6 Transferring the ownership of businesses
| (27385)
7721/06
COM(06) 117
| Commission Communication: Implementing the Lisbon Community Programme for Growth and Jobs: Transfer of Businesses — Continuity through a new beginning
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| Legal base | — |
| Document originated | 14 March 2006
|
| Deposited in Parliament | 24 March 2006
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| Department | Trade and Industry
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| Basis of consideration | EM of 27 April 2006
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| Previous Committee Report | None
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| To be discussed in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Legal background
6.1 Article 157 of the EC Treaty requires the Community and Member
States to maintain the conditions necessary for the competitiveness
of the Community's industry. To that end, they are required (among
other things) to encourage an environment favourable to initiative
and, in particular, the development of small and medium-sized
enterprises (SMEs).
"Transfer of businesses"
6.2 The Commission uses "transfer of businesses" as
shorthand for the transfer of ownership or control of an SME when
the owner or a partner dies or wishes to retire. The Commission
has long been convinced of the importance of the transfer of businesses
to the European economy and employment.
The Commission's 1994 Recommendation
6.3 It was for this reason that the Commission adopted a Recommendation
in 1994.[4] It recommended
Member States to:
- make the owners of SMEs aware of the importance of transfer
and encourage them to prepare for it;
- provide a legal and financial environment conducive
to transfers (by, for example, allowing a small business to establish
itself as a public limited company with very few shareholders;
and by providing loan guarantees to help meet the cost of the
transfer);
- make legal provision for the continuity of partnerships
and sole proprietorships in the event of the death of one of the
partners or the owner;
- help the transfer of businesses within the family
through inheritance and gift taxes (by, for example, reducing
inheritance tax, gift tax and registration fees on assets used
exclusively for a business which is transferred by gift or succession);
and
- use the tax system to encourage entrepreneurs,
before they die, to transfer their businesses to their employees
or third parties outside the family (by, for example, waiving
all or part of capital gains tax on the assets of the business
when it is transferred or sold).
The Commission's Communication
6.4 The Communication gives the Commission's assessment
of the extent to which Member States have taken the action recommended
in the 1994 Recommendation. It also makes proposals for action
by Member States and business organisations where progress on
the 1994 Recommendations has been insufficient or to take account
of changes in the business environment over the last decade.
6.5 The Commission notes that:
- It is estimated that a third
of the EU's entrepreneurs will withdraw from their businesses
over the next ten years (this is, in part, a reflection of demographic
trends);
- the transfer of SMEs to the owners' children
is becoming less common because of the reduction in the size of
families and because children want more freedom to choose their
occupations;
- on average, the transfer of a small business
conserves employment for five people whereas the start-up of a
business creates, on average, two jobs; and
- the success rate of transfers is higher than
that of start-up ventures.
6.6 Accordingly, the Commission recommends that,
in addition to completing the implementation of the 1994 Recommendation,
Member States should:
- when considering an initiative
to promote start-up businesses, think about giving transfers the
same encouragement;
- make loans, guarantees and other financial facilities
available for transfers;
- organise and support activities by, for example,
chambers of commerce to make owners aware of the need to prepare
for transfers in good time and to act as mentors to owners during
the transfer process;
- act as match-maker between the seller of an SME
and potential buyers;
- consider giving owners who are nearing retirement
age a partial exemption from tax on the financial gain from selling
their SMEs;
- consider giving tax relief on the proceeds of
an enterprise which are used to finance the purchase of an SME
from an owner who wishes to retire; and
- encourage the sale of businesses to employees
by, for example, tax incentives to invest in the companies in
which they work.
The Government's view
6.7 The Minister of State for Industry and the Regions
at the Department of Trade and Industry (Alun Michael) tells us
that the Government welcomes the Commission's interest in the
transfer of businesses. He notes that, in 2004, a group representing
a broad range of UK private, professional and public bodies produced
a report called Passing the baton — encouraging successful
business transfers. The report made recommendations on raising
awareness of the importance of transfers, supporting businesses
which want to transfer ownership, and financial and taxation matters.
Action on the recommendations is being taken by the Business Transfer
Steering Group, which includes representatives of the private
sector, professional bodies, Government Departments, Regional
Development Agencies and the Devolved Administrations.
6.8 The Minister tells us that what the UK is doing
is fully compatible with, and supportive of, the Commission's
Communication. He says that:
"The Government continues to believe that all
Member States should put in place appropriate policies to foster
the creation and sustainable development of enterprise as part
of the wider Lisbon process including drawing on the open method
of coordination. The Communication … includes coverage of
tax issues. The Government is clear that these remain a national
preserve.
"Overall, we are content that the UK has made
good progress on work to facilitate business transfer and that
we are well positioned to continue."
Conclusion
6.9 We share the view of the Government and the
Commission on the importance of facilitating the transfer of business
in the interests of economic growth and employment. Accordingly,
we draw the Communication to the attention of the House. We see
no need, however, to retain it under scrutiny.
4 Commission Recommendation 94/1069/EC: OJ No. L 385,
31.12.1994, p.14. Back
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