of the owner’s sudden death, this practically means the end of the business. At Profais we help clients plan succession from the accounting side, from registering the manager to preparing the operating manual. We are an accounting firm. Legal advice on inheritance matters is provided by a notary, an advocate or a legal adviser, and tax advice and opinions that go beyond day-to-day accounting by a tax adviser (in line with the Tax Advisory Act). See our full accounting service, the family foundation and conversion into a limited company (sp. z o.o.) as alternative routes.

Sources: The Act of 5 July 2018 on the succession management of a natural person’s enterprise (Journal of Laws 2018, item 1629), the Civil Code (inheritance law), the Inheritance and Gift Tax Act Article 4a, biznes.gov.pl.