REINO PROJECT WORKING PAPER NO.

1
(August 2007)

BASELINE ANALYSES:
DENMARK, FINLAND, GREECE, AND ITALY

Edited by:
Ari Peltoniemi

DO NOT FORGET THE FUTURE

www.reinoproject.eu
ISBN 978-952-5721-00-3 (NID)
ISBN 978-952-5721-01-0 (PDF)

KOSEK, Kokkolanseudun Kehitys Ltd

Ristirannankatu 1
FI-67100 Kokkola, Finland

Mainostoimisto Heinäkuu / Kirjapaino A. Välikangas, Kokkola

Kokkola 2007
The baseline analyses were implemented by the following
persons

Denmark
Michael Ahring Petersen, Væksthus Syddanmark
In cooperation with
Poul-Georg Jertrum & Troels Lemonius, UdviklingsCenter Haderslev
Erik Dam, Sydvestjysk Udviklingsforum, Esbjerg
Marlene D. Lindholm, South Denmark European Office, Bruxelles

Finland
Heikki Luukkonen, Kokkolanseudun Kehitys Ltd, KOSEK
Tapani Hirvonen, Joensuun Seudun Kehittämisyhtiö Ltd, Josek

Greece
Ninetta Chaniotou, European Profiles S.A, EPR
In cooperation with
Eirini Vlachaki and Kostas Triadas, European Profiles S.A, EPR
Natasha Xarcha, Union of Hellenic Chambers of Commerce and Industry,
UHCCI
Vasiliki Karatzikou, Union of Hellenic Chambers of Commerce and
Industry, UHCCI

Italy
Paolo Zaramella, StudioCentroVeneto sas, SCV
PREFACE

Ensuring the future of existing viable micro companies is an important

goal of the economic and industrial policy all over the European Union.
Because of the ageing of the entrepreneurs, an increasing number of
micro companies are facing the challenges of a business transfer process.
It is estimated that approximately one third of EU entrepreneurs, mainly
those running family companies, will withdraw within less than ten
years. The entrepreneurs are confronted with having to choose between
a generation change, sale of the business or closure of the business.

The challenge of business transfer is especially high in the sparsely

populated and rural areas where the output of even one single micro
company can play a crucial role in the local service structure or in the
operations of subcontracting chains. Only through successful business
transfers will the future of viable companies, jobs, services and know-
how be safeguarded.

This report is a part of the transnational REINO project (Renewal and

Innovation to Business Transfers of Micro Companies) which was launched
at the end of 2006. The REINO project is co-ordinated by a Finnish
development company KOSEK and is funded by the DG Employment
of the European Commission under the European Social Fund, Article 6
- “Innovative Approaches to the Management of Change” programme.
The project’s objective is to create a support structure and tools that
assist entrepreneurs in carrying out business transfers successfully.
During the two-year project, partners in Denmark, Greece, Finland, and
Italy will map out and test the implementation of support services in
different stages of the business transfer process.

The Baseline Analyses as the first published report of the REINO project
form a synthesis of the current situation related to the business transfer
processes in the four partner countries. This region-specific report gives
information about the standards and practices in the field of business
transfers of micro companies in different partner countries. In that way
it is possible to make comparisons and to find good and transferable
practices. The outcomes of this report can be utilized in the upcoming
activities of the project.

Kokkola, August 2007

Antti Porko Ari Peltoniemi
Managing Director Transnational Co-ordinator
CONTENTS

EXECUTIVE SUMMARY............................................................. 1

Introduction....................................................................... 9

BASELINE ANALYSIS: BUSINESS TRANSFERS OF MICRO

COMPANIES IN DENMARK AND THE REGION OF SOUTH
DENMARK.............................................................................. 11

BASELINE ANALYSIS: BUSINESS TRANSFERS OF MICRO

COMPANIES IN FINLAND, CENTRAL OSTROBOTHNIA AND
NORTH KARELIA.................................................................... 45

BASELINE ANALYSIS: BUSINESS TRANSFERS OF MICRO

COMPANIES IN GREECE, REGIONS OF PIRAEUS AND
VOIOTIA................................................................................ 70

BASELINE ANALYSIS: BUSINESS TRANSFER OF MICRO

COMPANIES IN ITALY AND THE REGION OF VENETO............. 91
EXECUTIVE SUMMARY

In this paper it is set out to describe the baseline situation concerning

the business transfer context in the four partner countries: Denmark,
Finland, Greece and Italy. The country analyses were intended to cover
the business transfer issues at both national and regional level. The
examined regions were the Veneto region in Italy, the regions of Piraeus
and Voiotia in Greece, Region South Denmark in Denmark, and the
Joensuu region and Central Ostrobothnia in Finland.

The country analyses concentrate on business sectors which are typical

and important to the region covered. During the fieldwork, which took
place at spring 2007, about 120 businesses were interviewed in all
four partner countries. In Denmark the focus was on manufacturing
companies and knowledge-based business services. The Italian analysis
emphasized the importance of artisan companies. The main branches
in the Greek and Finnish analyses were businesses in the fields of
manufacturing and services.

The results of the analyses suggest that the challenges and problems
related to the business transfer processes are generally the same no
matter which country is in question. There is not much to do for the fact
that the entrepreneurs are ageing everywhere. Entrepreneurs over 50
years of age form the generational transfer potential. In addition, the
size structure of the companies is convergent in all four countries. A great
majority of the businesses in the four countries are micro companies
with less than 10 employees.

The options which the transferor has concerning the future of his company
are very similar. A choice has to be made between a generation change,
sale of the business or closure of the business. Sale of the business to
the current management or to the employees or to a third party is an
option which is becoming more common in all of the four countries.
As to the services available for entrepreneurs, in general the business
transfer services are scattered, and more centralized coordination is
needed. However, there are great differences between different nations
and regions in relation to what kinds of service providers are available.
The main characteristics and challenges of each analyzed country in the
field of business transfer process can be described as follows:
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Denmark
Danish business is characterized by having many small firms which
possess large adaptability. It is estimated that the industrial political
efforts concerning generational transfers are most useful when aimed
at the smaller companies.

The core qualities of the micro companies are often user innovation
and large flexibility. Many of them will face a business closure when the
entrepreneur retires. As a consequence, workplaces and know-how will
be lost. This will for example have a negative impact on the companies’
local and regional relations. The lines of business that will mainly suffer
from the negative consequences are estimated to be manufacturing and
affiliated sub-contractors that provide knowledge services.

Starting an own company has become a very tempting alternative.

However, most of the people who establish their own companies start
from scratch and very few entrepreneurs take over an already existing
business.

The Government has established regional Business Link centres as part

of their globalization strategy. The purpose of the centres is to unify
governmental and local services for entrepreneurs and smaller companies
with growth ambitions. The Business Link centres’ mission is to offer
free and impartial guidance and problem solving to entrepreneurs and
companies. The centres specialize in growth guidance and coordinate
the operations together with local business services.

The interview indicated that the majority of the 13 companies interviewed

had focus on growth. Within the companies who had completed a transfer
of ownership, the expectations in 5 of 8 were that the company will be
handed over to family or to one or more employees, 2 expected a sale
and within 1 company the considerations were not relevant. Within the
companies that were in the process of a transfer or were considering it,
all 5 expected to sell to a third party.

Typically, the new owners were well informed of the hard values, such
as the processes in the company, the line of business and the interest
groups. Then again, there was a lot less knowledge of the soft values
within the companies. The transferred companies mentioned taxation
and bureaucracy as the most important problems followed by value
determination and financing. Companies planning a transfer considered
finding a suitable successor as the main challenge.


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The possibility for a family member to take over the company was not
relevant for most of the interviewed companies. Either they had not
thought about it at all or the other family members were not interested
(in most cases). Only two respondents considered that they did not
receive enough information on the services available in the business
transfer process.

It seems that the company owners who were planning or were in the
process of a business transfer tended to have an ambition of staying
on for a transition phase (often 1-2 years). This supports the fact that
such a transition phase is recommended so that the new owner is
ensured access to all knowledge (including tacit knowledge) within the
company.

According to a Danish view the business transfer process can be divided

into a model of 5 phases:
The first phase is to clarify the company’s structure and value. Can it be
sold and at what price? The second phase consists of mapping out the
company’s silent assets and finding out if there are areas to be improved
and potentials to be further developed. The third phase is to implement
the identified improvement areas and to prepare a plan for how the
company is best transferred. The fourth phase consists of seeking for
interested buyers. The fifth phase is the actual sales process.

Finland
Within the next ten years, 70 000-80 000 businesses in Finland will face
finding a successor due to retirement of the current entrepreneur or
due to other matters related to ageing of the entrepreneur. According to
different estimates, approximately 40 per cent of businesses in Finland
facing a business transfer do not know who the successor will be.

To support the Baseline Analysis for the REINO project, a business

transfer barometer, ‘Entrepreneurs’ future prospects on business
transfer in Central Ostrobothnia 2007’, was implemented. According to
the barometer, 36 per cent of the entrepreneurs estimated that they
will sell the business to an outsider. 27 per cent of the transferors
were planning a generation change, and 26 per cent estimated that
the business will close down. Finding a successor was regarded as the
biggest problem within the entrepreneurs. In addition, the determination
of the company’s value and the transfer of expertise were mentioned as
major challenges in business transfers.


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All in all, entrepreneurs over 50 years of age prioritized improving the

current operations instead of developing new products, markets or
technologies. According to the barometer, businesses facing a generation
change concentrate more on growth and development of the operations,
whereas the businesses that do not have a successor or are planning to
sell are more passive in development.

In addition to the barometer, 13 businesses facing a business transfer

in Central Ostrobothnia were interviewed specifically for the REINO
project. A specific need arose from these interviews. Entrepreneurs feel
a need for a business transfer expert who would be available for a few
years’ time before the actual transfer. Furthermore, it was highlighted
that the expert should not change during the transfer process.

Nearly all the interviewed entrepreneurs said that they needed more
information on business transfers and wanted professional help in
technical aspects such as taxation, value determination, legislation, and
financing. The entrepreneurs expressed a wish that in the beginning of
the process there would be a neutral party to activate the process, offer
information, and provide an expert.

The need for support in emotional issues also appeared from the
interviews. Several respondents stated that it is difficult for them to
step aside and transfer responsibility to the younger generation. The
entrepreneurs who had a successor in their own family felt that it
was easier for them to step aside because the successor was already
familiar with the business and its operations and was qualified from
the transferor’s point of view. Most difficulties were experienced in
businesses that were selling to an outsider and did not have a buyer
lined up.

Nearly all the interviewed believed that the new generation will bring
new life to the business and develop it further. Business transfer was
seen in most cases as natural and positive, and as a factor that improves
the business.

In the Joensuu region, a common feature among the interviewed was that
the entrepreneurs did not start to seek for information on implementing
the transfer until it was already decided that a transfer would occur.
In most cases, operation after the transfer had not been thought of
and issues such as retirement had not been clarified in advance. A
business transfer is almost like buying a car; when the fever strikes the


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development of for example prices for used cars is actively followed, but
before this activation period these issues have held no interest.

Finding a successor was stated as the most challenging aspect in selling

the business. None of the entrepreneurs that completed a sale or
were planning to sell had a successor lined up when the process was
started.

The basic principle in Finland is that the business is run until retirement.
The culture in general does not encourage entrepreneurship as one
period in the professional life, which could include 5-10 years as an
entrepreneur after which the business activity is changed into something
different.

Currently there are better planned and coordinated services available

for starting a new business than for continuing existing operations.
Business transfers are to be associated with starting a new business
with equal support from the society.

Greece
In Greece, a family company does not necessarily have to be small.
For example, in the Athens stock exchange, 59% of the companies are
considered family businesses. Business transfers are usually carried out
due to the fact that the owners retire on a pension. However, the number
of transfers that are carried out due to personal reasons is increasing.
Similarly, there is an increase in the number of family-owned companies
that are transferred outside the family by selling to third parties.

One of the challenges in Greece is the low productivity of the enterprises.

The operational environment of the entrepreneurs is bureaucratic,
unpredictable and time-consuming. This might be one of the reasons
why business transfers are strongly taking place inside the family i.e. in
a friendly and controllable context

According to the 85 company specific interviews, more than half of

the respondents regard the future of the business as a family affair
(generation change) and 23 per cent of the interviewees’ estimate
that a sale of the businesses is likely. About half of the interviewed
entrepreneurs want to be involved in the business after the transfer is
completed. Only 7 per cent are considering a closure of the business as
a solution to the business transfer issue.


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The lack of awareness on the business transfer process is a true problem,

because about half of the respondents had never even heard of business
transfers before, and 36 per cent of the companies were aware but had
not utilized any transfer services.

As to the service providers, there are no specialized private companies

which offer integrated services in the field of business transfers.
Business consultancies provide some of the necessary expertise, for
example business valuation. Real estate agencies are acting as brokers
SME-sales. There are also consultancies specialized in mergers and
acquisitions, but these concern only bigger companies.

The Greek state has recently been taking measures to facilitate business
transfers, especially in respect to taxation, business licenses, and legal
forms of companies. However, financing initiatives, support services,
and an Internet-based market place are missing. It can be concluded
that the REINO project, by aiming to set up the Business Renewal Centre
and the e-market place, and to activate Greek Chamber of Commerce
and Industries` response to the generation shift issue, will make a
major contribution towards improving the business transfer context in
Greece.

Italy
At a national level there are more than 5 million companies of which
more than 1.1 million have operated over 18 years: these companies
can be considered potential clients for the REINO project, because one
of the first steps/goals is the increase in general awareness. In general,
the European data shows that an entrepreneurial life lasts approximately
28 years and the business transfer processes last about 8-10 years.

Both at national level and in the Veneto region, female entrepreneurs

currently constitute approximately 25-26 per cent of the total number of
entrepreneurs. Concerning the average age, approximately 40 per cent
of female entrepreneurs are over 50 years old, while the percentage
amongst male entrepreneurs is 43.

When the business transfer process actualizes the micro companies

have to tackle with many issues. For example the basic consultation
services are not easily available for micro companies. In addition, it is
not easy to transfer know-how to the new owner, because the transferor
has developed it by himself during the years and it has become more or
less tacit knowledge. Micro companies often face a lack of support from


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the local government.

The level of entrepreneurship is very high in the region of Veneto. Female

entrepreneurship is increasing; it accounts for 50-52% of the start-ups
in the district of Vicenza and about 30-32% of business transfers. The
level of awareness is increasing among the entrepreneurs, but there are
still psychological barriers, especially for senior entrepreneurs. In the
region/district most business transfer processes still occur within the
family (93%), but especially in the craft sector the number of potential
transfers outside the families is increasing. At present the business
transfer is one of the most important regional issues, and the region
needs a systematic approach to the issue.

According to an Italian study, approximately 64% of the Venetian

companies are facing a business transfer at present or in the middle
term. Considering the risks, 85% of the company representatives stated,
“we can carry out the transfer without problems or help” (only 15% said
that the business transfer issue is difficult and complex). This means
that the problem in the region exists but there is not enough awareness
especially among senior company founders/owners.

In terms of consultation there are different levels of expertise: the

generalist (who has a general overview of the problem, and can take
care of general aspects) and the specialist (i.e. a lawyer or a business
consultant, with specific knowledge in addition to general knowledge).

The Italian situation can be portrayed as a “leopard skin”, because the

available business transfer services are distributed unevenly between
different regions, and the public and private actions are mixed in
different ways.

As a synthesis of the four country analyses, the good practices, problems

and the extent of public and private business transfer services are
gathered to the following table.


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Table 1. A synthesis of the current state of business transfers (BT) in Denmark,

Finland, Greece and Italy.

Across Europe, a vast and continuously increasing number of micro

companies will face the challenge of business transfer every year. The
problem accentuates in the sparsely populated and rural areas where
the output of even one single micro company can play an important role
in the region’s service structure and in the subcontracting chain.

Planning and implementing a business transfer is a long and complicated

procedure. It does not take a crystal ball to realize that the continuation
of entrepreneurial activities and preservation of jobs can be ensured only
through creating optimal conditions for successful business transfers.
The level of awareness in business transfer issues among entrepreneurs
must be increased and the services available must be developed and
enhanced in co-operation of the public and private sectors. All in all, we
can say that our analysis confirms that the business transfer issue is of
great importance for the future of the whole European Union.


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INTRODUCTION

Globally, an increasing number of entrepreneurs, especially owners of

micro companies, are over 50 years of age. The member states of the
European Union make no exception. Therefore, it is clear that the issue
of business transfers is a topic that many European entrepreneurs are
already addressing or will have to address in the near future.

In the old days businesses were usually transferred inside the family,
while selling and buying of micro businesses was not as commonplace
as today.  Now, and even more in the future, transfers to third parties
or employees are increasingly common. Our research through REINO
project shows that micro businesses need support for finding a successor
in the context of generation shift and otherwise. Thereby it is necessary
to raise awareness of the need for entrepreneurs to prepare the transfer
of their businesses well in advance. It is also crucial to pro-actively
support potential successors by raising awareness of business transfer
opportunities, and providing them with suitable financial tools and
consulting options.

Some economists argue that the loss of a small business is not a problem
because market forces will replace the lost business. In bigger towns
and cities this argument might be valid, but in remote or rural areas the
loss of local businesses is a real problem because a closure may result
in trade and employment being transferred to the next larger town.

The situation where a viable company faces a business closure may be

avoided through a well-planned business transfer. Finding the right tools
to ensure a successful business transfer from one generation to the
next or sale of business is of great importance. The country’s economy
profits directly from successful business transfers. It is estimated that
existing companies preserve on average more than twice as many jobs
compared to what business start-ups generate.

This Baseline Analysis is a part of a transnational project called “Renewal

and Innovation to Business Transfers of Micro Companies”, or REINO
in short. The REINO project is co-ordinated by a Finnish development
company KOSEK and is funded by the DG Employment of the European
Commission under the European Social Fund, Article 6 - “Innovative
Approaches to the Management of Change” programme. This report
describes the current state of the business transfer framework in the


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four partner countries: Denmark, Finland, Greece and Italy.

Each of the county analyses consists of the following five main themes:
statistical data, business transfer service providers, national frame
of reference, personal observations and company-specific interviews.
The company-specific interviews are based on a questionnaire drafted
together by Seinäjoki University of Applied Sciences and KOSEK. KOSEK
has provided the guidelines, for example the contents, for implementing
the country analyses. However, the partners had the freedom to choose
how to emphasize different subjects.

The four country analyses included in this report are edited and abridged
versions. The transnational Co-ordinator of the REINO project, Mr Ari
Peltoniemi, has acted in the role of editor and adapter. He has also written
the summary and the introduction of this report. Representatives of the
partner countries have delivered the contents of the country analyses.
The country analyses can be found in full and non-edited forms on the
project website www.reinoproject.eu.

This report describes and compares different services, service providers,

support instruments and the legal framework related to business
transfers in the partner countries. The overall objective is to find out
and assess the national best practices. The partner countries may have
achieved means to facilitate business transfer processes, and similar
practices may be implemented in other member states of the European
Union as well.

