Only 30–40% of family businesses survive a generational transition

Statistics show that only 30–40% of family businesses successfully pass into the hands of the next generation. In most cases, the reason is not poor financial performance, but rather delayed decisions and the absence of timely agreements. Drawing on their experience, Mettas and Michelson outline the most common issues family businesses seek banking support or legal advice for.

Leadership and agreements for the future

Questions around who will take over responsibility, when the transition should happen, and how roles and expectations will be divided are both commercial and deeply personal. According to Kadri Michelson, generational transition works best when the next generation is involved early on, contributing ideas, experimenting, and gradually taking on responsibility. This helps both the current and future owners gain confidence that the company’s direction will remain clear.

“Alongside day-to-day management, it is equally important to establish a broader agreement on the family’s shared vision and how decisions will be made in the future. Often, simply bringing these topics to the table and discussing them calmly is enough, sometimes with the support of an external adviser,” she explains.

Michelson recommends formalising such agreements in a Shareholders’ Agreement.

Asset ownership and transfers in the event of divorce or inheritance

Diversifying assets is a natural part of risk management, but problems may arise if, for example due to sudden ill health, there is no longer anyone able to provide heirs with a complete overview of all assets.

“In practice, there have been cases where parts of an estate remain undiscovered or unused because nobody is aware of their existence, particularly when assets, investments or accounts are held abroad,” Michelson explains. “To avoid such situations, it is important to consider who would have access to this information and how it could be obtained if necessary.”

According to Michelson, a will may not be necessary if statutory inheritance arrangements reflect the owner’s wishes. However, it becomes essential when a more specific distribution of assets is intended. For example, under the law, an unmarried partner is not treated equally to a spouse and, in the absence of a will, has no automatic right to inherit.

Michelson also recommends considering how assets would be divided in the event of a divorce, as a shareholding in a company that forms part of marital property may become the subject of dispute. Clear agreements, including a marital property agreement, can help prevent such situations.

Ill health can bring business operations to a standstill

“If a business owner is both the sole shareholder and a member of the management board, and no will has been made, the company’s operations may unexpectedly come to a halt during inheritance proceedings in the event of their death,” says Erje Mettas.

“There are examples in Estonia where, before the certificate of succession has been issued, nobody is authorised to represent the company, pay salaries or taxes, or access bank accounts and contracts.”

She stresses that banks can only act on the basis of legal authority. Verbal agreements made within the family, and often even written agreements, cannot be taken into account by a bank unless they have been notarised, registered in the Commercial Register, or formally set out in a valid will or certificate of succession.

At the bank, businesses can rely on a dedicated relationship manager to help organise company assets and financial matters. In addition to handling day-to-day banking issues, relationship managers can assist with powers of attorney, account access arrangements, and larger strategic decisions.