Capittal's view: sell to a third party or hand the company over to my children?

Quick answer

Capittal's view is that this decision is not settled by sentiment but by first establishing whether there is a successor who wants to run the company and is able to do so. If there is, the family transfer is usually more tax efficient thanks to the 95% relief in Spanish inheritance and gift tax; if there is not, keeping the company in the family is a risk decision rather than a legacy decision. In both scenarios the first step is the same: value the company before deciding anything.

What is the prior question that settles everything else?

The question is not whether you want to leave the company to your children. It is whether there is a successor who wants to run it and can actually do it.

A real successor meets three conditions at once: they want the job, they have the technical and management ability to hold it, and the management team and the customers accept them as their counterpart. If any of the three fails, you do not have a successor: you have an heir. An heir collects; a successor runs the business. Confusing the two is the origin of most handovers that end badly.

• They want it. They asked for the job rather than accepting it to avoid a family conflict.
• They can do it. They have spent years in the business with real responsibility and decisions of their own, not a nominal title.
• They are recognised. Key customers and the management committee deal with them without going back to the founder to confirm.

When the children only want the dividends, the company is left without direction and loses value every year. In that case selling is not giving up the legacy: it is converting it into wealth before it erodes.

What are the real routes, beyond selling or inheriting?

Owners tend to frame this as a binary choice and it is not. There are three routes plus several hybrid formulas that resolve most of the cases in between.

• Sale to a third party. A trade or financial buyer acquires the company. It turns business wealth into cash that can be diversified and closes your exposure to the sector.
• Succession or lifetime gift to the children. Ownership passes to the next generation through inheritance or a gift, under the family business tax regime where the conditions are met.
• Hybrid formulas. Neither everything in nor everything out.

The hybrids are the least known and often the most suitable. A sale to the children with financing lets the next generation buy at market value using bank debt or deferred payment to the parent. Bringing in a financial partner alongside the children gives the founder liquidity, professionalises governance and leaves the family with a meaningful stake. A management buy-out with the family retaining a shareholding solves the case where there is no family successor but there is a team capable of running the business.

How does the tax bill change depending on the route?

This is the axis that moves the most money and the one decided latest.

A sale to a third party generates a capital gain for the seller, taxed under Spanish personal income tax as savings income. It is a known cost and can be calculated from day one.

A family transfer follows a different logic. Article 20.2.c of Spanish Law 29/1987 on inheritance and gift tax provides a 95% reduction of the taxable base for the acquisition on death of shares in a family business, and article 20.6 extends that relief to lifetime transfers, that is to gifts, with additional conditions on the donor's age and on the donor ceasing management functions.

The relief is not automatic. It rests on the shares meeting the exemption conditions under Spanish wealth tax, which requires a minimum shareholding, held individually or by the family group, the effective exercise of management functions by a member of that group, and that this remuneration is their main source of income. On top of that comes the requirement to hold the assets acquired for the statutory period after the transfer.

Spain's autonomous regions have also developed their own enhancements and conditions, and these differ widely. The tax outcome of the very same transaction can change substantially depending on where the deceased or the recipient is resident. There is no general answer: the applicable regional rules must be verified case by case. The tax and succession side is handled by NRRO (Navarro Tax & Legal), part of the same group.

What is the difference in liquidity between the two routes?

Succession preserves the wealth but does not give you a single euro. A sale gives you cash.

That sentence sums up the most underestimated axis. A founder who transfers the company to the children keeps the value inside the family perimeter, but obtains no resources to fund retirement, to compensate the children who stay out, or to diversify. If their standard of living depended on a salary and dividends from the company, that dependence continues after the handover, now without control over management.

A sale reverses the position. It converts an illiquid, concentrated asset into financial wealth that can be divided, invested and passed on without argument. It also closes the exposure: sector risk stops being your risk on the day of completion.

There is a middle path that resolves many cases: selling a majority stake to a financial partner while keeping a meaningful percentage. The founder takes liquidity now and preserves the option of a second sale later, with the children already in the share capital and in management.

How do I divide between the child who joins the business and the one who does not?

Fairness between siblings breaks more family businesses than tax does.

The problem always takes the same shape: the company is the main asset of the family estate, one child works in it and the other does not. Splitting the share capital equally turns the sibling who does not work there into a passive shareholder in a business whose decisions they do not control, and the one running it into a manager accountable to someone carrying no risk. That is where the conflict starts.

• Compensate with assets outside the company. Real estate, a financial portfolio or life insurance allow you to equalise without touching the share capital.
• Deferred payment between siblings. The child who keeps the business buys out the other with instalments funded by the company's own cash flows.
• Separate the trading business from the property. If the operating premises sit in a different company, the division gains room for manoeuvre.
• A shareholders' agreement between siblings. If they do end up sharing capital, dividends, exit rights, valuation and reserved matters must be regulated in writing.

What does not work is taking cash out of the company to equalise the estate. It decapitalises the business and hurts both siblings at once.

Is it sensible to keep the whole family estate in a single company?

This axis is rarely discussed and explains many poor decisions.

Where the company represents most of the family's wealth, the generational handover does not reduce risk: it transfers it intact to the next generation and adds the management risk of someone who has never run a business before. A regulatory change, the loss of a key customer or a better funded competitor hit the family's income and its wealth at the same time.

The useful question is not what the company is worth, but what percentage of the family estate it represents. Above a very high weighting, any decision about the company is also a decision about the family's financial security. Selling part of it, bringing in a partner or distributing dividends in an orderly way over the preceding years are all ways of reducing that concentration without giving up the business.

What is the most common mistake in this decision?

Deciding by default. Not deciding is also a decision, and almost always in favour of the most expensive route.

The pattern repeats itself: the founder postpones the conversation, does not value the company, does not sort out governance, and the handover ends up being triggered by ill health or a death. At that point the family faces the inheritance tax filing, an unplanned division of the estate and a company with no defined leadership, all at once, with the worst possible information and no room to negotiate.

The second mistake is deciding without a figure. An owner who does not know what the company is worth cannot compare routes: they do not know how much to compensate the child who stays out, what tax burden the succession will carry, or whether the offer that has just arrived is good or bad. A valuation does not commit you to selling. It is the figure that organises the conversation.

What is the next step if I have children and do not know what to do with the company?

Do two things before deciding, in this order. First, value the company on market criteria and establish what percentage of the family estate it represents. Second, sort out governance: who decides what, with which powers, and what happens if the founder is not there tomorrow. With those two pieces resolved, the choice between selling and handing over stops being an emotional argument and becomes a comparison of scenarios with figures attached.

At Capittal Transacciones we work on the comparison between selling to a third party and handing the company over to the children within the confidential valuation we prepare for owners considering a sale. We are a mid-market M&A boutique operating in the approximate range of 3 to 250 million euros, with eight offices in Spain (Barcelona as headquarters, Madrid, Girona, Lleida, Tarragona, Palma, Zaragoza and Valencia) and we are part of the NRRO group. The partner handles each mandate directly, including this conversation about the generational handover.

Keep reading

• Guide: every decision you face when selling your company
• How long you have to stay on after selling
• How the price is split between shareholders

Compare family succession and a sale with figures on the table: talk to Capittal