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BASELINE ANALYSIS: BUSINESS TRANSFERS OF MICRO

COMPANIES IN DENMARK AND THE REGION OF SOUTH
DENMARK

INTRODUCTION

At a European level the number of companies who face a generational

transfer during the years to come, will pose ever greater challenges. In
Denmark there are around 100 000 companies within the private sector
that will face ceasing of operations or a business transfer during the
next ten years.

The above should be seen in proportion to the fact that there are over
450 000 companies in Denmark, and out of them 21% are situated
in the South Danish Region. 364 000 of these have less than ten
employees. This means that 72 per cent of all the firms in Denmark
are so-called micro companies, and they employ the largest part of the
Danish workforce. These firms are typically led by the owner and are an
important foundation for the development and enterprise of the Danish
industry. This type of leader is usually defined as a person who owns
a considerable part of the company and who, at the same time, is in
charge of the company’s top management and has invested personal
funds.

Danish business is in an unequalled upswing. There are many reasons

for this. One of them is that Danish business is characterized by having
many small firms which possess large adaptability. The core qualities
are often user innovation and large flexibility.

Characteristical to the micro companies (0-10 employees) is that many

of them close when the owner retires. Surveys show that more than
half of the owners of these firms are over 55 years old and one third
is over 70 years old, but only one third has considered a business
transfer. The consequences, even short-term, will be loss of workplaces
and unique know-how. This will for example have a negative impact on
the companies’ local and regional relations. The lines of business that
will mainly suffer from the negative consequences are estimated to be
manufacturing and affiliated sub-contractors that provide knowledge
services.

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In Denmark, REINO has decided to focus on manufacturing companies

and the field of knowledge services.
• The manufacturing sector is chosen because it is basic and
represents tacit knowledge and unique know-how, and at the
same time it usually has a lot of unused development potential
and a great influence on the development of the business sector
in Denmark. In addition, these companies have increasing
challenges in skills development compared to only a few years
ago. Therefore it is important that new forces join in in time.
• Knowledge-based business services are chosen because this line
of business has great industrial importance and is strategically
important especially for the manufacturing sector due to the
changes in the global distribution of work.

Knowledge services include e.g. design, design consultancy,

documentation, accounting, and legal advice, i.e. lines of business that
carry out heavy knowledge work for others. The sector is the fastest
growing with 28 000 employed between years 1997 and 2003.

Industrial and business structure

In 2000 there were about 283 000 active companies in Denmark. That
corresponds to one company for every ten Danes on the labour market.
The Danish economy is characterized by many small companies and
only a few large companies. 92 per cent of the Danish companies have
fewer than 10 employees, while less than 2 per cent have over 50
employees (Statistics Denmark).

During the period of 1990-2000, 173 600 new companies were

established in Denmark, which corresponds to an average increase of
15 780 per year. The fewest new companies were established in 1990,
namely 14 226. The highest number of newly established companies
was in 2000, when the number reached 18 640. The number of new
companies varies a good deal from year to year. However, since 1995
the number of newly established companies has been increasing on
the whole. The new companies are described according to the so-called
resource areas which are internally connected business areas (The Danish
National Agency for Enterprise and Construction).

In 2000, four out of five newly established businesses were sole

proprietors. During the whole period of 1990-2000, sole proprietorship
has been the most common form of business among the new companies.

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However, there has been a development for more new companies being
established as corporations, primarily as limited (Ltd.) and private
limited companies (Plc.). In 2000, corporate companies made up for 18
per cent of the newly established companies, compared with 6-7 per
cent between 1992 and 1995. It should be noted that when establishing
a company, a certain amount of capital is required, which makes it more
difficult to start a company in corporate form.

According to statistics, new companies constituted 11 per cent of all

existing businesses in 2000. There are considerable differences in
the number of newly established companies between different lines
of business. The field of knowledge services has the highest share
of establishments. The new companies made up for 19 per cent of
all companies within the line of business in 2000. The high share of
establishments within knowledge service can particularly be ascribed
to IT consultancies which constitute 36 per cent of the new companies
in the field. Similarly, the share is high within operational services and
retail trade; new companies constitute 14 and 12 percent respectively
of the companies within these sectors. The lowest share is found within
industry (6 %).

The establishment frequency for the South Danish region has a third place
with 4.15% compared with the other Danish regions. The metropolitan
region comes in first with a frequency amounting to 6.56%.

Business transfer processes (Source: The Danish Ministry of Taxation, sep.

1999)

Generational transfer is a very important problem for companies in all

lines of business and of all sizes. Carrying out a successful generational
transfer requires resources, management skills and planning well in
advance. These preconditions are usually fulfilled in larger companies.
At the same time, they are often characterized by ownership and
management being separated.

Management skills and continuity will not necessarily disappear in

connection with an ownership change. But within smaller companies
there is a different picture. Often the company is managed and owned
by the same person, and the resources are smaller, all other things
being equal. Therefore, it is estimated that the industrial political efforts
concerning generational transfers are most useful when aimed at the
smaller companies.

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Number of continued and closed companies by size

- Number of full-time employees: 0 1-4 5+ Total
Continued companies – total 2.400 1.400 600 4.400
% 54,5 31,8 13,6 100,0
• Single proprietors and I/S 2.100 1.000 200 3.300
• Ltd., Plc and others 300 400 400 1.100
Closed companies – total 1.800 1.400 400 3.600
% 50,0 38,9 11,1 100,0
• Single proprietors and I/S 1.700 800 100 2.600
• Ltd., Plc and others 100 600 300 900
Continued and closed companies - total 4.200 2.800 1.000 8.000
% 52,5 35,0 12,5 100,0
• Single proprietors and I/S 3.900 1.800 300 6.000
• Ltd., Plc and others 400 1.000 700 2.000
Source: http://www.skm.dk/publikationer/udgivelser/1779/1799/

The definition of a generational transfer is quite broad, and this chapter

discusses a ‘generational transfer potential’. The potential expresses the
total number of companies whose owner is over 50 years old and which
are closed down or passed on each year. There is no actual calculation
of the age distribution among company owners; however, since sole
proprietors constitute such a large part of the total number of companies
it is assumed that the age distribution of the self-employed gives an
adequate picture of the company owners’ age as well.

In that way, it is possible to give an estimate (see table below) of

the number of companies which, during the next ten years, will face
a generational transfer or closure due to the age of the owner. It is
presupposed that the withdrawal share of the self-employed can be
determined by the reduction in the number of self-employed companies
over a number of years.

Companies by owner’s age. Percentage of withdrawal and expected number of

companies which are closed or handed over within 10 years time.
  Rate of withdrawal Handed over or closed
Age Companies 10 years 10 years
-39 90.000 - -
40-44 36.000 13 pct. 5.000
45-49 44.000 25 pct. 11.000
50-54 49.000 45 pct. 22.000
55-59 35.000 51 pct. 18.000
60+ 72.000 71 pct. 51.000
I alt 327.000   107.000
Source: Calculations based on the age distribution in 1986 and 1996 among the total
number of self-employed (257.000 and 219.000 respectively) in the register-based
work force statistics.

The total estimate shows that just under 100 000 companies out of
approximately 500 000 within the private sector face ceasing of operations
or transfer during the next ten years. The question is what this large

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number of companies indicates about the extent of the generational

transfer problem, including consequences for employment.

The statistics on companies facing closure or transfer are mispresented

by two types of companies: companies in the primary trades (agriculture,
fishing etc) and very small companies that people may have as pet
projects. It may seem surprising that 29 per cent of the people who
were over 60 years old in 1986 still were registered as self-employed
in 1996. The consequence is that just under 20 000 or 9 per cent of
the self-employed are over 70 years old, and the number has remained
constant over the years.

Simultaneously, the age distribution among the self-employed shows a

marked difference between the primary trades and the urban trades. A
relatively large proportion of the older sole proprietors can be found in
the primary trades in which the share of over 60-year-olds is still about
40 per cent. Contrary to this, in the urban trades the number of sole
proprietors over 60 years old has fallen both relatively and certainly.

Sector Number of Region of South

companies Denmark

Agriculture, gardening/forestry, fishery 14.466 4005

Industry and production companies 6.196 1.395
Building and construction 8.865 1.731
Engross trade 6.575 1.573
Retail 10.106 2.684
Hotels and restaurants 3.758 809
Transport 4.241 870
Business service and finance 19.076 3.608
Other services 15.535 2.513
In total ca. 88.818 19.188

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Fig. Estimate over companies to be handed-over in Denmark, compared with the South Danish
Region.

According to a statement from the Central Business Register and the

Danish Ministry of Taxation, 32 000 entrepreneurs start up each year.
Evidently there is increasing interest towards starting an own company.
However, most of the people who establish their own companies start
from scratch and very few entrepreneurs take over an already existing
business.

On a national level, of the personally owned companies which started

in 2000, only 43 per cent survived through the first five years. Among
companies established in 1995 only 27 per cent survived the first ten
years. Surveys show that the survival rates of companies taken over
by an entrepreneur are higher than for the entrepreneurs who have
set up a new company. One of the explanations to why entrepreneurs
often do not consider taking over an already existing company is that
their educational background does not correspond to the background
needed. Moreover, it is a common understanding that they cannot carry
the financial burden. Others do not consider the possibility at all.

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EXPERIENCES IN BUSINESS TRANSFERS, ANALYSIS OF

THE CURRENT STATE OF BUSINESS TRANSFERS

Company specific interviews

These are the results of a questionnaire survey concerning business

transfers made during the period February – March 2007 in the Region
South Denmark.

A) Information about the companies and the owners

All in all, 13 interviews were carried out:

• 8 companies had gone through a generational transfer (the new
owners were interviewed)
• 5 companies considered an ownership transfer or had started the
process
• 12 of the companies had male owners and one had a female
owner

In the eight companies who had carried out a generational transfer, the
age of the new owner was between 35 and 60. In other words, nothing
significant can be said about the typical age of buyers of companies.
In the six companies which planned or were about to plan a business
transfer there was a clearer age profile because 5 out of 6 owners were
over 60 years.

Within the eight companies which had carried out a generational transfer
the legal form of the business was as follows:
• 3 Plc companies
• 2 Ltd companies
• 3 sole proprietors

Of the six companies who were planning a transfer, 2 were limited

companies and 4 sole proprietors.

Initially, no conclusions could be drawn from these results. However,

in connection with the transfer process, there will often be concrete
discussions and considerations with advisors (accountants and/or
lawyers) about the advantages and disadvantages of choosing different
company forms. The Ltd. and Plc. forms have owners with limited
liability, while sole proprietors are typically liable for the total capital.

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Concerning the size of the companies, the following can be drawn up:

1 employee 2-4 employees 5-10 employees

8 companies with 1 3 4
transfer completed
6 companies 0 1 5
considering a transfer

B) Future prospects in connection with business transfers

Objectives related to the company’s development

The majority of the companies mentioned that they had focus on
growth. This applies to both companies who had undergone a transfer
in ownership and to companies who were planning it. 11 companies
mentioned that they had focus on growth, while 2 companies stated
that they focused on maintaining the present level.

The most essential growth parameters were profit, market shares and an
increasing number of employees. There were no significant differences
between the companies, whether the owner had changed or not.

Future prospects on the ownership after a transfer

Here, there were essential differences in the companies’ answers, as
follows:
• Within the companies who had completed a transfer of
ownership, the expectations in 5 of 8 were that the company
will be handed over to family or to one or more employees, 2
expected a sale and within 1 company the considerations were
not relevant.
• Within the companies that were in the process of a transfer
or were considering it, all 5 expected to sell to a third party.
Because most companies had their eye on future owners, they
did not have focus on handing over to family or employees. Why
this is the case cannot be inferred from the present study.

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The new owner’s knowledge of the company in connection with

a transfer
If we look at the 8 companies who have carried out a business transfer,
there is significant differences in what has been done in relation to
passing on information about the company to the new owner, see the
table below:

Some A lot of
No knowledge
knowledge knowledge
Information on customers 3 2 3
Information on suppliers 1 2 5
Information on competitors’ knowhow 1 5 2
Information on tacit knowledge within
6 2 0
the company
Information on the staff 3 2 3
Confidence-building measures in
3 2 3
relation to staff
Information on stakeholders 1 0 4
Information on the field 0 3 5
Information on the processes 0 3 5
Information on marketing 3 1 4
Information on administration 1 5 1
Information on the sector 0 4 3

Typically, the new owners were well informed of the hard values, such
as the processes in the company, the line of business and the interest
groups. Then again, there was a lot less knowledge of the soft values
within the companies. There was considerably less information on tacit
knowledge, as well as on the employees and the clients of the company.
Compared with prior projects, this tendency is not untypical in business
transfers in Denmark.

Typical problems the owners encounter with in relation to

business transfers
Once again, there were considerable differences in answers between
companies that had carried out a transfer and companies planning to start
one. The transferred companies mentioned taxation and bureaucracy
as the most important problems followed by value determination and
financing. Companies planning a transfer considered finding a suitable
successor as the main challenge. This is quite natural, and the results
are similar to previous studies carried out within the area. More simple
rules within taxation, more flexible public services as well as better
matchmaking arrangements and additional services to both buyers and
sellers are some of the aspects worth investigating in order to solve the
problems mentioned.

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The family’s involvement

A number of the questions concerned the family’s potential involvement
in the business transfer process. Firstly, if we look at the companies who
had carried out a transfer, the following can be mentioned:
• 6 company owners (out of 8) had children and they had, to a
larger or smaller extent, discussed the aspects of the company
with their children. However, the vast majority had not discussed
the children’s role in the future, and 4 out of the 6 did not wish
their children to take over the company at all.

Secondly, if we look at the companies that were planning a transfer, the

following can be mentioned:
• All 5 company owners had children. 4 out of the 5 had not
discussed the company and possible roles with their children.
Therefore, they did not expect the children to take over the
company.

In this way, the possibility for a family member to take over the company
was not relevant for most of the interviewed companies. Either they
had not thought about it at all or the other family members were not
interested (in most cases). Finally, it can be concluded that in some
cases the family members did not have the necessary qualifications to
be able to take over and continue the business.

C) Information and services

If we look at how the companies received information and services in

the business transfer process the following can be put forward:

Company owners who had completed a transfer (8 respondents):

• 2 mentioned that they lacked information on the services
available, while the rest had sufficient knowledge about the
services
• Consulting services, information over the Internet and
information meetings were commonly used
• 6 did not need more information on the area, while 2 meant that
there was a lack of information
• Generally, all companies had made use of different services

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Company owners who were considering a transfer (5 respondents):

- All 5 mentioned that there was enough information available
- Information meetings and consulting services were commonly
used
- There seemed to be enough services and information on the area
• Generally, all companies had made use of different services

There are no significant differences in the answers between the two

groups, and because only 13 interviews were conducted it is difficult to
draw any definite conclusions.

D) The owner’s role after retirement

Here it is not possible to come to any concrete conclusions due to the

fact that the answers given were dispersed. However, it seems that the
company owners who were planning or were in the process of a business
transfer tended to have an ambition of staying on for a transition phase
(often 1-2 years). This supports the fact that such a transition phase is
recommended so that the new owner is ensured access to all knowledge
(including tacit knowledge) within the company.

Experiences in other projects (Source:www.virksomhedsoverdragelser.dk)

EU Social fund project “Virksomhedsoverdragelser” 2006

The focus of the Virksomhedsoverdragelser project (‘Business Transfers’)
was the development of methods and tools to clarify the companies’
silent assets in particular. The benefit for the company is to be able to
start possible improvements, which are identified before and during
business transfer processes.

The project was initiated by the South Denmark European Office

(the former EU Vest) with support from the European Social Fund
and Objective 3 Programme. The purpose of the project was partly
to ensure that qualified entrepreneurs could receive companies
prepared for generational transfer, and partly to make improvements
in consultation offered to both companies facing a generational transfer
and entrepreneurs who specifically wish to take over an existing
company. The project was organised and coordinated by Michael Ahring
Petersen. The project had a number of collaborators whose role was to
disseminate the tools and methods created in the project.

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The results show that the project was a success and has given the
participants a lot of benefit. Some of the benefits are, for example, a
successful improvement of the interview guide and guidelines, a model
for diagnose, and alteration of organizational culture. The improved
interview guide and guidelines have been received positively by
the advisors, who, among other things, have obtained an improved
questioning technique through the user-friendly questionnaire. In this
way the advisors have gained qualifications to localize silent assets and
cultural values.

Similarly, the advisors have been very positive towards the improved
culture analysis model, which especially has contributed to new
perspectives when it comes to providing counselling for companies.
The instructions in both the advisors’ and the entrepreneurs’ courses
were evaluated as positive with good contents, good contributions and
discussions. Especially the entrepreneurs were satisfied, and they praised
the course for having been targeted to them. The majority of both the
entrepreneurs and the owner-managers express large contentment with
the counselling they have received. Similarly, both the entrepreneurs
and the owner-managers have experienced a development when it
comes to taking over and handing over a company.

As an important ethical aspect of the evaluation, it is pointed out that an

owner-manager should end his ownership in the right way. Therefore,
it is essential to consider a specific focus on personal development in
connection with the counselling of companies on their way towards a
transfer.

The primary methods and tools of the project constitute a process which
clarifies the silent assets of the company, i.e. special competence,
relations, and especially the unique culture surrounding the company.
These conditions are crucial for the transfer to be optimal.

Personal experiences

The manufacturing companies are an important part of the industrial

development in Denmark. At the moment there are about 7 800
manufacturing companies which have 1-10 employees. Altogether, these
companies employ approximately 40 000 people. These are companies
that often have a lot of unused growth potential and have immense
export possibilities.
It is a fact that the consultation in connection to business transfers

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primarily has its focus on business results, and the legal and financial
aspects of the transfer. The company’s silent assets are not included
or are mentioned in passing in the counselling the buyer receives. The
reason for this is among other things that the existing methods, tools
and qualifications are not sufficient. Investigations show that the lacking
focus on the silent assets contributes to the fact that more than half of
the mergers and acquisitions are unsuccessful.

The significance of the silent assets is constantly becoming more

important. Good workmanship is no longer enough. It is necessary
for today’s managers to also have qualifications in understanding and
utilizing the internal soft values in the company. In connection with
business transfers it is not only the serious business results that count,
but especially the people inside the company.

Planning a continuation of a company is often a long and complex

process, and the psychological barriers are often underestimated.

