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Tax
10. Mar 2026
RA/StB Frank Moormann

Transferring business assets under the reservation of usufruct - Part II: Co-entrepreneurships

While in the last edition of our magazine we considered the situation in the case of a sole proprietorship (see under part 1), here we discuss what happens when, in the context of business succession planning, shares in a Mitunternehmerschaft (literally co-entrepreneurship, which refers to the tax status of a German partnership) are transferred under the reservation of usufruct. Mitunternehmerschaften are partnerships that operate commercially or on a freelance basis (GbR (civil law partnership), OHG (general partnership), KG (limited partnership)/GmbH & Co. KG (limited partnership with a limited liability company as a general partner)). The legal situation in this area has likewise changed as a result of recent court rulings, which must be taken into account for structuring arrangements.

Mitunternehmer (co-entrepreneur) status of the beneficiary

From a tax perspective, it is of crucial importance that the recipient of the usufruct-encumbered shareholding becomes a co-entrepreneur for tax purposes. This ensures that the book values may be maintained and that the hidden reserves are not realised unintentionally. Furthermore, co-entrepreneur status is also a prerequisite for claiming an exemption for business assets under the gift tax rules.

The beneficiary becomes a co-entrepreneur if they are able to develop co-entrepreneurial initiative as well as bearing the co-entrepreneurial risk. Both of these factors must be present, although not necessarily to the same degree. The beneficiary, as the new shareholder, will however generally meet the requirements for co-entrepreneurship. 

Please note

Something else would only apply if, besides the income, the donor reserves all the voting, control, and management rights arising from the shareholding, so that absolutely no entrepreneurial initiative remains any more with the beneficiary. Therefore, care should be taken to ensure that the beneficiary still has co-decision rights, at least for basic transactions.

Mitunternehmer (co-entrepreneur) status of the donor

In advisory practice, it was hitherto assumed that, with the appropriate structuring, the donor themself would also remain a co-entrepreneur and that the income from the profit statement for the company could be allocated to them. To this end, the donor was normally assigned voting rights for day-to-day business.

However, in the future, that will no longer be sufficient. In its ruling of 2.7.2025 (case reference: IV R 36/22 and IV R 37/22), the Federal Fiscal Court (Bundesfinanzhof, BFH) clarified that a usufructuary cannot be a co-entrepreneur if the usufruct is structured in accordance with the legal model and, therefore, the usufructuary would not participate in either the hidden reserves or the company’s losses. In such a case, the requisite co-entrepreneurial risk would be lacking. Mere restrictions on withdrawals because a capital account is in deficit due to losses would not be sufficient for this.

Consequently, there is a risk that the income will be allocated to the beneficiary who, as the sole remaining co-entrepreneur will be taxed on it; however, the beneficiary would be required to pay out this income to the usufructuary.

An arrangement whereby the usufructuary's own assets could still be used in any way for the company and, thus, a co-entrepreneurial risk would exist is frequently undesirable. As an alternative, it might be advisable not to transfer the entire shareholding, but instead for the donor to still keep back a portion of the shareholding, thereby remaining a co-entrepreneur. Then the usufructuary right for the transferred portion could be contributed to the special business assets of the portion that has been retained.

Please note

The BFH expressly left open the question of whether it was at all possible for both the beneficiary as well as the conditional usufructuary to be co-entrepreneurs for one and the same shareholding in the company. Up to now, this has been the practice as regards structuring with the approval of the tax administration.

Recommendation

In view of the existing legal uncertainties, for future transfers of equity interests in partnerships careful consideration should be given to whether usufruct solutions still constitute the right choice. The problem could possibly be avoided by keeping back a portion of the shareholding. 

For transfers that have already been made, the crucial factor will be how the tax administration deals with the tighter rulings. The rulings have not yet been officially published and will thus not generally be applied by the local tax offices.