Operating as a sole proprietorship (JDG) and succession
According to legal regulations, with the death of a sole proprietor – as a rule – the legal existence of the business run by him ends. In order to avoid liquidation of the company with the death of the owner, as of November 2018, entrepreneurs running companies in the form of sole proprietorships have the opportunity to appoint a so-called successor administrator. Succession also includes civil partnerships, but does not apply to companies, including partnerships.
What is succession management?
Succession management is a manifestation of temporary management of a business after the death of the entrepreneur, allowing decisions to be made about its future. It is exercised by a successor administrator designated by the entrepreneur during his lifetime or appointed after his death by authorized persons. Succession administration may last until the completion of succession formalities after the deceased entrepreneur, but no longer than 2 years from the date of his death.
If a successor administrator is appointed during the entrepreneur’s lifetime, the entrepreneur shall designate a person whom he considers competent to run the business after his death, which gives the entrepreneur time to transfer the relevant knowledge to him. The entrepreneur may appoint a future successor administrator to an already established proxy.
How to establish a successor administrator?
In order to establish a successor administrator according to the law, it is necessary:
- appointment of a successor administrator by the entrepreneur;
- consent of the person appointed as a successor administrator to perform this function;
- making an entry in the CEIDG of the successor administrator.
The appointment of the successor administrator and the consent of the appointee should be made in writing under pain of nullity. After observing these formalities, the change should be made in CEIDG – this can be done online in the CEIDG register by submitting the CEIDG-ZS form. The entrepreneur’s and manager’s statements do not need to be delivered to the office or sent to CEIDG, as they are submitted under pain of criminal liability.
Who can appoint a successor administrator after the death of an entrepreneur?
A successor administrator can be appointed by:
- the entrepreneur’s spouse, who is entitled to a share in the inherited enterprise, or
- statutory heir, if there is no will, or
- a testamentary heir or legatee, if the entrepreneur has left a will.
Who can become a successor administrator?
The legislator has stipulated specific conditions for who can become a successor administrator. The person who can perform this function is:
- a natural person (the administrator cannot be a legal entity);
- having full legal capacity (a person who has reached the age of majority and is not limited in rights, such as incapacitated);
- who is not banned from doing business, as referred to in Article 373(1) of the Law of February 28, 2003. – Bankruptcy Law;
- against whom a criminal measure or a protective measure in the form of a ban on certain business activities, including business activities carried out by an entrepreneur or business activities in the field of property management, has not been adjudged.
Can a successor administrator be revoked?
A successor administrator can be revoked by both the owner of the company and the administrator himself can resign from the function. To do this, a statement of revocation/resignation must be submitted to the other party in writing under pain of nullity, and the fact of revocation must be reported to CEIDG.
What are other ways of succession of a sole proprietorship?
One way is to conclude a contract of sale of a sole proprietorship between the entrepreneur and a member of his family, acting as successor (it is also possible to make a donation of the business to him).
Another solution is to convert the form of the business into a corporation (e.g., a sole proprietorship), which makes the legal existence of the business independent of the entrepreneur’s person. It is also possible to convert a sole proprietorship into a general partnership by contributing the sole proprietor’s business to it in kind.
However, these decisions entail not only legal, but also tax consequences. In our business, we support entrepreneurs in restructuring transactions, helping them choose the right form of business that ensures both a smooth succession of the enterprise and favorable tax settlements.