The owner-managers’ personal barriers are often psychological

and family-oriented considerations about the sale. Some other barriers
experienced by family companies are listed below:
• There are few owners who worry about selling the company
because it is assumed that the company will remain in family
possession.
• There is no great extent of risk-taking and innovation because
the company will be handed over to another family member
whether the profit rises or falls.
• The owner-manager does not have focus on the possibility of
selling to a person outside the family because his personal
identity is carried by the company.
• Similarly, personal relations are mentally connected to the
company.
• Owner-managers do not have the mental energy to find other
activities/interests while they are self-employed. By that they
become unsure of the contents of their future life and postpone
the transfer.
• The company’s value is understood more as a content of life than
an investment to ensure retirement.
• There are no targeted investments because there might not be a
transfer within the family anyway.
• The older the owner-manager, the less concerns as to whether
family members are to be involved in the company. This is

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clarified as the owner-manager grows older: when he/she is well

on in years, family members are already involved or have already
been excluded.
• The owner-managers of family companies are seen as an
instrument for the family’s development and income. The children
are often educated to step into the company and are expected to
work there.
• The owner-managers of family firms hold the family and the
company separated to a higher degree than other owner-
managers. External shareholders are not as welcome and the
new generation of managers will, if possible, be found in the
family circle.
• Owner-managers are often irresolute. They often have a
pragmatic attitude towards life, and they adjust actions and
attitudes at the same time and in a flexible manner to the logic
of the situation and the respective conditions of the company and
the family – and under suitable conditions to the capital.
• Studies show that the tendency to plan a generational transfer
increases with the owner-manager’s age: the tendency varies
from about 10% of the young ‘immortal’ under 50 years of age,
over 34% of the 50-59 year olds, to 56% of the owner-managers
who are aged 60 or more.

Company culture and qualifications are mutually connected. By

now, it is a well-known fact that the company’s culture has a large
influence on the company’s performance both internally and externally.
Nevertheless, the company culture and its significance are usually not
utilized, either in the daily business or in case of selling the business.
Therefore, we will enlarge on four typical and important culture types
which companies often represent completely or partially. These four
culture types are:
• Hierarchy: A formal place characterized by order and standards.
• Market: A result-orientated place characterized by persistence
and competitive mentality.
• Clan: A personal place characterized by engagement,
participation and trust.
• Adhocracy: A dynamic and visionary place characterized by new
thinking and creativity.

Most owner-managed companies have a predominance of clan culture.

This is often not compatible with the new owner’s demands, which often
have focus on systems and control.

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For some forms of knowledge assets a value can be set. For

example, the knowledge that is built into a machine or technical
equipment has lead to the misunderstanding that knowledge assets are
primarily technological. They are not. Knowledge assets are first and
foremost cultural and secondarily technological. The potential value of
knowledge assets is to a certain extent in knowing how and in which
context they can be used. Therefore, it does not make much sense
talking about knowledge assets independent of the cultures they are
built in.

The key competences should be classified according to which extent

they are codified and to which extent they are scattered, i.e. accessible
for everyone in the company (Helge Tetzschner).

Codification means that you can categorise your knowledge. However,

a lot of knowledge in e.g. crafts and art is not easily articulated and
described in words; it is easier to show what you can do. In that way,
a business transfer should happen gradually with focus on the shared
tacit values of the company.

A better sales price for the company can be achieved if a proper

process is started in time. For the owners and the company it will signify
that the company qualifies for a better transfer. At the same time, the
new ownership will receive crucial knowledge early in the process and
in that way contribute to making sure that the company’s development
is not weakened but strengthened in connection with the transfer.

What can be done better? Targeted information and competence

development!

For companies it is primarily important that the owner-managers

initiate a plan for the development and ownership transfer in time. Here,
it is crucial that qualified, impartial and coherent guidance is provided.

For advisors the most important aspects are information and

competence development about models for transfers, the psychology of
transfers, and the actual process.

For buyers it is important to gain better insight into company culture

and financing possibilities, and obtain information on how a company’s
sustainability is assessed and tested before the purchase. Especially
critical is the insight into one’s own strengths and weaknesses as future

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owner-manager.

Incentives by the authorities e.g. by the law could contribute to

increased focus on business transfers. There could be a statutory order
for companies that run over three years to prepare an assessment of
the situation every year as documentation that shows if the company
is ready for a business transfer. The incentive could for example be a
preservation of the company’s value in form of a pension scheme, and/
or tax deductions for the company.

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BUSINESS TRANSFER SERVICE PROVIDERS

Government

The Danish economy acknowledges that it is the corporate sector that

creates the foundation for welfare and prosperity in Denmark, and that
an efficient business environment is the main factor in ensuring that the
Danish welfare society can survive in the future as well.

The ambition is to create a background that can ensure an effective

public sector, qualified workforce, research at a high international level,
access to venture capital for new companies, open and keen competition,
conscious consumers, freedom from unnecessary administrative and
financial burdens, and an economy that is open to the outside world
and to new trends in the international markets.

A strong entrepreneurial culture is an important source of renewal within

society. The entrepreneurial culture has to grow. Independent initiatives
should be appreciated more, and possibilities rather than restrictions
should be in focus. This would create the right entrepreneurial spirit
within the economy.

Danes are already good at establishing new companies; however, we

have to be better at making these companies grow. New knowledge,
technology and innovation have to form a synthesis with firm business
ideas and sound business practice. We will make it easier through more
venture capital; reduction of taxation for growth entrepreneurs; by
building bridges between research and entrepreneur environments; by
strengthening consumer innovation, knowledge diffusion, entrepreneur
academies as well as business link centres.

Regional Business Link centres

In April 2006 the Government took initiative to establish regional Business

Link centres as part of their globalisation strategy. The purpose of the
centres is to unify governmental and local services for entrepreneurs
and smaller companies with growth ambitions.

The purpose is to construct an internationally leading environment

within each region in which entrepreneurs and companies with growth
ambitions can easily receive qualified guidance and consulting. The vision
is to create a connection between different consultation and guidance

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services so that a strong and simple entrepreneur infrastructure can

be built up within each region, focusing on growth within new and
established companies. The target groups are both new entrepreneurs
and already existing companies with growth ambitions.

The Business Link centres’ mission is to offer free, impartial guidance

and problem solving to entrepreneurs and companies. The centres
specialize in growth guidance and coordinate the operations together
with local business services. The centres refer the entrepreneurs and
companies to private advisors and other instances offering services to
entrepreneurs and established companies with growth ambitions. The
centres channel private advisors and are not allowed to compete with
the private market.

The interaction between local and specialized business services is

primarily managed by the local authorities, but can also, to a smaller
extent, be managed by the Business Link centres.

The local business services consist of impartial problem solving and

guidance on establishment and operation. The services can for example
cover business plans, accounting, registration, accounts, taxation,
marketing, and product and performance evaluation.

The specialized business services are provided by the Business Link

centres and targeted at companies and entrepreneurs who have growth
ambitions. The specialized business services can for example include
export/import, generational transfers, courses, mentor arrangements
etc.

Regional operators

Advice and guidance provided by the authorities is low in costs or free

of charge. Many authorities give answers to frequent questions or have
relevant information on their websites. The website www.startvaekst.dk
offers a good starting point.

The Region South Denmark consists of 22 municipalities. The

municipalities have business service offices and can offer guidance to
entrepreneurs and companies to certain extents. The local authorities
within the region operate the Business Link South Denmark, which
the business service offices have at their disposal. It is an essential
entrance to specialized business services in the region. Business Link

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South Denmark’s mission is to provide services to growth entrepreneurs

and growth-oriented companies in cooperation with the local business
offices. Business transfers are one of the areas the Business Link centres
are specialized in.

The business service offices typically carry out the initial problem solving,
for instance for a company owner who seeks additional information
and guidance on a business transfer. When the business offices find it
appropriate, the assignment is passed on to the Business Link centre
which then will ensure an optimal process for the company. This service
is free of charge. If specific financial and/or legal counselling is needed
the Business Link centre will refer to private specialists, who then will
solve the specific problems on normal market terms.

Private sector

Institutes, expert organizations and business brokers

Guidance on business transfers is usually supported by private
accountants who take care of the financial circumstances, and lawyers
who take care of the legal aspects. There are also a number of venture
funds focusing on business transfers with special potential.

In the Region South Denmark there are no expert organizations that

decidedly and impartially can handle all aspects of business transfers,
apart from Business Link South Denmark.

Within the region there are approximately 50-80 business brokers.

These are for example law and accountant firms which among other
things function as company brokers. In the Region South Denmark there
are 2-4 companies who have specialized only in selling companies as
business brokers. Moreover, there are private venture funds that offer
assistance in business transfers.

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Public and private financial institutions (Source: www.finansieringsguiden.

dk)

Growth guarantee is a public loan security which companies with up to

100 employees can apply for. The guarantee is provided by financial
institutions that grant loans for the purpose of developing companies.

Entrepreneurs and growth companies can also contact the Business

Angel Network at the Danish Venture Capital & Private Equity Association
(DVCA), which provides capital and competence.

Generationsskifte & Vækst A/S invests in companies in Western Denmark,

primarily the triangle area (Billund, Fredericia, Kolding, Middelfart, Vejen
and Vejle), in all lines of business except the primary trades, transport
etc. Klindt International A/S invests in companies who need funding for
restructuring in all lines of business on the island of Funen and in the
triangle area.

FIH A/S invests in and offers liable and convertible loans to companies
in Denmark. They have focus on companies in stage of expansion and
new orientation. All in all, their objective is to provide buyout/buyin
investments in connection with generational transfers or industrial spin-
offs. FIH A/S exerts active ownership.

Industri Udvikling A/S invests in industrial and manufacturing companies

who are in the stages of start-up, initial growth, expansion, restructuring
and generational transfer. Mezzanin Kapital A/S invests in companies
who need capital for organic growth, generational transfer, strategic
buying, company acquisition, considerable capital expenditure and
establishment abroad.

Dansk Erhvervsudvikling A/S invests in companies who are about to

carry out a generational transfer. The company does not have sector
preferences, and they make investments across the whole country.
Dansk Erhvervsinvestering A/S invests in companies who need seed
capital or capital for initial growth, expansion and new orientation, and
they are primarily interested in companies within the sectors of industry,
IT, communication, healthcare and biotechnology.

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Training

Competence development for advisors

In connection with the Business Transfers pilot project in 2006, three
courses were held for a total of 25 private advisors. The participants
were accountants, lawyers and management consultants. The courses
accentuated topics such as pre-retirement benefit, core competences,
culture concepts, ready-to-sell companies, taxation, values (hard and
silent assets) etc.

The objective of the courses was that the advisors had to learn and
be trained by new methods and tools to help clarify companies’ core
competences and culture. The participants were to write a short
report which clarified the obvious improvement areas, the company’s
core competences and culture, and a plan for a business transfer. The
courses were a success; however, they also showed that there was need
for further competence development on implementing the process in
companies. New courses will be set up during 2007 according to need.

In connection with the REINO project, more initiatives are expected to

be tested and possibly integrated into the future advisor services.

Competence development for buyers

In the Region South Denmark there have been no actual courses held
for buyers yet. However, during 2006 four evening courses were held
as an experiment, in connection with the Business Transfers project.
The topics related for example to utilization of silent assets, testing of
the foundation and market development. The course was a success.
Therefore, a similar course is expected in the end of 2007.

Competence development for companies

A number of different meetings are arranged for companies in the Region
South Denmark. The contents are of general character. The aim is to
inspire owner-managers to consider how they can prepare the company
for a business transfer. Topics that are normally touched upon:
• Taxation & structure
• Value setting
• Pre-retirement benefits and pension
• Potential buyers

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The interest towards these information meetings varies considerably:

the number of participants varies between 10 and 100, and the interest
that follows towards taking action is usually moderate. Nevertheless,
the information meetings are considered an important part of raising
the awareness about transfers and in recognizing their importance.

The meetings will continue henceforth. In connection with the REINO

project, initiatives are expected which will need to be tried out in selected
companies. Many companies are members of trade associations who
also provide assistance in business transfers.

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NATIONAL FRAME OF REFERENCE

Financing

The only possibility to receive public capital is the Growth Fund,

which offers a so-called growth guarantee. Companies with up to 100
employees can apply for the scheme in their financial institution when
it grants loans.

In Denmark, succession is possible. This means that children and

grandchildren, and siblings and their children and grandchildren etc.
(natural kinship) can inherit the taxation assets and take over the
assignor’s tax-related status.

Succession means that potential profit taxes are not released in the
transfer, and in this way does not influence the assignor’s income
statement. The succession is not only to the seller’s advantage, but
also to the buyer’s, because the latent tax will be reflected in the price
of the company.

In addition, there is the private and non-risk-taking loan market that

can finance business transfers. Here, it is crucial that the transfer is well
prepared and based on a firm foundation. It is expected that the buyer
provides about 20 per cent of the capital that is needed in the transfer.
If the buyer does not have sufficient capital it is often possible for the
buyer to mortgage his personal property, or provide capital through
investors or by private guarantees.

Companies with a particularly high growth potential often have the

possibility to attract venture capital. Venture companies normally advise
in and carry out a legal due diligence. In connection with the investment,
an investment agreement and a shareholders’ agreement is prepared,
and typically incentive schemes are implemented for the founders, the
board and the employees.

Entrepreneurs who apply for venture capital are guided through the
often quite complicated terms, for example the classes of shares
with liquidation preferences, the determination of convertible debt
instruments, dilution clauses, the right of first refusal etc.

It is also possible to take over the company’s assets over a longer period
of time, for example one quarter at the time of the transfer, and the

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next quarter after a year etc.

Furthermore, the financing eases if the buyer decides not to take over
the properties. It is also possible to arrange so that the seller leases the
furniture and equipment to the buyer who then acquires them after a
certain number of years. Obviously, these possibilities have advantages
and disadvantages depending on the situation. The problem is that it is
the seller who takes the highest risk.

Taxation

• The corporate tax rate is 28%, which is below the European

average. The effective rate is less, as business expenses and
depreciation are deductible
• No additional social security contributions for employers, as
opposed to many other countries
• No capital duty, share transfer taxes, or wealth taxes
• Dividends may generally be received/distributed without taxation
• Group taxation
• Unlimited loss carried forward
• Transfer pricing legislation in accordance with OECD guidelines
• Denmark is one of the countries in the world which has signed
most tax treaties in order to avoid double taxation
Source: Invest in Denmark (The Ministry of Foreign Affairs of
Denmark)

From a legal perspective, sole proprietors are personal companies and

therefore obliged to pay income tax.

Different taxation schemes for sole proprietors

A sole proprietor can choose to pay tax in accordance with (Source: The
Danish Ministry of Taxation):
• Personal taxation: the company’s fiscal profit is taxed with the
rest of the personal income.
• The company scheme: the company’s profit is divided into a
capital yield, which is taxed as capital income (about 47%), and
the remaining profit is taxed as personal income (up to 60%).
Before the above is taxed, a special contribution to the labour
market fund is paid. The profit can totally or partially be saved up
within the company on payment of a temporary tax of 30%.
• The capital yield scheme: the capital yield is taxed as capital
income and the remaining profit is taxed as personal income.

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Furthermore, it is possible to appropriate 25% of the profit for

cyclical slides. If this is the case, temporary tax of 30% is paid.

Both taxes and the labour market contribution have to be paid as

monthly on-account payments. It is possible to receive reimbursement
for the work and expenses that are obtained in connection with the
administration of taxes and duties.

Ltd. and Plc. companies have to pay corporate tax of 30%. New companies
have to pay tax on account twice a year – in March and November. The
tax is calculated as half of the average tax amount of the latest three
years. During the first two years, when the tax on account cannot be
calculated, the company can pay a voluntary amount. Assets that are
withdrawn as salary are taxed as personal income by up to the rate of
60% (labour market contribution is paid first).

Legislation

Legislation on generational transfers. (Source: The Danish Ministry of

Taxation)
The circle of people who can take over a company without having to
pay taxes has been broadened to also include close employees. The
circle of companies which can be taken over without having to pay taxes
has also been broadened, in order to make more wealthy companies
transferable.

The 1st July 2002 the possibility to take over a company without taxation
was expanded to not only apply to close family members but also to close
employees who work for the company. The new regulations ensure that
more suitable people have the possibility to continue a business. The
requirement for the employee is an at least 3 years’ fulltime employment
within the company during the last 4 years before the transfer. This
change complies with what the business community has for years been
requesting for. The new rules also mean that consolidated corporations
can be transferred without taxation; until 1st July 2002, a consolidated
corporation could have problems with the generational transfer if a too
large percentage (25%) of its assets were real property or securities.
This was not appropriate so the percentage was increased to 50% from
1st July 2002.

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Relaxation for buyers. There is a relaxation in the rules for buyers

concerning the abolition of the demand that only 10% can be paid
in cash, in connection with a split. This makes it considerably easier
to conduct a split and let one part remain as shares for the younger
generation, and the other part is paid in cash to the older generation.
Now, there is a higher degree of flexibility in the rules.

Who should take over the company? Typically, it is the family, one
or several employees, a competitor, a business partner, or a third person
who simply wants his own company, who takes over the company. As
a starting point it can be assumed that the price which can be obtained
in a generational transfer is at the lowest if the company is handed
over to family, while the highest price is usually obtained by selling to a
competitor or a business partner.

When it comes to taxation, it is not unimportant who acquires the

company in a generational transfer. The access to succession, popularly
called tax-free transfer, is only possible when a family member or
an employee of many years takes over. An exception from this is a
generational transfer due to death – even if the heir is not a family
member or an employee.

Relinquisment principle or succession? From the taxation

perspective, the generational transfer can occur in two different ways;
a generational transfer according to the relinquishment principle or a
generational transfer by succession.

A generational transfer according to the relinquishment principle results

in the taxation of the profit made. At the same time, it is possible to
deduct any loss. A generational transfer by succession results in the
assignor, i.e. the previous owner, not having to pay taxes of the potential
profit at the time of the relinquishment. The assignee takes over the
assignor’s assets and the depreciation provided.

The company has to be paid for, whether the transfer occurs with or
without succession. This means that even if the transfer is conducted
by succession, it cannot be avoided that the person who takes over the
company has to pay for it.

In connection with a generational transfer by succession, the property

can be transferred either as a gift from the assignor to the assignee, or
by the assignee paying the assignor.

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Who can succeed? When conducting a generational transfer in real life,

succession can only happen if the assignee belongs to the following circle
of people: children, grandchildren, siblings, siblings’ children, siblings’
grandchildren, and nowadays even close employees. Stepchildren and
adopted children are also equal to blood relatives. If the assignee is
outside the circle of people mentioned, succession is not possible.

Consider forming a holding company. Holding companies have the

advantage that the company’s owner cannot sell his/her personal shares
tax-free – or get the profit tax-free. However, a holding company can
get a tax-free profit if it owns more than 20% of the shares, and can sell
them tax-free after 3 years of ownership.

If the value of the company’s shares still is near a price of 100, the
shareholder only has to conduct a normal transfer of his shares to a
newly established company. No money is needed for this, because the
company is established by paying in shares.

If the price of the shares is very high, tax-free exchange of shares

can be applied for at the Custom and Tax authorities of the region the
company operates in. Source: Ret og råd www.ret-raad.dk

Best practices (Three cases in concrete processes)

CASE 1: The company closes after an attempt of generational transfer,

the owner has expressed that the reason for this was lacking focus on
a real attempt to conduct a generational transfer. It was expected that
one of the children was to take over the company. The culture the
company was marked by was clan culture, and therefore the employees
were almost like family as well. Through many years, the owner’s social
status has been carried by the company and has resulted in the owner’s
personal identity being based on the company’s identity. Therefore, it
is not strange that the thought of selling the company has not been in
focus. In actual fact, the company was not much worth for an external
buyer.

The extent of the challenge became realistic at one point when the
owner’s health started to fail, and at the same time it became clear that
no one in the family wanted to take over the company. Nevertheless,
years passed before the owner-manager seriously began to think of
how he can ensure his employees’ interests and at the same time obtain
profit so that he would be economically secured. The owner has totally

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different values compared to those of a buyer, who first and foremost

focuses on the acquisition being a good investment.

Now, the process has become a psychological challenge, especially

because the owner-manager’s identity also becomes a part of the
process, and time goes by. The unfortunate fact in the example above is
that the company fell too far behind in its development, with relatively
few customers and a low income which results in the company not
being an interesting target for a buyer. The company closes and unique
knowledge is lost, as well as good workplaces with considerable local
importance. This could have been avoided if the process had been
organized in time.

It is typical for family oriented companies that the owner-manager does

not develop the company, but concentrates on the safest developments
instead. Over a longer period of time it often results in the company
appearing as phased out and thereby it becomes difficult to sell it to a
stranger or to an employee who has to find capital.

Case 2: A successful ownership transfer is conducted in a company

which has renewed itself continuously and has made thorough plans in
advance. The actual potential of the company is considerable, but the
income has been relatively low through the years. However, the income
has been vast enough for the owner to have a good life. The plan was
that the owner’s son was to take over the company, but due to the
son’s sudden illness another solution had to be found. Naturally, there
are not many buyers for a company with low income and a lot of tacit
knowledge.

Different models for gradual ownership changes are developed. The

company is set for sale on websites such as Match-online.dk. A younger
person from another line of business becomes interested. The transfer
takes place and the ownership change occurs gradually and successfully
over about 3 years.

The model over the actual situation was:

• The premises are not included in the sale but leased with the
possibility to buy later on
• The stock is not include, but reduced through continuing sale to
customers
• Furniture and equipment are leased instead of bought
• The immaterial rights are paid for in cash

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• Ongoing activities are phased out 50/50 by the seller

• Clarification of the core competences and the culture to the
employees
• The seller is employed at an hourly rate and on a 3-year contract

In this way, the buyer has a better opportunity to finance the purchase
and the operation. In this case the buyer pays an amount in cash for the
takeover of all the immaterial rights. This means that enough money is
left for the operation and expansion of the company.

The seller’s risk is limited because he still owns the buildings and has a
leasing contract. If all goes well the seller’s economical profit is larger
while it also has taxation advantages. The alternative was to close the
company.

The buyer has a unique opportunity to try being self-employed with the
seller functioning as a mentor and a resource. The buyer’s risk is limited.
The investment can be paid back over the company’s profit growth.

Case 3: An ownership change fails after two years with the new
and the old owner. Before the takeover the company was marked by
clan culture, a family-oriented culture. The employees’ productivity and
commitment were at their peak. The takeover was conducted without
warning and the new owner was quickly presented by the seller. No
significant information was given to the 8 employees, and radical
production changes were made instantly. It was rumoured that the
new owner wanted to flag out the production. Quite quickly, two key
employees in production resign. The culture becomes more hierarchical,
with a lot of supervision and control. The productivity and quality
decreases drastically and the good customers choose not to do business
with the company. Gradually, the profitability decreases and in the end
the company applies for an administration order. The result is that the
seller takes over what is left and gets the company back on track.

What went wrong here was that the new owner was not humble towards
the valuable cultural heritage. The buyer was not aware of the company’s
true values and therefore was not able to use them as a starting point.

The examples which are taken from concrete processes show that the
whole process should be taken into consideration, and the model can
for example include:
• Economical considerations for the buyer/seller

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• Taxation and pension circumstances of the seller

• Roles and areas of responsibility for buyer/seller during the
process
• Transfer of core competences, codification of silent assets
• The cultural heritage and development are clarified and
determined
• A timetable over the process with exit possibilities
• Success criteria that ensure that the transfer takes place as
planned

The examples also show that even companies with relatively small
income can be successfully transferred. However, this requires that the
seller is realistic in proportion to the sales price and is aware that he/
she often has to enter into a certain risk and involvement.

Conclusion. It would be beneficial to develop the owner-manager’s

competences so that the owner-managers can, to a larger degree and
in due time, ensure continuation of the company and larger personal
profits. In due time means that as soon as after three years of operation
the company should develop a plan for how to ensure continuation and
development.

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CONCLUSIONS

Conclusion of the best practices and the framework conditions, and

a summary of all the interviews and recommendations on better
information and guidance in business transfers.

Business transfers are complicated and very individual processes, and at

the same time they are entirely context-dependent. Wide expertise on
different areas is needed to conduct business transfers, and the transfer
should be a mutual matter for everyone involved. In other words, it is a
process which involves psychology, silent assets, economy and the law.
Therefore, the guidance process should be impartial and coherent, and
in an early phase should include a plan over how and when a business
transfer should be carried out.

Generally, the process can be divided into 5 phases:

The first phase is to clarify the company’s structure and value. Can it
be sold? At what price? Who can be interested and how can the transfer
take place? Here, it is typical that an accountant gives advice.
The second phase consists of mapping out the company’s silent assets
and finding out if there are areas to be improved and potentials to be
further developed. The company should also develop itself before the
transfer. Here, it is typically a specialist from the public industrial service
that provides advice.
The third phase is to implement the identified improvement areas and
to prepare a plan for how the company is best transferred. Here, it is
usually an expert from the public industrial service who is the mentor.
The fourth phase then consists of seeking for interested buyers. Set
the company for sale, seek out interested parties and advertise (e.g.
anonymously) in media which are of interest to potential buyers, e.g.
www.match-online.dk. In this phase it will often be a lawyer who is the
advisor.
The fifth and last phase is the actual sales process where the buyer
gains full insight into the business goals before the actual decision is
made.

Structure Soft assets Improvements Plan Transfer

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More detailed but still manageable, as regards to the owner-manager,

the preparations for a business transfer can be divided into the following
phases.

• Clarification: Desires for the future are decided, and this is the
starting point for the planning.
• Planning: Who is the optimal future owner? Possibly a new
company structure with conversion from sole proprietorship into
company, formation of a holding company, division into several
companies, spin-offs etc.
• Sales maturation: The most important thing is to preserve the
company’s silent assets, know-how and customers, which are the
basis for future operation.
• Preparation for sale: Documentation of the products. Are
there any existing descriptions, manuals etc, which are stored
only in the owner’s mind? A decision of which assets are to be
enclosed in the sale has to be made. A possible separation of
the private residence and the company property could be made.
During the planning, the company’s financing has to be tailored
for the sale, and it has to comply with the buyer’s interests.
Potential personally provided securities, collaterals etc have to be
liquidated.
• The sales process: A counsellor for the process has to be
found, and a person who is in charge of the actual sale. This can
be done by the manager himself, his accountant or a company
broker.
• A company description has to be prepared with a realistic
and informative description of the company’s business goals,
organization, financial key figures, market and competition
situation, sales conditions, starting price etc.
• The company description has to form a sufficient basis for the
buyer, and must not include sensitive information. This can be
given later under further progress and for example in return
for a signature on a declaration of intent which expresses the
willingness and possibility to complete a business transfer.
• The sales negotiations: The negotiations have to be planned
so that the buyer’s interest is maintained throughout the process
and information has to be passed on in the right tempo and
order. A decision has to be made on when potential negotiations
with another buyer have to be ended, when the buyer can learn
more about the company and the employees, when the parties’
counsellors can be brought in etc.

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• The buyer’s review: When the parties have come to an

agreement, the buyer has to have the possibility to carry out a
review of the company and verify the business goals, go through
agreements and contracts, accounts and a number of other facts.
This is called due diligence, and the analysis is usually performed
after a conditional transfer agreement has been signed, which is
conditional of the company conditions being in order.
• The transfer: Finally, the actual transfer is carried out in
accordance with the lawyers’ preparation of the necessary
transfer documents.

For sellers, there should be possibilities for developing competence in

business transfers, whether the company is to be handed over to family,
employee/s or to an unfamiliar buyer. Therefore, the conclusion is that
knowledge centres for business transfers should be established, which
can provide education for both the advisors and the owner-managers.
As a bonus, this will create a gathering of useful experiences within
taxation, finance and law, and effective methods which can produce
better transfers.

The challenge is also complicated for entrepreneurs who become self-

employed in an already existing company. It is also psychologically
difficult because many are doubtful towards buying, and are not sure if
it is the right way to go.

Typically, there are many questions prior to making a decision of taking

over an already existing company. Therefore, there should also be
courses for potential buyers, in which the participants, among other
things, can gain a better insight into themselves and their own strengths
and weaknesses. In addition, they should receive knowledge of the value
factors which have actual influence on the company’s sustainability, and
of other relevant topics. Last but not least, a better network should be
established which can strengthen the individual’s personal development.
This could form an inspirational forum which would be of advantage to
the companies’ growth.

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ACKNOWLEDGEMENTS
In connection with the composition of the analysis, knowledge and
experience is used from a number of people who have researched the
area.

A special thanks to:

• Senior lecturer Susanne Green Svendsen, Syddansk Universitet,
Kolding
• Professor Torben Bager, IDEA.House & Syddansk Universitet,
Kolding
• Professor Helge Tetzschner, Syddansk Universitet, Esbjerg

REFERENCES
Furthermore, a number of information sources, relevant projects and
surveys have been used and referred to in the analysis:
• Denmark in Numbers from Statistics Denmark 2007
• Statistics Denmark (Statistical Yearbook 2006)
• National Agency for Enterprise and Construction
• GEM High-Expectation Entrepreneurship 2005
• Generationsskifte i små og mellemstore virksomheder af Susanne
Green Svendsen
• Invest In Denmark
• The Danish National Association of Local Authorities, the Danish
Ministry of Science, Technology and Innovation.
• OECD, Education at a glance 2003
• The Danish Ministry of Taxation (Generationsskifte -
erhvervspolitiske perspektiver - SKM)
• Statistical Yearbook 2006 from Statistics Denmark

ANNEXES
• Denmark in Numbers from Statistics Denmark 2007 (Denmark in
numbers 2007.pdf)
• Statistics Denmark (Statistical Yearbook 2006, General business
statistics 2001 - 2005.pdf)
• GEM High-Expectation Entrepreneurship 2005 (GEM 2005.pdf)
• Generationsskifte i små og mellemstore virksomheder - SGS.pdf
• Invest In Denmark (Contact_Aug2006.pdf & Facts_Taxation_
Aug2006.pdf)
• Questioning frame: Survey_Transfer_Implemented.doc
• Questioning frame: Survey_Transfer_Ongoing_Preparing.doc
Most of the annexes are in Danish and obtainable at request.

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BASELINE ANALYSIS: BUSINESS TRANSFERS OF MICRO

COMPANIES IN FINLAND, CENTRAL OSTROBOTHNIA AND
NORTH KARELIA

INTRODUCTION

Within the next ten years, 70 000-80 000 businesses in Finland will face
finding a successor due to retirement of the current entrepreneur or
due to other matters related to ageing of the entrepreneur. According to
different estimates, approximately 40 per cent of businesses in Finland
facing a business transfer do not know who the successor will be.

The age structure of entrepreneurs in North Karelia is relatively high. The

issue of business transfers is evidently becoming increasingly current,
because 40 per cent of the entrepreneurs in the region are 51-60 years
old. In addition to North Karelia, business transfers will be current in
Central Ostrobothnia. According to separate estimates, every third out of
the total of approximately 3 500 businesses in Central Ostrobothnia will
face a generation change, ownership transfer or ceasing of operations.
The necessity and importance of business transfers is highlighted by
the age structure of the entrepreneurs, which shows that most of the
entrepreneurs are advanced in age.

The baseline analysis is a part of a transnational project called “Renewal

and Innovation to Business Transfers of Micro Companies”, or REINO
in short. The purpose of the analysis is to describe the current state of
business transfers in Finland, the focus being on North Karelia in the
east and Central Ostrobothnia in the west. The analysis focuses mainly
on business transfers due to ageing, i.e. on businesses with owners
between ages 50 and 65. The background for the analysis has been
acquired from research related to business transfers, business specific
interviews, as well as personal observations. The purpose of the analysis
is to describe services, service processes, and best practices related to
business transfers in Finland.

At the beginning of the analysis there are illustrations of statistics in North

Karelia and Central Ostrobothnia concerning business structure and the
quantity of business transfers with their special characteristics.

The next chapter covers observations of business specific research, as

well as observations of other business transfer projects conducted in
Finland. Personal observations and experiences are described in the last

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part of the chapter.

Business transfer service providers are also covered in the analysis. The
service providers are examined on both regional and national level. Out
of private service providers, different institutions, expert organisations,
and business brokers are discussed. In addition, public and private
financing institutions are described, along with instances that provide
training.

The national frame of reference is examined at the end of the report

with a short overview of national financing, taxation, legislation, and
best practices.

Finally, the most important observations based on the analysis are

outlined in the conclusion.

This report was not written in a technical sense but it was completed
to provide ideas and best practises for further actions, as well as basis
for comparison between the partners of the REINO project in different
countries.

Business Structure: Joensuu Region, North Karelia and

Central Ostrobothnia

All in all, there are approximately 7 000 businesses in North Karelia, out
of which more than 5 000 are located in the Joensuu region. The size
of the businesses follows the national trend, i.e. over 90 per cent of the
companies have less than 10 employees.

In Central Ostrobothnia there are approximately 3 500 businesses. Here

as well the structure of the companies follows the national structure:
over 90 per cent of the businesses are micro companies with less than
10 employees.

There is also a considerable number of agricultural entrepreneurs (4

079) in Central Ostrobothnia, however they are not included in the
analysis. There are about 1 736 people acting as entrepreneurs in other
fields (table 1). For the reader it is good to keep in mind that there are
in fact more entrepreneurs than there are places of business in Central
Ostrobothnia.

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Table 1. Entrepreneurs in Central Ostrobothnia According to the Line of Business,

31.12.2003 (Statistics Finland).

The favourable economic growth is reflected on the statistics of new

and ceased businesses: according to the statistics, at the moment there
are more new than ceased businesses in Central Ostrobothnia (figure
1). Statistics also suggest that business transfers have been previously
implemented as well. How successful they have been is a different
matter.

Figure1. New and ceased businesses in Central Ostrobothnia (Statistics Finland).

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Business Transfer Processes

Finland
Several separate studies and statistics estimate that in Finland there will
be 70 000-80 000 businesses facing a transfer of ownership within the
next ten years due to reasons related to ageing. In different evaluations,
finding a competent successor is raised as the most challenging aspect
of business transfers. According to separate estimates, approximately
40 per cent of businesses facing a business transfer do not have a
successor lined up.

Business transfers present a great challenge especially for micro

companies, and, as mentioned above, over 90 per cent of the businesses
in Finland are micro companies. It is natural that some parts of business
activities are based on strong personal know-how, therefore when the
person withdraws from the active business life the expertise ‘retires’
as well. The same phenomenon can be seen on the employee level in
situations when the expertise is concentrated on one person only who is
then replaced by another employee with different kind of knowledge.

If entrepreneurs whose contribution cannot be replaced with reasonable

effort and expense are eliminated from the group of business transfers,
the potential number of business transfers might drop drastically. If it is
assumed that about half of all business transfers possess transferability
in the light of continuity, expenses, and due diligence, the number
of potential business transfers is reduced to half. In the future it is
important to analyze how many potential business transfers lead to
transfer and continuity, and not focus on the number of all possible
business transfers.

North Karelia, Joensuu Region

The age structure of the entrepreneurs in North Karelia is similar to the
structure in all of Finland. The majority of the entrepreneurs are 40-
60 years old (table 2). Out of all entrepreneurs, 40 per cent are aged
51-60, which directly relates to the importance of business transfers
in North Karelia. The most common lines of business are services and
commerce (table 3).

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AGE STRUCTURE LINE OF BUSINESS

15 – 30 5 % Commerce 21 %
31 – 40 15 % Logistics 9 %
41 – 50 30 % Other 8 %
51 – 60 40 % Services 35 %
61 – 74 10 % Construction 13 %
SEX Manufacturing 14 %
Male 70 % FORM OF THE COMPANY
Female 30 % Partnership 5 %
EDUCATION Enterprise 33 %
Civic School 13 % Public Limited Company 1 %
Primary School 8 % Limited Partnership 18 %
Upper Secondary School 3 % Other 2 %
Polytechnic 4 % Corporation 41 %
Vocational School 32 %
Folk high school 30 %
University or College 10 %
Table 2. Entrepreneurs’ features. Table 3. Business structure.

Source: Pohjois-Karjalan yrittäjät, The Regional Organization of Enterprises in North

Karelia 2006

According to an economic survey executed in 2/2006 by Pohjois-Karjalan

yrittäjät (The Regional Organization of Enterprises in North Karelia)
and Finnvera plc, approximately 7 per cent (500) of businesses will
implement a business transfer within the next 1-2 years and 8 per cent
(550) within 3-5 years.

Central Ostrobothnia
Examining the age structure in Central Ostrobothnia, it is clear that
there are more people advanced in age than people who are for
example 30-40 years old. Such age structure is due to the large age
groups that were born after the World War II. It can be estimated that
within the next ten years a significant proportion, approximately 40
per cent of the entrepreneurs will face a generation transfer, ownership
transfer or ceasing operations. In Central Ostrobothnia this means that
approximately 1 000 businesses will face such a situation within the
next ten years.

 A specialised financing company owned by the Finnish state.

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Figure 2. The age structure of entrepreneurs in Central Ostrobothnia (Statistics

Finland 2003).

According to a pilot study carried out by Kosek in 2007, the oldest

entrepreneurs in Central Ostrobothnia are involved in fur production,
whereas the youngest can be found in the ICT field. Other lines of
business follow the statistical age structure.

There is no statistical information on successful and unsuccessful

business transfers in Central Ostrobothnia.

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EXPERIENCES IN BUSINESS TRANSFER

Joensuu region, company specific interview

In Joensuu region, company specific experiences were collected by

interviewing businesses that have completed a business transfer as well
as businesses that are in the process or preparing for it.

A common feature for the cases studied was that they did not approach
the process long-term, but started to seek information on implementing
the transfer when it was already decided that a transfer would occur. In
most cases, operation after the transfer had not been thought of and
issues such as retirement had not been clarified in advance. According
to the business transfer experts at the regional development company
Josek Ltd, this occurs in almost all cases and is especially highlighted
within micro companies. A business transfer is almost like buying a car;
when the fever strikes the development of for example prices for used
cars is actively followed, but before this activation period these issues
have held no interest.

All the companies that responded to the interview stated that they were
aware of where to find guidance and had contacted a contact person
at Josek. This shows that the long-term process of promoting business
transfer guidance has reached the entrepreneurs.

Finding a successor was stated as the most challenging aspect in selling

the business. None of the entrepreneurs that completed a sale or were
planning to sell had a successor lined up when the process was started.
All of the interviewed agreed that Josek’s guidance was very important
in finding a successor.

In generation transfers the successor is known, since it is an arrangement

within the family. However, many were unsure of the successor’s
qualifications to take over the business, which is why they wanted to
stay on as a supporter and a safety net. Also in sales situations the seller
wanted to emphasise his/her willingness to help out the buyers, although
the length of this period was to be specified in the sales contract.

According to participants in Josek’s Yritysklinikka business research

and development project, the easiness of technical preparation was a
surprise to all that completed the transfer. The guidance of the contact
person at Josek in selecting an expert and providing the company with

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information in advance contributed to the easiness. The expert was

able to concentrate on concrete matters without having to find out
background information first, which also helped to keep the costs of
consulting low. In addition, the small amount of technical preparation
in relation to the overall length of the transfer was seen as a surprise.

All in all, it can be said that in most cases business transfers were
started without prior planning, and the business advisors at Josek were
consulted in all situations. It was also a surprise to the interviewed
that the end result could be different from what was expected at the
beginning of the process.

Central Ostrobothnia, company specific interview

To support the Baseline Analysis for the REINO project, a business

transfer barometer, ‘Entrepreneurs’ future prospects on business transfer
in Central Ostrobothnia 2007’, was implemented to clarify the current
situation in Central Ostrobothnia in spring 2007 (Available in Finnish:
‘Yrittäjien tulevaisuuden näkymät yrityksen omistajanvaihdoksesta
Keski-Pohjanmaalla 2007’). Seinäjoki University of Applied Sciences
was responsible for the practicalities of the study in co-operation with
the regional development company KOSEK, Business Service Center
in Kaustinen region, and the local chapter of the Federation of Finnish
Entreprises in Central Ostrobothnia. The study targeted entrepreneurs
over 50 years of age. The main objective was to find out if there
was continuity for the businesses after the retirement of the current
entrepreneur. A total of 207 entrepreneurs, which corresponds to 15 per
cent of the entrepreneurs in the region, answered the survey.

According to the study, 36 per cent of the entrepreneurs estimated that

they will sell the business to an outsider. 27 per cent of the transferors
were planning a generation change, 26 per cent estimated that the
business will close down, and 8 per cent answered that there are other
owners in the business that will continue operations. Generation change
is the most likely option within industrial businesses with more than
5 employees. Comparably, ceasing operations is planned mostly in
businesses with female entrepreneurs with higher education, businesses
that have operated less than 10 years and have only one employee, and
by entrepreneurs as sole proprietors.

Finding a successor was found as the biggest problem within the

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entrepreneurs about to withdraw: 51 per cent mentioned it as the biggest

problem. A total of 45 per cent of the respondents named determining
the value of the business as one of the three major challenges in business
transfers. Then again, one third of the respondents named the transfer
of expertise among the three biggest problems.

In order to find a successor, 30 per cent of the entrepreneurs had offered

to sell the business to a competitor or to some other business. 6 per cent
had used connections offered by the Federation of Enterprises, and 4
per cent had used advertisements. The retirement of a large proportion
of entrepreneurs is most likely to cause the number of businesses to
decrease, but on the other hand the size of the businesses will increase
due to businesses buying businesses. The increase in the size is not a
negative result, since the remaining businesses will have more resources
at disposal and their competitiveness is more likely to increase.

Currently it seems that most business transfers will occur between the
years 2010 and 2014. 43 per cent of the respondents estimated their
retirement to occur during those years. Most of the retirees that had
children (nearly 60 per cent) responded that they will let their children
choose whether they want to take over the business or not. Not all of
the entrepreneurs that had children hoped their children to become
entrepreneurs or take over their parents’ business: approximately one
quarter of the entrepreneurs represented this opinion. In fact, there
were more entrepreneurs that did not want their children to take over
the business than those who did. Only 15 per cent hoped that the next
generation would continue the business. 72 per cent of the respondents
had requested an estimate on their pension; 60 per cent stated their
statutory pension to be meagre, 37 per cent considered it reasonable
and 5 per cent were satisfied with it.

All in all, entrepreneurs over 50 years of age prioritized improving the

current operations instead of developing new products, markets or
technologies. According to the barometer, businesses facing a generation
change concentrate more on growth and development of the operations,
whereas the businesses that do not have a successor or are planning
to sell are more passive in development. However, the results achieved
in Central Ostrobothnia mostly correspond to the results achieved in a
similar barometer completed in South Ostrobothnia only a few months
earlier.

In addition to the barometer, 13 businesses facing a business transfer

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were interviewed specifically for the REINO project. A specific need

arose from these interviews. Entrepreneurs feel a need for a business
transfer expert who would be available for a few years’ time before the
actual transfer. Furthermore, it was highlighted that the expert should
not change during the transfer process.

Nearly all the interviewed entrepreneurs said that they needed more
information on business transfers and wanted professional help in
technical aspects such as taxation, value determination, legislation, and
financing. The entrepreneurs expressed a wish that in the beginning of
the process there would be a neutral party to activate the process, offer
information, and provide an expert.

The need for support in emotional issues also appeared from the
interviews. Several respondents stated that it is difficult for them to
step aside and transfer responsibility to the younger generation. The
entrepreneurs who had a successor in their own family felt that it
was easier for them to step aside because the successor was already
familiar with the business and its operations and was qualified from
the transferor’s point of view. Most difficulties were experienced in
businesses that were selling to an outsider and did not have a buyer
lined up. Entrepreneurs in these businesses were also reluctant to put
the business up for public sale. The more plans the entrepreneur has for
after the transfer, the easier stepping aside seems to be.

Nearly all the interviewed believed that the new generation will bring
new life to the business and develop it further. Business transfer was
seen in most cases as natural and positive, and as a factor that improves
the business.

Experiences in other projects

North Karelia University of Applied Sciences; a study on

generational business transfers (2005)
In the Joensuu region, a vast study was completed on business transfers
by the North Karelia University of Applied Sciences in spring 2005
(Available in Finnish: ‘Yrittäjäpolvenvaihdostutkimus 2005’). The study
was targeted for entrepreneurs of 50 years of age and it mapped their
readiness for and knowledge on upcoming business transfers. All the
businesses that participated in the study (total of 433) are members of
The Regional Organization of Enterprises in North Karelia. Approximately
30 per cent of all the businesses in the region are members of this

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organization.

The results of the study strengthened the idea that the entrepreneurs do
not prepare for the business transfer early enough, and even technical
preparation is dealt with too late. A surprising finding was that only 30
per cent of the interviewed had a successor figured out, whereas 70 per
cent of the businesses did not know what will happen to the business
when the business transfer issue is current. It was also a surprise
to realize that a large proportion of the service sector saw ceasing
operations as the only option after the retirement of the entrepreneur.
This was highlighted in scarcely populated areas, causing deterioration
of the service structure.

When examining the results of the study it is good to keep in mind

that the businesses that are members of the Regional Organization of
Enterprises usually keep abreast of current events and seek knowledge
more actively than non-members. If the study had been conducted
within all entrepreneurs over 50 years of age, the results might have
been even grimmer.

University of Vaasa, Department of Management, Entrepreneurs’

views on the future of business transfers. Koitto, Jaana (2003).
The aim of this study was to map out the entrepreneurs’ views on
the future of business transfers and develop an operations model for
business transfers in South Ostrobothnia. The study was conducted by
The Regional Organization of Enterprises in South Ostrobothnia. There
were 388 respondents that consisted of entrepreneurs over 50 years of
age who have operated as entrepreneurs for 22 years on average. 86
per cent of the respondents were owners of micro companies.

Based on the results of the study, knowledge on business transfers has

increased within entrepreneurs. Knowledge has mostly been acquired
through training and events on business transfers, and the topic was
found interesting. The biggest problem was, once again, finding the
successor. Retirement plans were rather weak, and 53 per cent of the
respondents had optional retirement plans. Continuity of the business
was seen more important than obtaining assets. Ms. Koitto suggests that
the successor would participate in running the business even before the
transfer, hence the routines and know-how would easily be transferred
from the entrepreneur to the successor. The knowledge of the retired
entrepreneur could be utilized for the successor’s benefit, for example
through mentoring.

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Personal experiences and experiences of interest groups

Due to retirement or other reasons related to ageing, challenges can be

seen in generation transfers. The most noteworthy are listed below:

Entrepreneurs are not awakened early enough for business

transfers;
It is a mistake to try to complete a strenuous process that takes 3-5
years in a few months. The challenge is to get the retiring entrepreneurs
to start the process earlier.

Businesses starting the transfer process are not always in a

situation that a successful completion of the process requires.
Examples of challenges:
• Enough time has not been reserved for the selling process
• The business is not attractive or profitable enough, even if the
business idea, product/service or some aspect of the business is
potentially profitable
• The business is not profitable enough but by reorganizing some
aspects of the business it could become very profitable
• The seller and the interest groups, such as the family, have not
reached a uniform decision on business transfer
• Different aspects, such as taxation, legislation, financing,
retirement, etc, have not been resolved early enough
• Enough time has not been reserved for the training of the
successor (transfer of tacit knowledge)
• The business has not improved in years

The buyer and the seller do not find each other;

According to different estimates, approximately 40 per cent of the
retiring entrepreneurs do not have a successor for their business.
Although there are public business brokers and sales forums available,
the entrepreneurs are either not aware of them or not willing to use them.
Often there is a negative attitude towards selling a business and lack of
courage to put the business up for public sale. However, businesses that
are ready to be sold often have to be placed for public sale in order to
attract the potential buyers’ attention towards the business.

The buyer and the seller are not familiar with each other’s
approach to business transfers;
Buyers buy the future, and sellers sell the past. This becomes evident
in different views on the value of the business, needs for development,

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and maintaining traditions. The seller demands a price for life’s work,
which the buyer is not willing to pay.

Public business transfer services are not sufficiently coordinated

and the level of quality fluctuates;
There is a lack of centralized coordination on behalf of the government.
There are scattered services available, but there is no centralized
coordination for business transfer experts, which leads to quality
fluctuations between different regions. Necessary ways of support from
a higher level would be for example guidance, training, and tools for
business transfer specialists, as well as production of material supporting
the process. The Jobs and Society network, a national organization
maintained by the private sector together with local governments
and the state, provides advisory services for new businesses, but is
not operating efficiently enough in guiding business transfers. The
organization’s coordination skills do not cover all necessary aspects,
which is why the public sector has to take responsibility in business
transfers.

Entrepreneurs do not receive enough mental support, most of

the focus lays on technical aspects;
Discussions on business transfers revolve mostly around technical
aspects (taxation, legislation, financing), and less attention is given to
mental preparation. For example, a mentor can be helpful when dealing
with the emotional aspects of a business transfer. The most important
aspect of mental preparation is the transfer of tacit knowledge to the
successor. Transferring tacit knowledge should receive special attention,
for example through training.

Continuing an already existing business is in general more

difficult than starting a new business;
Setting up a new business is regularly talked about. The alternative,
buying a business, is not seen as a possibility. The reason for this lies
in financing: continuing an already existing business requires more
financing and better guarantees, which is why the potential successor
has to take more risks than somebody starting a new business. It is
easier to obtain public funding for business start-ups than for continuing
a business. Often the sale is not completed due to buyer’s unwillingness
to take risks or the lack of guarantees, even if the basic requirements
are met.

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Many micro companies cannot afford private experts;

Within small businesses the role of free or compensated service is
emphasized. Establishing this kind of service and maintaining its quality
is a challenge to the public sector.

BUSINESS TRANSFER SERVICE PROVIDERS

Government

Ministry of Trade and Industry

The main responsibility of coordinating business transfers lies within the
Ministry of Trade and Industry. The Ministry has financed different projects
concerning business transfers, mainly through local Employment and
Economic Development Centers (EEDC). EEDCs have financed different
types of pilot projects, which in turn have financed most of the regional
business transfer services. In the long run this leads to diverse and
dispersed services. It would be essential to improve coordination and to
create a consistent concept for business transfer services.

Ministry of Labour
The role of the Ministry of Labour is limited mostly to contributing financial
aid to start-up companies. When limiting the term ‘start-up’ solely to
new businesses, business transfers are eliminated from receiving this
type of financial aid. The Ministry should consider business transfers in
the same light as starting a new business.

Other ministries and governmental instances

Other ministries and governmental instances have not paid any significant
attention to business transfers. It is natural, because business transfers
are easily taken as the responsibility of the Ministry of Trade and
Industry. For example, the Ministry of Education has not been active in
developing training for different parties in business transfers. It would
also be beneficial if some note on business transfers were included in
business subjects at school, in addition to setting up a new business.

Regional Operators

Municipalities and sub-regions

In addition to EEDCs, local governments have financed some regional
business transfer services, for example with regional development
financing. But it is impossible to ensure a long-term service that covers

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the whole country and is consistent and equal in quality, if counselling

and financing of business transfers comes through many different
projects. (www.te-keskus.fi)

In addition, municipalities have in different ways financed and organized

business transfer services in all of Finland. In some municipalities and
sub-regions business transfers are considered important, but some
have noted them little or not at all. Therefore, a consistent concept in
different municipalities and sub-regions has not been formed.

Private Sector

Different Organizations
In addition to different organizations, the Federation of Finnish
Enterprises with its regional operators has taken a role in developing
business transfers. The federation has for example produced material
to ease the process, organized conferences on business transfers, and
created an Internet-based forum for selling and buying businesses. It
has kept the topic up and developed the guidance on business transfers
on a national level, for example guidance by telephone. (www.yrittajat.
fi)

The Regional Organization of Enterprises in South Ostrobothnia has also

developed a national forum for selling and buying businesses (www.
yrityskauppa.net). The Finnish Family Firms Association focuses on
issues concerning generation changes. (www.perheyritystenliitto.fi)

Experts and Business brokers

Different expert organizations for various stages of business transfers
are readily available. There is great fluctuation in the quality of these
services. Experts can be found for example in local accounting firms,
banks, EEDCs, in legal offices, etc. Consultants can also be found in a
database maintained by the SME Foundation (www.pkt.fi). The largest
training, consulting, and accounting institutions can be utilized to find
an expert on legislation, taxation, financing, etc.

There are a couple of dozen private business brokers in Finland, for

example Suomen Yrityskaupat, a chain specializing in SME transfers
(www.yrityskaupat.fi). The Federation of Finnish Enterprises has
launched a service providing a dealer who helps to close the deal by
acting as a matchmaker between the seller and the buyer (vs. real
estate broker).

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Public and Private Financial Institutions

Financing, public financial institutions, banks, insurance

companies, capital investors
Public and private investors have paid relatively sufficient attention to
the financing of business transfers. Financing is usually available if the
business idea, guarantees, and know-how are in order. Instead, it is
more difficult to obtain support for consulting and training. In reality,
there is not enough expertise connected to financing the successor
needs in order to operate and develop the business.

Finnvera plc is an example of a public investor that gives out loans

and guarantees in business transfer situations as well. However,
Finnvera operates as a minor investor with stakes less than 50 per cent,
especially when it comes to larger businesses. The remaining investors
have to be found for example in the private sector, and this can lead into
collateral deficiency. Finnvera has established a loan programme for
micro companies to help financing business transfers; the programme
includes for example Loan for Women Entrepreneurs €35 000, Microloan
€35 000, and Entrepreneur Loan €85 000. (www.finnvera.fi)

Private banks, financial institutions, and insurance companies are paying

attention to business transfers to an increasing degree. For example,
OKO Bank’s Financial Institutions Department has produced a guide
on financing business transfers. Other banks have services on how to
finance a business transfer, as well. Financial planning for businesses is
often prepared by the bank’s legal services.

Private investors have been actively involved in business transfers,

especially with larger businesses. Capital investment in micro companies
is a rather strenuous way of financing, which is why it is rarely used
in small, regional businesses. Capital investors are represented for
example by The Finnish Venture Capital Association (www.fvca.fi) and
Finnish Business Angel Association (www.ledi.fi/bisnesenkelit).

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Training

Training for Exiting Entrepreneur

Training for exiting entrepreneurs has mostly been organized through
different kinds of temporary projects by providing seminars, courses,
and training and consulting for a specific business. Available training
has varied according to the ongoing projects. At times training has been
readily available, whereas at another times it has not been available at all.
In reality, an established, permanent training for exiting entrepreneurs
does not exist.

Successor training
Established training that systematically goes through each step of the
business transfer process from the successors’ point of view is not
readily available, and therefore it has to be composed of other existing
services. There are not enough business transfer services combined to
the training, especially private experts that are needed in the process
of buying.

Business Transfer Training vs. Training for Starting a

Business
Compared to the training for starting a business, there is less training
for business transfers available and it is poorer in quality. Successor
training has mostly been organized through different projects. This
causes its availability and quality to vary in different regions.

Certain problems can be seen in generation changes and buying a

business. Compared to setting up a new business, the buyer has to
take into account numerous different factors related to the exiting
entrepreneur, his/her family, or some other interest group. This reinforces
the idea of establishing training as an own entity to help the successor
in negotiating and taking over a family business or a business for sale.

The number of transfers in Finland each year supports the idea of

establishing successor training, either as a separate part of the training
for starting a business or as its own branch.

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NATIONAL FRAME OF REFERENCE

Financing

Financing for starting a new business is rather readily available, whereas

financing for business transfers is less available. Continuing an existing
business is not seen in the same position as starting a new business. A
good example is the confusion surrounding public start-up funding which
can be more easily obtained for business start-ups than for continued
businesses.

Another challenge is the insufficiency of financing. A successor needs

more money than business starters, because continuing a business
usually requires bigger and more expensive operations than setting up
a new one. Therefore, the risks in financing often end up being larger,
and this causes the successor having to obtain more guarantees. Some
aspects of capital investment have been developed for these situations,
but at the moment it is not enough.

Suggestion for improvement: New instruments have to be developed

for the financing of business transfers. Such could be loans with divided
risks, mezzanine financing, and temporary or permanent capital
investments. Some of the risks should be carried by a representative
of the public sector. Financing should be connected to administration,
consulting or training to support the successor.

Taxation

Taxation in Finland has developed moderately especially in generation

changes. In this regard, tax deductions would be in place. By using these
modifications especially in family businesses it is possible to conclude a
generation change reasonably cost-effectively.

There are still notable deficiencies, flaws, and inconsistency in taxation.

For example, there are contradictions in taxation that push the buyer
and seller to implement the same target differently. This can be seen
when the seller wants to sell a limited company and possibly even
change the form of the business to a limited company, because in
such case the payment would be capital income. The buyer, however,
wants to keep it strictly a business transaction, because in such case
restrains (depreciation of machinery, fixtures, goodwill, etc) caused by

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the transaction are deductible. When buying a limited company this is

not possible; the buyer has to finance the deal with personal loans that
have to be paid for example with the dividends received. This situation
leads into a conflict between the seller and the buyer about the nature
of the transaction and the price of the business.

Suggestion for improvement: Taxation has to affect the bottlenecks

of selling, especially when it comes to limited company transaction vs.
business transaction. The inconsistency in taxation raises the possibility
of unintentional mistakes, as well as drives to decisions that do not make
good business sense. Taxation in business transfer situations has to be
simplified and seen as its own entity. In reality, the previously mentioned
situation causes inequality to the successor of a family business and in
selling a business, especially from the buyer’s point of view.

Legislation

Legislation in business transfers is complex. A successful transfer

requires law expertise on different areas. Laws applicable to business
transfers include e.g. business tax act, accounting act, company law, and
labour and retirement legislation. In practice it is difficult to complete
a business transfer successfully without an expert in legislation and
taxation.

Suggestion for Improvement: Concerning business transfers

legislation is not consistent enough, which leads to unusual solutions
that do not always make good business sense. Legislation in business
transfers should be looked at both in its entirety and with a systematic
survey on each law separately, and the legislation should be uniformed.
Especially the legislation concerning the buyer and the seller needs to be
developed. It is essential to consider establishing a separate legislation
for business transfers.

Best Practises in Finland

In 2003, the European Commission published ”Helping the Transfer of

Businesses – A ‘Good Practice Guide’ of Measures for Supporting the
Transfer of Businesses to New Ownership” that gathered best practices
of business transfers in different countries.

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The Viestinvaihto Programme – Passing the Baton

Employment and Economic Development Centers are governmental
instances that offer a service for SMEs that are planning to complete a
generation change. The service cannot be used for finding a successor;
it is assumed that there already is a successor.

The price of the service is €840 and it includes three days of consultation.
At the end of the analysis the business receives a plan for generation
change with recommendations on how to proceed. The service can be
continued with further consultation priced at €300 per day. The quality
is maintained by selecting experts with versatile expertise in business
administration, as well as in taxation and legislation. All the experts
have completed training and a demonstration of skills on the subject.

In North Karelia, this service is a part of a vast training program for

successors. In 2006 the program was completed by 30 businesses. The
program is executed by a private consulting firm and it takes about a
year to complete. The price of the program is €1000.

Business loan
Financing institution Finnvera plc offers financing for business transfers.
These loans are meant to be used when starting a business, buying a part
of an existing business or when raising the capital of the business.

The applicant has to be a shareholder with at least 20 per cent, or

a business partner in a partnership or a liable partner in a limited
partnership. The applicant has to participate in the business activities
full-time and receive income from the business. The loan is personal
and it can be given to more than one founder of the business. The
amount of the loan does not exceed €100 000.

Start-Up Funding
Through labour administration it is possible to obtain funding for personal
expenses in relation to starting a business. The amount is not huge, but
the symbolic value is. The maximum of start-up funding that can be
obtained is for 10 months with €600/month.

The Federation of Finnish Enterprises

The Federation of Finnish Enterprises has a service (The Yrityspörssi
Enterprise Exchange Portal http://www.yrittajat.fi/yritysporssi/home.
nsf) that is intended for sellers and buyers of businesses. The
enterprise exchange portal is an internet-based market that publishes

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advertisements on selling or buying a business or part of a business.

A packaged deal includes two ads in the magazine of the Federation of

Finnish Enterprises, two ads in the leading Finnish economic newspaper,
and six months of visibility on the Federation’s web site. The seller of a
business has to be a member of the Federation, but membership is not
required of buyers.

The ads on the database web site (www.yrittajat.fi) can be answered

by sending a
filled-out form that includes contact and background information of the
buyer.

Through different business plans and calculations the Network of Jobs

and Society has helped several potential buyers to consider buying. The
service is especially suitable for new entrepreneurs.

In addition to this nationwide service there are other regional non-

commercial services that have been established through projects
promoting business transfers. Some of the services are still operating
after the project has ended. An example of such is the OSUVA enterprise
exchange service in the Joensuu region. OSUVA has become a part of
the counselling services provided by Josek. The database is available
on the Internet at www.josek.fi/osuva, and it serves both sellers and
buyers. There is a registration fee of €60/year for sellers, for buyers the
service is free of charge.

The main difference between the OSUVA and the Yrityspörssi services is
that a representative of OSUVA becomes acquainted with each business
placed for sale and performs an analysis of its current state. In addition,
all interested in the business are directed to the representative.
Information on businesses for sale is given out to the interested only
after they have signed a nondisclosure agreement. Going forward, the
representative acts as an impartial expert for both parties and guides
the sales process.

College education based entrepreneurship in promoting

business transfers
• Lahti University of Applied Sciences established the first
Jatkajakoulu school for successors in 2005, with the support of
Ministry of Trade and Industry and European Social Fund (ESF).
The operations were started out by mapping out the current

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state of business transfers region by region in all of Finland.

Information about the school on the Internet (in Finnish):
www.lamk.fi/palvelut/eu/jatkajakoulu

Vocational diploma in entrepreneurship as a part of

business transfers
In 2004, Jyväskylä Vocational Institute started a project on long-term
training as a support for business transfers through apprenticeship
training. The project is intended to broaden to all of Finland. Additional
information on the Internet (in Finnish):
http://www.jao.fi/?DeptID=12477

www.jatkajat.fi - database
A part of the activities of Jobs and Society is a service aimed for people
planning to start a business, as well as for people planning to sell
their business. The principle of the database is that the transferor can
check the database for suitable successors. Successor candidates fill
in a curriculum vitae, based on which the service provider evaluates
readiness for entrepreneurship. The basic information on the CV will be
published anonymously on the database.

Business Transfer Database in the Tampere Region

The regional branch of the Federation of Finnish Enterprises in the
Tampere region has an on-going project until the end of 2007, which is
funded by ESF. The goal of the Viestinvaihto project is to find successors
and complete at least 100 successful business transfers within four years.
The project also aims to safeguard jobs and develop SMEs’ operations.

Within the project, a database has been created for buyers and
transferors. An impartial expert composes an analysis of the business.
Based on the analysis the business receives recommendations on
experts in the private sector who will handle specific actions, such as
taxation, legislation, value determination, etc.
(www.pirkanmaanyrittajat.fi)

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CONCLUSIONS

In different parts of Finland public business transfer services are

scattered, which is why the quality of the services cannot be ensured.
Business transfer services need neutral, more centralized coordination
in creating services and training, and in technical aspects, such as
taxation, financing, and legislation. Standards are also needed on the
European Union level.

The public sector should build a consistent and clear concept to assist
in business transfers. This service has to guarantee a neutral channel
providing impartial information and coordination in detail in business
transfers. Consultation should be supported by coordinated and high-class
material, training, guidance, and tools for assistance. Private experts,
investors, tax authorities, etc should be linked closely, and adequate
training should be provided for both transferors and successors.

At the moment the training provided for transferors and successors is

scattered, and the quality cannot be maintained in all of Finland. There
is not enough training for successors, and the existing training is not
clear in content. Business transfer education for both successors and
transferors should be seen as a separate entity in public training, either
in connection with start-up training or as its own branch.

There is more support available for the technical aspects of business

transfer than for the emotional aspects. Support in technical matters
is available for example from accountancy firms, lawyers, and public
services. The support services should be developed to cover psychological
matters as well, such as transfer of tacit knowledge. Business transfer
process is also a major emotional process, which is why adequate
support should be connected to it, for example through occupational
health care, where the services of a psychologist would be available if
needed.

Sellers and buyers often have a different view on the transfer process,
for example on the value of the business. Differences in point of views
often create a divide between the involved parties. More uniform
methods should be created to approach the transfer, for example by
establishing consultation on the creation of a business transfer plan and
better taking into account the buyers’ point of view.

In reality, sellers and buyers do not meet efficiently enough. Business

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market places and the process of selling a business should be made

more widely known. Entrepreneurs should be encouraged and their
attitudes modified to be more open for selling a business in order to
have more businesses for public sale. This is also required to awaken
the interest of the buyers. The more businesses there are for sale, the
more potential buyers there are.

The culture surrounding entrepreneurship does not encourage people

to see entrepreneurship as one period in a person’s professional life.
According to different estimates, the average lifetime of a business run
by the same entrepreneur in Finland is 24 years. The corresponding
number in Sweden is 12 years, and in the USA it is 5-7 years. The basic
principle in Finland is that the business is run until retirement. The
culture in general does not encourage entrepreneurship as one period in
the professional life, which could include 5-10 years as an entrepreneur
after which the business activity is changed into something different.

Currently there are better planned and coordinated services available for
starting a new business than continuing existing operations. Business
transfers are to be associated with starting a business with equal support
from the society.
Several studies have aimed to determine the total number of upcoming
business transfers. There is no need to contest the total number, but
a critical approach should be taken regarding the numbers presented
in studies and in the media. If the numbers are modified according to
the characteristics of transferable businesses the number of potential
transfers would drop drastically. In the future it is important to note if
the business has potential for transfer, and not just stare at the total
number of business transfers. This would require more detailed statistics
on successful and failed business transfers, as well as improvement in
finding potential businesses for transfer and providing better services
for them.

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References

Employment and Economic Development Centers (2007):

www.te-keskus.fi
European Commission (2003): Helping the Transfer of Businesses – A
‘Good Practice
Federation of Finnish Enterprices (2007): www.yrittajat.fi
Finnish Venture Capital Association (2007): www.fvca.fi
Finnvera Plc (2007): www.finnvera.fi
Jatkajakoulu. (2006) Lahti University of Applied Sciences:
www.lamk.fi/palvelut/eu/jatkajakoulu
Jobs and Society network (2007): www.jatkajat.fi
Joensuu Regional Development company, OSUVA-project 2006:
www.josek.fi/fi/cfmldocs/index.cfm?ID=888
Jyväskylä vocational institute (2007): www.jao.fi/?DeptID=12477
Koitto, Jaana (2003): Entrepreneurs’ views on the future of business
transfers.
University of Vaasa. Vaasa.
Lautamaja, Marja & Varamäki, Elina & Talvitie, Pauliina (2007):
Yrittäjien
tulevaisuudennäkymät yrityksen omistajanvaihdoksesta Keski-
Pohjanmaalla 2007. Seinäjoki University of Applied Sciences.
Seinäjoki.
North Karelia University of Applied Sciences, Joensuu (2005):
Yrittäjäpolvenvaihdostutkimus 2005.
Perheyritysten liitto (2007): www.perheyritystenliitto.fi
Pirkanmaan Yrittäjät (2007): www.pirkanmaanyrittajat.fi
Pohjois-Karjalan yrittäjät (2006): www.pk.yrittajat.fi
SME Foundation (2007): www.pkt.fi
Statistics Finland (2007).
Suomen Bisnesenkelit Federation (2007): www.ledi.fi/bisnesenkelit
Suomen yrityskaupat (2007): www.yrityskaupat.fi
Yrityskauppa (2007): www.yrityskauppa.net
Yrityspörssi Enterprise Exchange Portal (2007):
www.yrittajat.fi/yritysporssi/home.nsf

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BASELINE ANALYSIS: BUSINESS TRANSFERS OF MICRO

COMPANIES IN GREECE, REGIONS OF PIRAEUS AND
VOIOTIA

INTRODUCTION

This report is the deliverable of the Action 2.1 Baseline analysis of the
REINO project. Its objective is on the one hand to describe how Greek
entrepreneurs face the business transfer challenge and how the Greek
state supports them in this respect; on the other hand, the purpose of
this report is to provide a basis for the pilot actions in Greece.

The report is divided into two parts. The first part deals with the business
transfer context in Greece; it discusses the institutional, legal, financial,
tax, and support services provided. The data collection in the first part
was carried out mostly through desk research and some interviews with
government officials. It shows that the Greek state has been relatively
slow in responding to the 1994 EC Recommendation, since many of
the 14 initially recommended measures are pending even today. At
the moment, however, there are several state organizations and cross-
cutting teams of government officials dealing with business transfers,
as new legislation was introduced in November 2006. Tax incentives for
all categories of business transfers were introduced. Later in the year,
additional legislation facilitated the licensing for the operation of certain
types of business activities when transferred. However, in these state
initiatives there is still a lack of hands-on support services facilitating
business transfers. In this sense, the contribution of the REINO project
is crucial.

The second part of this report discusses the attitudes, preparatory

actions, and support expectations for addressing the business transfer
challenge, of a sample of Greek micro companies.
Some information on the organization of the work:
- SAMPLE, QUANTITATIVE: The sample of the field research
consists of approximately 80 micro and small companies.
The initial aim was to collect about 200 questionnaires, and
approximately 2 000 questionnaires were distributed for that
purpose. Finally, around 80 questionnaires were collected. The
relatively low response rather confirms that the business transfer
process has not yet been considered sufficiently by micro and
small entrepreneurs. The REINO project is a very important
initiative towards encouraging such discussion.

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- SAMPLE, BRANCHES: Micro and small businesses in

manufacturing and services. Businesses involving demanding
licensing procedures (medical, e.g. pharmacists and law, e.g.
public notaries) were not considered, since business transfers are
addressed through the trade unions of such professions.
- AREA: The sample businesses are located in the regions of
Piraeus and Voiotia. These regions were selected because the
President of the Piraeus Chamber of Commerce and Industry
(Mr. Kassimatis) and of the Voiotia Chamber of Commerce and
Industry (Mr. Agniadis), as President and Financial Controller
of the Union of Hellenic Chambers of Commerce and Industry
respectively, could personally facilitate the implementation of the
pilot action.
- ORGANIZATION OF THE EXCHANGE BETWEEN THE
ENTREPRENEURS AND THE PROJECT STAFF: The Piraeus and
Voiotia Chambers of Commerce and Industry assigned staff to
the project (1 person per CCI). In collaboration with the project
staff (UHCCI & European Profiles S.A.), the two CCIs invited
their member entrepreneurs to workshops and seminars where
the REINO project was presented and the questionnaires were
distributed. The project team made the first interviews on the
spot. Once answered, the questionnaires were either returned
to the UHCCI directly by the entrepreneurs or through the CCIs.
The UHCCI then forwarded the answered questionnaires to
the EP who had the responsibility of analyzing them. Once the
report was conducted, the national coordinator edited it and
subsequently sent it to the leading partner (KOSEK). In fact,
receiving the questionnaires took more time than originally
anticipated, and additional workshops were organized as well.
- STRUCTURE OF THE REPORT: The report consists of two parts.
The first part (section 2) deals with the context of business
transfers in Greece; the second part (section 3) analyzes and
comments on the data collected through the questionnaires.

Profile of the private sector in Greece

99% of Greek companies are micro, small or medium-sized enterprises
according to the European definition of SMEs. They employ approximately
60% of the total labour force in the service and industrial sectors.
According to the National Statistical Service of Greece, micro companies,
 Acronym often used: CCI
 Acronym often used: UHCCI
 Acronym often used: EP
 ibid

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which employ up to 10 people, constitute 98.1% of the total (see Table

1). Thus the small and medium-sized companies make up less than 1%
of the total business activities.

Economic
Total 0-4 5-9 10-19 20-29 30-49 50-99 over
sector
100
General total 879 318 844 567 17 713 8 588 2 908 2 335 1 534 1 323
Agriculture, 18 120 17 480 122 83 29 21 13 12
forestry, farming,
hunting

Fishing 1 598 1 399 113 50 16 11 6 3

Mines and 1 140 965 57 62 19 15 12 10

quarries
Manufacturing 97 005 87 734 4 123 2 438 899 783 547 481

Energy 1 128 1 035 35 20 10 10 9 9

(electricity & gas)

Construction 98 919 96 633 1 064 552 196 196 140 138

Wholesale & 307 298 296 374 6 282 2 658 788 569 344 283
retail
Hotel and 103 961 99 369 2 567 1 148 375 276 129 97
catering
Transport, 46 957 45 120 957 463 156 117 82 62
logistics,
communication
Intermediary 3 640 3 499 51 22 12 19 15 32
financial
organizations
Real estate 112 335 109 997 1 186 577 192 139 123 121

Public 846 782 14 17 10 6 9 8

administration &
Defence
Education 4 816 4 611 98 59 16 17 9 6
Health and Social 3 408 3 250 61 34 20 15 15 13
Care
Other services 42 814 41 424 694 321 143 120 67 45
Private 43 43 0 0 0 0 0 0
households
Ex-territorial 17 17 0 0 0 0 0 0
organizations
Other 35 273 34 835 289 84 27 21 14 3
Table 1. Number of employees in active Greek companies by economic sector

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The Greek SMEs are usually family enterprises, in which management

and ownership are combined. A family company does not necessarily
need to be small. For example, in the Athens stock exchange, 59%
of the companies are considered family businesses. Outside the stock
market, it is assumed that each SME is in principle supported by a
family. According to a research carried out by Grant Thorton, 80%
of the businesses in Greece are family businesses of some form or
another. Even though there is no specific definition as to what is a family
business (e.g. in terms of shareholders, control, management), the
common understanding is that it is a company owned and managed by
one family. Previous research has shown that many times the owners
of a family enterprise prefer to reduce profitability rather than to lose
control over the business.

The implication is that there might be different transfer criteria according

to the position of the potential successor: if the successor comes from
the same family, there might be a partial transfer; in a way it is an
‘internal’ transfer. If the successor is outside the family, the transfer will
be total and the original family will withdraw.
The number of family companies is reflected in the high number of
businesses whose legal form is sole proprietorship, i.e. approximately
90% of the total. Sole proprietorship companies are the least
expensive to set up, which is one of the reasons they are preferred.
The second preference (approximately 9% of the total) is unlimited
general partnership. Sole proprietorship is a relative obstacle in
business transfers. This has been acknowledged by the EC which has
recommended allowing sole proprietorships the status of public limited
companies. In Greece this change needs to be done and the costs,
especially the capital needed for setting up an ltd, should be supported
by appropriate financial incentives.
Sometimes the result is that SMEs are led to short-term loans, high
interest rate loans, or suppliers’ credits, so that they are able to cover
their increased needs for capital movement. The SMEs that use financial
instruments such as leasing, factoring and venture capital as alternative
solutions for capital gathering are very few. And, in general, Greek SMEs
do not use strategic planning or other knowledge-based techniques of
administration, such as strategic alliances, total quality management,
competitive comparison, measurement of customer satisfaction etc.
 ibid
 ibid
 Transfer of businesses –continuity through a new beginning - Final report of the MAP
2002 project, DG Enterprise, August 2003

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BUSINESS TRANSFERS IN GREECE

It is estimated that within the next decade approximately 2.5-3% of the

registered enterprises in Greece will change hands every year. However,
there are strong indications that this percentage might be even higher.
According to the General Secretary of the National Statistical Service
of Greece, in 2002 there were 878 846 SMEs in Greece, and 22 202 of
these had been transferred.
Almost 90% of the SMEs which had changed hands were small family
businesses employing up to 9 people. The remaining 8.2% of the
transferred enterprises employed 10 to 49 people, and 2.1% were
enterprises which employed 50 to 249 people. In particular, the share of
companies in the primary sector that completed a business transfer was
almost 2.2%. The share of transfers in the industrial (secondary) sector
reached 16.42%, and in the fields of information, consulting services
etc (tertiary sector) the share was 81%.

Sectors Size of SME

of the
economy
  Micro Small Medium Total
Primary 435 46 0 481
Secondary 2 887 569 191 3 647
Tertiary 16 431 1 207 274 17 912
Others 155 7 0 162
Total 19 908 1 829 465 22 202
Table 2. Business transfers in Greece by economic sector and size

The reasons for and types of business transfers differ due to many
factors, such as the size of the companies and their legal form.

 ibid

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Reason for Size of SME

transfer

  Micro Small Medium Total

Onerous cause 284 2 0 286
(inheritance,
etc)
Gratuitous 32 0 0 32
cause (gift)
Concentration- 70 31 11 112
absorption
Merger 23 9 0 36
Split-up 11 2 0 13
Change in 9 073 1 187 384 10 644
company
variables
Change in 10 415 598 66 11 079
partnership
Total 19 908 1 829 465 22 202
Table 3. Reason of transfer by the size of SME

Table 3 shows that almost 1.29% of all SMEs are transferred by onerous
cause, 0.14% by gratuitous cause, and 0.50% by concentration-
absorption. The major reasons for transfer in Greece seem to be the
change in company variables (47.94%) and the change in partnership
(49.90%).
Then again, it seems that the onerous and gratuitous causes are more
significant in the transfers of micro companies than those of small or
medium-sized companies.
Business transfers are usually carried out due to the fact that the owners
retire on a pension. However, the number of transfers that are carried
out due to personal reasons is increasing. Similarly, there is an increase
in the number of family-owned SMEs that are transferred outside the
family by selling to third parties.

According to the EC Experts’ Group in which Greece participates through

the Ministry of Development, the main problems regarding business
transfers in Greece are:
1. The complexity of the procedures required for business transfers.
This fact in combination with the lack of experience and knowledge
of the Greek entrepreneurs makes the situation difficult.
2. The Greek legislation does not provide the appropriate methods
and tools for the entrepreneurs to facilitate the transfer.
3. The entrepreneurs’ unawareness of the problems that continuity
poses for their businesses. In general, entrepreneurs consider the
business as a part of themselves. While they are too busy with

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running the business, they usually cannot or they do not want to

take care of planning the change of ownership. In particular, they
do not have a well structured plan for the future transfer because
they are not aware of how important it is.
4. Emotional or psychological objections. A large number of
entrepreneurs, especially those who have created the business
themselves and developed it over a long period of time, hesitate
to withdraw and prepare for the transfer. The transfer of know-
how and skills is a long-term procedure, when or if it is carried
through. As a result, the preparation for the transfer is very often
deficient.
5. The size of the enterprises. The owners of micro companies very
often ignore the problem of the business transfer, contrary to the
owners of bigger companies who more often make use of the
advice of specialists such as lawyers, financial advisors, accounting
advisors etc.

Some conclusions
1. At the moment, Greek SMEs face a number of challenges. One of
them is their low productivity. It has been attributed to various
factors, such as limited knowledge-intensive business activities,
limited utilization of modern technology, insufficient organization
of production, as well as outdated methods of management,
marketing and administration.
2. Greek SMEs, like SMEs all over the world, are confronted with
difficulties due to the higher risks characterizing them, the lack of
sufficient guarantees, as well as their family-oriented character.
3. Greek SMEs also face many bureaucratic, unpredictable and time-
consuming procedures. This might be one of the reasons why
business transfers are strongly taking place inside the family i.e.
in a friendly and controllable context.
4. Business transfers in Greece:
• Complexity of the procedures required for the transfer.
• Greek legislation does not provide the appropriate methods and
tools for the entrepreneurs to facilitate the transfer.
• Entrepreneurs’ unawareness of the continuity problem of their
businesses.
• Emotional or psychological barriers.
• Size of the enterprises.

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State of the art: the transfer environment in Greece

Concepts and definitions

Business transfer is the transfer of ownership of a company to another

person or to another company.
The business transfer can take place:
• Within the family (heritage, succession, gift, or total concession
of the company’s shares)
• Though redemption by the company management (sale to the
management or to the employees).
• Through sale to a third party or established companies (including
acquisitions and mergers).

As Transferor is considered:
Entrepreneurs who are going to retire due to age; entrepreneurs
who cease or change their entrepreneurial activity (early retirement,
occupational change etc); entrepreneurs who face an unforeseen
situation (divorce, illness, death etc).

Potential Successors could be:

Sons or daughters of the entrepreneur; inheritors; the company’s
employees; other company’s employees; skilled or unskilled unemployed;
entrepreneurs who are active in the same or different sector.
Business transfers may be planned or unplanned:
Unplanned business transfers occur without the intention of the
entrepreneur:
• Unpredictable reasons (sudden death, sudden inability)
• Unforeseen economic disaster
Planned business transfers:
• Transferor’s retirement
• Resignation due to establishment in children’s line of business
• Occupational change
• Partial business transfer
• Without management’s resignation
• With management’s resignation

Greek state initiatives to facilitate business transfers

Greece is the most centralized country in the EU, at least among the
EU-15. When discussing public sector business transfer initiatives, it is
necessary to distinguish between national and sub-national levels.

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National level initiatives

The Greek Task Force, a strategic tool

By Decision A/OIK21568/523/F ETBT/27.9.2005 the Greek Minister of
Development, Mr D. Sioufas, formed a committee – Task Force – for the
study of business transfers in Greece and the formulation of appropriate
political measures for facilitating this procedure. The President of the
Task Force was Mr El. Skandalis, the Managing Director of EOMMEX
(Hellenic Organization of Small and Medium Sized Enterprises and
Handicrafts SA). Executives from the Ministry of Economics, Ministry of
Justice, Ministry of Development, Athens Chamber of Small and Medium
Sized Industries, Piraeus Chamber of Small and Medium Sized Industries,
Athens Chamber of Commerce and Industry, National Federation of
Export, Association of Greek Industries, Hellenic Organization of SMEs
and Handicrafts (EOMMEX SA) as well as from the Greek General
Federation of Industry and Commerce have participated in the Task
Force.
The Greek Task Force worked intensively during the period November
2005-March 2006 and conducted a specific report. The report aimed at
the identification of suitable measures, which were suggested to the
Ministry of Economics and the Greek government for further evaluation,
in order for them to set the supportive environment for successful
business transfers in Greece.

The Greek Observatory of Small and Medium-sized Enterprises:

Monitoring, data collection, and research
The Hellenic Organization of Small and Medium Sized Enterprises
(EOMMEX S.A.), a non-profit and publicly owned organization which
operates under the Ministry of Development, has established The Greek
Observatory of SMEs (co-funded by the ERDF (70%) and with national
funds (30%)) with various objectives:
• Collecting data and providing information to the Greek
government and the EU organizations regarding the
implementation and results of the SME policies in Greece.
• Assisting entrepreneurs and their trade unions by information
dissemination.
• Mapping and analyzing qualitative and quantitative data and
making estimates of SME development perspectives.
• Studying SME performance in general at national and regional
levels.

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Credit Guarantee Fund for Small and Very Small Enterprises

(TEMPME SA), a financial tool
The mission of the Credit Guarantee Fund for Small and Very Small
Enterprises (TEMPME SA), according to the founding regulation
3066/2002 (Government Gazette A’ 252/18.10.2002), is to facilitate
the access of small and very small enterprises to capital, by providing
guarantees and counter-guarantees and undertaking a part of the
companies’ financial and commercial risks.
The fundamental principal of the TEMPME SA is the allocation of risks
between the private and the public sector (enterprises, financial
institutions and the TEMPME).
Based on this principal, the philosophy of TEMPME focuses on:
• The encouragement of all socio-economic groups to obtain
the potential of entrepreneurship and the elimination of social
consequences in case of a business failure. For this reason
the Regulation of Guarantees and Operation of the TEMPME
(Government Gazette B’ 1065/31.7.2003) states that the
permanent and only residence of the entrepreneur shall not
be burdened with a mortgage if the TEMPME guarantee is
provided (under the condition that the residence is not already
mortgaged).
• The satisfaction of needs of the small and very small enterprises
at low cost.
The main objectives of TEMPME SA are the following:
• support for thousands of viable small and micro companies,
under establishment or already operating, of all sectors, in any
stage of their business cycle (establishment, growth, maturity,
internationalization, restructuring, succession)
• support for enterprises that have difficulties in accessing
the financial sector (e.g. small and micro companies under
establishment, enterprises of the New Economy, enterprises
of research culture, enterprises with insufficient collateral,
enterprises with new products and services, social enterprises)
• support for business activities, mainly medium or long-term
investments, with financial risks above the average and finally,
summing up all the aforementioned, the enforcement of
competitiveness of the small and very small enterprises in Greece
while ensuring the economic viability of TEMPME SA.
• support for enterprises which, according to the national
legislation, are prohibited to proceed in actions of mergers,
acquisitions or transfers, in the year of application for guarantee.

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Tax incentives
For business transfers the following tax measures are in force:
• Profits or benefits resulting from the company’s transfer to non-
related persons are taxed by rate 20%.
• The real value of the entire enterprise or subsidiary company
that is transferred by onerous cause to first or second-degree
relatives is taxed once with coefficient of 1,2% or 2,4%
respectively. The same coefficients are in effect for the transfer of
individual enterprises, portions or shares in limited partnerships,
unlimited general partnerships or limited companies, to first or
second-degree relatives in case of inheritance, gift or parents as
beneficiaries.

If the transferred enterprise is a listed company:

• The transfer by onerous cause to non-related persons is taxed by
rate 2,4% on the nominal value of the transfer.
• The transfer in the event of inheritance, gift or parents as
beneficiaries between parents and children or between spouses is
taxed by rate 0,6%, and in case of other relatives by 1,2%.
• When shares of a listed plc are transferred to a non-related
person a tax of 5% is imposed.
• If a partnership or sole proprietorship company or a share of
unlimited general partnership or limited partnership is transferred
by onerous cause from parents to children or from spouse to
spouse because of the transferor’s retirement, the tax is not
imposed.

Company law
(i) Sole proprietorship companies

• Partnership / sole proprietorship

The transfer of a sole proprietorship as a whole is possible.

However, there is the possibility that a separate deed of transfer
is needed for the company’s property which belongs to the
natural person of the company.

Upon the death of the natural person of the company, the

operations are continued by the successors unless they have a
different will.

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• Unlimited general partnership

Death, bankruptcy or judicial difficulties of one of the partners

leads to the termination of an unlimited general partnership.
However, in the partnership agreement there may be clauses
through which the company has the right to continue its activities
by the remaining partners. The inheritors that will not intent
to continue the company should pay the value of shares of
the deceased. It can also be agreed that the company will be
continued by the remaining partners together with the inheritors.
The equity shares can be transferred through a deed of transfer
while the partner is alive, given that the statute of the company
includes the appropriate clauses or that all parties agree.

• Limited Partnership

In case of death or resignation of the one and only partner,

the company is automatically transformed into unlimited
general partnership, while in the opposite case the company is
terminated, except in case that the statute of the company is
being modified or a new partner enters the company; in this
case, one of the partners undertakes the position of a limited
partner.

The entering or exiting of a partner can be agreed on beforehand

by the unanimous agreement of the partners, as well as the
transfer of the equity shares.

(ii) Capital Companies

• Limited company

The transfer of the equity shares of a limited company is easy

and unrestricted unless defined otherwise by the company
statute. However, this transfer is more difficult than in the case of
a plc and it requires the observance of a set of announcements.
The possibility of the establishment of a sole shareholder ltd
company makes the business transfer easier.

• Public limited company

The transfer of a public limited company is carried out by

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transferring its shares. Restrictions regarding the shares transfer

can be laid in the statute only on the nominal shares. The
existence of bound nominal shares sometimes is compelled by
the laws concerning the funding of companies or the provision of
other special economic measures.

• The administration of the plc is dominated by strict terms

and requirements concerning capital and daily management.
Additionally, a plc must conform to the International Accounting
Standards.

The European Union has given a recommendation for each

member state to introduce the term of simplified public limited
company in their legislation. If small and medium-sized
companies had the possibility to take the legal form of simplified
plc the transfer would be easier and at the same time it would
allow the distribution of the shares among the existing or future
successors, according to the clauses of the inheritance law.

Permits and licenses

• Law 3325/2005 «The establishment and operation of industrial
and manufacturing units in the framework of sustainable and
continuous development» defines the new legal framework for
licensing of the Greek companies, simultaneously aiming at
environmental and public health protection, as well as labour
safety.

According to this law, the change of ownership is anticipated; the

business license can be transferred from the previous owner to
the new one, without the need to issue a new establishment and
operating license. This provision is very helpful to many industrial
and manufacturing businesses that are in the transfer stage.

• Law 3526/2007 «The production and selling of bread products

and equivalents» provides for business transfers of micro
and family companies in the field of food and beverage
manufacturing. The key issue here, as in Law 3325/2005, is the
possibility of transferring the business license from one owner to
the next, without having to go through additional bureaucratic
procedures.

• The Inter-Ministerial Decision number 10551/FEK 246;B. Article

6 is concerned with the simplification of the procedures for

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issuing permits and licenses for the establishment and operation

of businesses with activities related to public health care. The
decision defines when the establishment permits and operation
licenses can be replaced, and simplifies the overall procedure.
When it comes to business transfers, the business licensing
procedure is replaced by a simple file with information which
the new owner submits to a competent authority. The license is
granted automatically within 5 days.

Labour law
• Directive 77/187/EOK ensures the workers’ rights to work and
pension after the business transfer has taken place. Greece
has harmonized its national policy to this Directive through
Presidential Decree 572/1988, which was subsequently replaced
by Presidential Decree 187/ 2002, through which Greek
legislation adapted to the updated EU legislations.
• Law 2112/1920 Article 6 (which is the foundational company
law in modern Greece) was introduced even before the EU
legislation and provided for the workers’ rights in case of change
of employer.

Future plans, the proposals of the Greek Task Force

- Tax incentives

Essential reduction to the tax coefficient is proposed when a

company is transferred to relatives, employees or to third parties,
whether the reasons for transfer are onerous or gratuitous.
• Remission of tax payments, dues, contributions and rights
in favour of public authorities or third parties, concerning
necessary actions related to the business transfer contracts and
settlements.
• No tax imposition on existing tax-exempt reserve funds, provided
that they are not undertaken or are distributed at the time of
business transfer.
• Recognition of the event that during the business transfer due
to retirement of founders or managers, the enterprise is likely to
lose part of its intangible capital and consequently it is likely that
the imposed tax will diverge from its real value.

- Legal aspects
• Implementation of the possibility of SMEs, in connection with the
transfer, to change their legal form from sole proprietorship to plc

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or ltd without taxation or other economic impacts.

• Creation of the appropriate framework for the possibility of
establishing a sole shareholder plc or simplified plc regarding the
requirements of the amount of capital. Reduction of requirements
regarding the composition of General Assembly, notifications to
supervisory bodies, as well as other required formulations.
• Recognition of the exceptional case of purchase by the employees
as a solution to a possible crisis in succession, and corresponding
favourable taxation treatment.
• Encouraging the continuity of a private company or sole
proprietorship instead of the solution of their termination
(with existence of relating clauses in the initial statute of the
enterprise), in the event of notice of termination from one
partner contrary to the will of the other partners.
• Legislative regulations for the possibility of legalization and
transfer of enterprises which are unable to issue operating and
establishment licenses for various reasons.
• Legislative regulations for the framework of professional hires
lest the business transfer brings on changes in the security of the
salaried employees.

- Support structures
• Research and studies of the economic impacts, procedures,
problems and the results of business transfers in Greece.
• Public awareness regarding the appropriate processes and
requirements concerning business transfers, and the production
of information that will contribute to an efficient brainstorming of
company owners about the transfers. One of the main reasons
for the business transfers failing in Greece is that the required
processes have been started too late. According to experts, the
planning of the transfer may last 5-10 years. Unfortunately,
the entrepreneurs very often avoid discussing or planning the
transfer. The information campaign regarding the transfer process
will contribute to the awareness of the entrepreneurs as well as
to the implementation of the preparations required.

- Raising awareness
• Organization of information events concerning legislation,
taxation and financial framework of business transfers for legal
heirs/successors, third parties (executives, potential buyers
etc), entrepreneurs at the age of retirement and for potential
successors.

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• Encouragement and promotion of the cooperation between

organizations and institutions dealing with business transfers, to
ensure largest possible range of support services.
• Development of website regarding business transfers.
• Publishing of information material: a CD-ROM on business
transfers, etc.
• Creation of tools and methods that will help the entrepreneurs to
analyze and assess the current situation of their businesses and
also assist them in taking the appropriate actions.
• Provision of education and training for both executives of the
appropriate authorities and the involved parties of the business
transfer.
• Training for the executives of the SMEs, which will constitute the
information network of the entrepreneurs.
• Introduction of the business transfer issues to general business
education.
• Establishment of suitable structures which will provide services
for business transfers in the frame of the existing structures
(such as ΕΟΜΜΕΧ, ΚΕΤΑ, Chambers of Commerce etc). In order
to avoid fragmentation of information, the following is suggested:
• Training of the support service executives which deal with the
provision of services to SMEs (such as KETA, Chambers of
Commerce etc) regarding the prerequisites and the stages of
a successful business transfer.
• Establishment of offices for business transfers in the frame
of the existing structures. These offices will help both the
transferors and the successors to determine the present
situation of the company, as well as their expectations. They
will also examine the suitable successors, assess the company’s
value, clarify the legal and fiscal aspects and evaluate the
possibilities of funding the transfer.
• Creation of an Internet market place for business transfers,
which will provide reliable access to databases, information
and advice on potential buyers and sellers. The market place
will aim at matching the sellers and buyers and providing the
required information to the users. It also aims at increasing
the continuity of the SMEs going through a successful business
transfer. At the beginning, support by public authorities
is needed in the fields of organization and financing. It is
required to be staffed by specialists such as economists,
lawyers, notaries, real estate brokers etc. At the first stage
of the operation, and in order to make it known to the public,
it is important to offer the services free of charge. At the
beginning, the registrations of enterprises set up for sale will
be published on the website by the administrator, after the

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required data control and free of charge. These informative

registrations will be sent by the entrepreneurs or by the
Chambers of Commerce. In later stages the possibility of a
service fee could be examined.
• Examination of the possibility of establishing a special fund
for financing the transfer processes or the enhancement of
the limited role of the TEPMPE.

Sub-national level initiatives

Business transfer issues have not yet been addressed at a sub-national
level. The REINO project, with the involvement of two CCIs as antennas
of the Business Renewal Centre that will be established in the UHCCI
premises in Athens, is definitely a pilot in the field.

Chambers of Commerce
The Greek Chambers of Commerce, in spite of the fact that they are the
par excellence business support organizations in Greece, still have not
yet tackled the business transfer problem. One of the main obstacles is
the lack of an electronic business registry. The establishment of an e-
business registry involves the Ministry of Development, all the CCIs, the
Ministry of Economics and Finance, prefectural administrations, and the
Ministry of Justice through its regional courts. One of the reasons for
this delay is that e-business models and e-infrastructure is still lagging
behind in Greece.

Centres for Entrepreneurship and Technological Development

(KETA)
In Greece there are 13 Centres for Entrepreneurship and Technological
Development operating in the 13 peripheries of Greece. The main
objectives of the KETA are:
• Monitoring the competitiveness of the SMEs.
• Organizing and providing entrepreneurship services.
• Implementing actions regarding the organization and utilization
of financial tools and measures.
• Implementing actions regarding the internationalization and
export orientation of the SMEs.
• Providing information and developing the entrepreneurial culture.

The Greek private sector

There are no specialized private companies which offer integrated services

in the field of business transfers. Business consultancies provide some
of the necessary expertise, for example business valuation. Sometimes

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real estate agencies are involved in business sales, and there are also
consultancies specialized in mergers and acquisitions.

CONCLUSIONS

The Greek state has recently been taking measures facilitating business
transfers, especially in respect of taxation, business licenses, and legal
forms of companies. However, financing initiatives, support services,
and an Internet-based market place are missing. It can be concluded
that the REINO project, by aiming to set up the Business Renewal
Centre and the e-market place, will make a major contribution towards
improving the business transfer context in Greece.

Company specific interview: field research

Sample
• NUMBER: 85 small and micro companies
• REGIONS: Piraeus and Voiotia
• PERIOD: January – April 2007
• BRANCH: the service sector (‘closed professions’ excluded, see p.
3 SAMPLE, BRANCHES), commerce, manufacturing, construction

Implementation Methodology
- Structured questionnaire; the model from the leading REINO
partner was slightly modified and translated into Greek
- Experts from the European Profiles SA
- Support from the UHCCI:
• Workshops in the CCIs of Athens, Piraeus and Voiotia; meetings
with local entrepreneurs
• Individual meetings and interviews with entrepreneurs

Analysis of results
General information
• [a] Years of operation: 49% of the interviewed enterprises
have operated more than 20 years, and about 12% between
20-25 years. [b] Gender: 66% of the entrepreneurs are male,
and 34% are female. [c] Location: 29% of the enterprises are
located in Athens or in Piraeus and 34% in Voiotia. [d] Legal
form: 45% of the enterprises are sole entrepreneurships,
16% are limited companies, and 16% are unlimited general
partnerships. [e] Branch. 32% of the enterprises are active

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in commerce (wholesale and retail), 29% in manufacturing,

and the remaining 41% in services. [f] Size: 53% of the
enterprises have 1-4 employees, and 20% have 5-10 employees.
[g] Performance: 55% of the entrepreneurs stated that the
company’s growth rate is stable, 27% are growing, and 17%
downsizing.

Key findings
- First observation: business transfer is a family affair
• 52% of the interviewees regard the future of the business as a
purely family affair (generation change).
• only 23% expect a profitable sale of their business.
• 92% of successors are identified within the immediate social
surroundings of the transferor (close family and friends); only
8% seek for successors through the market.

- Second observation: entrepreneurs do not see any reason to

retire
• 61% of the sample enterprises have operated more than 20
years.
• only 42% of them have found a successor
• 50% of the owners plan to be involved in the business after the
transfer.
• 80% of the transferors plan to be in one way or another involved
in the business after the successor has taken over.
• 7% is considering closing the company down when they retire.

- Third observation: very low level of information, knowledge, and

awareness of the business transfer issues
• approximately 51% had never heard of business transfer before
• 36% are aware, but have never sought advice from any business
transfer service.

- Fourth observation: Prioritization of problems by the transferor

• (i) taxation;
• (ii) finding a successor;
• (iii) bureaucracy

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Conclusions of the strategy of the Greek pilot

1. Generation change is only one of the business transfer forms.
Therefore the Business Renewal Centre (BRC) should address this
aspect, as well.
2. Entrepreneurs prefer to transfer the business to a person closely
related. It implies that the BRC in many cases will not need to assist
in finding a successor (since the entrepreneur has already done it),
but it has to provide reliable and effective support services.
3. About half of the transferors plan to stay active in the business
after the transfer. It implies that there is an important potential of
mentoring the successors.
4. The transferors expect the successor to have higher education and
professional knowledge, and tacit knowledge of the business and
its markets is highly appreciated. It implies that the BRC must take
into account this kind of expectations when proposing successors.
It also means that the BRC should organize branch-specific training
and mentoring workshops for the transfer of tacit knowledge.
5. The biggest challenges are
a. lack of awareness of the business transfer procedures. The BRC
needs to have comprehensive information material available
and encourage awareness raising as often as possible.
b. taxation: No direct intervention from the BRC.
c. finding a successor: The BRC must improve its anticipation
strategy and encourage successors to register with the BRC e-
market place.
d. bureaucratic procedures: The BRC cannot influence them per se,
but it can help the successor with information and contacts.
e. Last but not least, there is a Best Practices Benchmark available10,
which the Greek pilot should use as a basis for its initiatives.

10 Transfer of businesses –continuity through a new beginning - Final report of the MAP
2002 project, DG Enterprise, August 2003 http://ec.europa.eu/internal_market/qualifications/regprof/
regprofs/dsp_bycountry.cfm

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Problems/challenges during the field research

1. The selection of the economic branches. The first issue to
address was which branches to focus the field research on. Evidently
the focus should be on branches with proven business transfer
problems. According to this rationale, the branches selected were
initially:
• commercial representatives
• commercial marine operators and
• customs experts.

However, it soon became clear that these are ‘closed’ professions,

regulated and controlled in such ways that the REINO services
could not be of assistance. In view of this problem, it was
decided to open up the sample to all branches.

The conclusion is that the project has not been able to help
those that needed it the most, because of the wider, institutional
problems.

2. Hesitation and lack of interest in participating in the project:

Entrepreneurs saw no reason to take part in the project; they are
not at all aware of the business transfer options, so they have
been very hesitant to join the project, even if they would only
benefit from it. To deal with this, a number of workshops were
organized (in Athens, Piraeus, and Voiotia) with entrepreneurs
and representatives of trade unions. What became clear was
that dissemination activities must be continued throughout the
project.

3. Reservation towards dealing with confidential company

issues: the interviewees were often worried about revealing
information on their businesses, and that confidential information
might reach their competitors. The EP, the UHCCI and the CCIs
repeatedly informed about the purposes and objectives of the
research.

4. Finally, good practice references and tacit understanding
were needed: There is practically no business transfer background
in Greece, and the available statistical data is insufficient for being
a reliable guidance tool.

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BASELINE ANALYSIS: BUSINESS TRANSFER OF MICRO

COMPANIES IN ITALY AND THE REGION OF VENETO

INTRODUCTION

This report aims to summarize the situation in the region of Veneto and
Italy as a whole, in terms of business transfers in general and business
transfer issues in detail (services, tools, good practices, trends).

We can anticipate that, in general, the Italian situation can be portrayed

as a “leopard skin”, because not all the regions have the same level of
improvement and, at the same time, the public and private actions are
mixed in different ways.

Crafts and Small businesses

For the REINO project, these types of businesses are very important.
In fact, the state of the production system in Veneto cannot be fully
understood without a look at the performance of the artisan companies,
which – if we exclude agriculture – account for about 40 per cent of the
production units operating in the region.

In 2006, the number of artisan enterprises operating in Veneto came close

to 147 000, recording an increase of 0.5% compared to the previous year
(almost 1 000 new companies).

In 2006, once again the increase was predominantly due to the growth
in the number of companies limited by shares. Following the boom
recorded in the three-year period 2001-03, which was a result of the
amendments and additions made to the framework law on artisan
enterprises, the number of limited companies levelled off in the two-
year period between 2004 and 2005, and increased by 18.1% in 2006,
bringing the total number to 5 192 companies.

In terms of business sectors, the artisan manufacturing businesses (over

71% of the total) showed a growth of 1.2% compared to 2005, which
is the combined result of a new downturn in the manufacturing sector
(-1.2%) and the expansion of construction companies (+3.2%). In the
service sector the number of companies showed a slight decrease; -
1.5%, which is primarily attributed to the hotel and catering industry
(-13.4%) and transportation (-4%).

The trend of the main economic indicators is an important instrument to

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understand the state of the crafts and small enterprise sector. According
to the semiannual survey by Confartigianato del Veneto, the regional
crafts association in Veneto, the resulting picture looks encouraging.
Year 2006 closed with a total increase in turnover of 0.6%, which was
especially optimistic for the manufacturing sector (+2.6%). The turnover
reflects the trends and proportions of the evolution of demand, which
grew by 0.8% overall and +2.6% in the manufacturing sector.

Employment, on the other hand, did not so well in artisan companies,

which show a contraction of 0.4% (-0.2% in 2005). Nevertheless, the
propensity to make investments was positive: after a somewhat negative
trend in 2005 (-2.6%), an increase of 1.3% was recorded over the
previous year.

Innovation and the knowledge-based economy in Veneto:

a comparison with European regions

Before the deep analysis of business transfer issues, we could consider

an interesting comparison, at a transnational level, between Veneto
and other European regions. In particular, the REINO project is focused
on renewal issues; therefore, an analysis on innovation and knowledge
transfer is important.

The conclusions of the EU Council meeting held in Lisbon in 2000

brought innovation to the limelight, setting it as a crucial objective to the
achievement of the European Union’s new strategic target of becoming,
by the year 2010, the most competitive and dynamic economy in the
world, and achieving growth while providing new and better jobs.

The European Union currently invests in research and development (R&D)

less of the GDP than its main competitors (United States and Japan)
and has, as a consequence, called upon Member States to increase
research funding and to adopt measures to encourage national private
investments. More specifically, it sets the objective of the allocation
of at least 3% of the GDP in R&D, a figure that the private sector
should contribute to by two thirds, to finance the country’s strategic
requirements in terms of research.

The indicators relating to innovation in Italy and Veneto also show a

rather large discrepancy from the targets. Nevertheless, the assessment
of the progress achieved in the European Regions and mainly in Veneto
in the field of innovation does not provide the full picture if we restrict

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our scope to public and private expenditure as a percentage of the GDP.

As a result, the scope of the paragraph below is to provide an overview
of innovation trends in Veneto and in other European regions, adding
to the information provided by Eurostat and indicating the results that
have emerged in more recent studies.

Eurostat data (updated as of 2003) enables the assessment of innovation

levels on a regional basis by making reference to the following basic
indicators:
- R&D expenditure as a % of GDP;
- the amount of R&D expenditure subsidised by the private sector;
- employees working in the field of R&D (absolute value and
percentage of total employed);
- percentage of the employed in activities in the field of science
and technology (S&T);
- percentage of the employed in S&T having a university-level
qualification and coming from science faculties;
- percentage of employees in hi-tech and knowledge-intensive
areas in manufacturing and services;
- number of applications for patents presented to the EPO in
reference to work force and type of patent.

These indicators have been used to contrast the position of Veneto with
that of the following regions: Piedmont, Lombardy, Emilia Romagna,
Tuscany, Catalonia, Baden-Württemberg, Bayern and Rhône-Alpes.

If reference is made to the ratio between the expenditure for R&D and
GDP, Veneto ranks rather below the represented European countries
(0.7% in 2003), especially if we compare the results achieved by the
German regions of Bayern and Baden-Württemberg, whose innovation
potential has already exceeded the 3% target set in Lisbon. Even the
percentage of R&D expenditure funded by the private sector is still far
from the target of two thirds of the total amount, standing as it does at
a mere 45.2%.

The number of staff employed in R&D as a percentage of total employees

once again sees Veneto lagging behind in comparison with the other
represented regions: a mere 0.7% of all employees work in R&D, while
the Italian average stands at 1.1% and the EU average at 1.5%. More
recent data (from 2005) refers to employees working in the field of
science and technology. In Veneto, 26.4% of the employees work in these
fields, enabling the region to rank only just ahead Piedmont (26.1%)

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and the Spanish region of Catalonia (23,5%). All the other represented
regions perform above the EU-25 average. It is interesting to note that
within this category of workers, in Italy graduates represent around 36%
of the total (34.9% in Veneto), while the percentage exceeds 50% in
the other European regions, with Catalonia soaring above everyone else
with 74.6%. This indicator shows that the demand for highly trained
graduates is limited, compared to the percentage of workers who attend
vocational training courses during their working life.

Examining in further detail the percentage of people employed in the

high-tech and knowledge-intensive sectors in Veneto, the figures reach
10% in manufacturing, thus exceeding not only the EU-25 average
(6.8%) and the Italian average (7.4%), but also the average percentages
recorded in Tuscany, Catalonia and Rhône-Alpes. On the other hand,
the service sector shows a clear delay in Veneto in the economy’s shift
towards the tertiary sector and in the development of advanced services:
a mere 2.7% of workers is involved in knowledge-intensive services,
leaving Veneto and Emilia Romagna trailing behind all the other regions
concerned.

When considering the number of applications for patents submitted to

the EPO in comparison to the work force, Veneto is clearly an exception
if compared to the other considered regions: indeed it is the region
that records the lowest number of patent registrations (17.5 patents per
million employees) in absolute terms and in the sectors of high-tech,
ICT, and bio-tech.

Overall, the assessment of these first indicators shows Veneto in a critical

position in terms of innovation if compared to its European counterparts.
There is no indicator that places Veneto in a position of excellence,
despite its distinction in terms of a developed economy providing high
income levels and social trends that are close to those identified in the
other considered regions.

However, when contrasted with the region’s position on the eve of the
Lisbon summit (1999), there are clear signs of encouragement for Veneto,
notably a slight progress in the field of innovation. More specifically,
compared to the considered European regions, Veneto shows increase
in the amount of R&D financed by the private sector (+2.7%), in the
percentage of human resources over the total workforce employed in
S&T (+4.8%) and the percentage of people working in high tech services
(+1%)

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In addition to the data provided by Eurostat, another useful source of

information for monitoring the rate of innovation of European economies
is supplied by the European Innovation Scoreboard (EIS), which is
drawn up yearly by the EU Commission11, describing a set of complex
indicators that are also based on Eurostat data, but which also assess
other features of the innovation process.

The latest report considers 7 indicators that are available for 203 regions
of the EU-25:
- population that attended post-secondary education (age group
25-64, year 2004);
- attendance of vocational training initiatives (age group 25-64,
year 2004);
- workers employed in medium-high/high technology
manufacturing activities (of total workforce);
- workers employed in high-technology services (of total
workforce);
- public expenditure for R&D (% of GDP);
- private expenditure for R&D (% of GDP);
- number of patent applications submitted to the EPO (per million
inhabitants).

The summary innovation index (RRSII – Revealed Regional Summary

Innovation Index12) is calculated based on the weighted average of
another two indicators: one is calculated nationally (RNSII) and the other
at European level (REUSII). The results of the assessment enable the
regions to be ranked and hierarchically grouped into clusters based on
their summary index.

Through the assessment it is also possible to identify weaker and

stronger innovation areas in each region and compare the performance
of neighbouring regions or regions belonging to the same cluster. In the
list ranking the 203 European regions, Veneto is assigned a RRSII rating
of 0.4, meaning it ranks 122nd and is positioned in the same group that
includes the Italian regions of Emilia-Romagna, Liguria, Friuli-Venezia-
Giulia, Tuscany, Umbria and Abruzzo.

11 The 2006 edition of the European Innovation Scoreboard (EIS) report was drawn up by the
Maastricht Economic Research Institute on Innovation and Technology (MERIT) and by the European
Commission’s Joint Research Centre (Institute for the Protection and Security of the Citizen). The EIS is a
tool that was developed by the European Commission as a follow-up to the Lisbon strategy, with the aim of
assessing and comparing the performance of European Union Member States in the field of innovation.

12 The method is described in full in “Hugo Hollanders - 2006 European Regional Innovation
Scoreboard (2006 RIS)

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By breaking the indicator down into its components, the main features
identified for Veneto are the relative weakness of private investments in
R&D (a problem shared by all the Italian regions, with the exception of
Piedmont and Lombardy) and the number of science graduates working
in S&T, while its strength lies in the relatively high number of science
graduates employed in the medium-high technology manufacturing
sector.

If we examine each of the 7 indicators that constitute the summary index

individually, the reasons for Veneto’s poor inclination towards science-
based innovation becomes clear. The comparison provided in table 26
shows Veneto as an innovative region compared to the Italian leaders
solely in the field of workers’ attendance of training initiatives and the
number of people employed in medium-high technology manufacturing
activities.

The latter indicator in particular shows results that exceed the European
average, while as for the remaining indicators Veneto lags behind
especially in terms of performance in private investments and R&D.

The overall assessment, in addition to the assessment of the different

innovation indicators taken individually (patents, public and private R&D
expenditure, high-tech services, medium-high technology manufacturing
industry, life-long training and science graduates working in S&T), does
not however clarify the link between economic growth and innovation in
Veneto ’s economic fabric.

If on the one hand there are concrete constraints relating to the need to
update Eurostat indicators, on the other hand the model apparently only
partly explains why Veneto manages to stand amongst the European
Regions with a per capita income of 27 385 euro (assessed on an
equal purchasing power basis), which is higher than both the EU-15
(€24 336) and the EU-25 (€22 414) averages. If innovation is taken as
an indication of an area’s economic growth, presumably there are some
specific features that characterize the region’s system that have not
been picked up or that are hard to measure, but which are essential in
drawing the full picture of innovation in Veneto’s economic system.

Much of the innovation capacity shown by companies in Veneto is achieved

by its ability to creatively adapt existing solutions to new requirements.
Another issue that can easily be used as a standard for measuring the

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innovation potential of an economic system is the availability of human

and creative resources, which cannot be picked up by a basic survey on
the workforce, since such survey will not measure the actual qualities of
workers as it usually merely reports the employment of graduate staff.

If we accept the above statement, we suggest that compared to other

European regions, Veneto has ably resorted to competitive factors that are
not included in those identified by the EIS indicators. These factors are
clearly expressed in the field of design, planning, product and process
engineering, the acquisition of patents, the assessment and inclusion of
production technologies, market surveys and communication.

In addition, there are three further issues that are essential for the
economy of Veneto: the first issue is linked to the economy’s strong drive
towards the international markets, the second relates to the presence of
production districts or clusters, while the third relates to the presence of
large industrial leaders in their respective fields of industry.

The technological spill-over effects arising from the above belittle

the importance of formal investments in R&D by the SMEs in Veneto
that can rely on a broad network of knowledge. Hence the clear need to
adjust the assessment of the Veneto’s economic capacity for innovation,
as it differs from the mainstream concept of innovation that prevails in
Europe.

In consideration of the fragmentation that characterizes its production

system and the individualistic mentality of its entrepreneurs, it is thus
essential for Veneto to learn to work in a networked system, by setting
up an open network of knowledge and relationships between enterprises,
and between the latter and the academic/research communities. This
requires the adoption of a new mindset that will provide the tools needed
to rise to the challenge of competition and where the role of cross-cutting
scientific knowledge that is shared within a given area of industry, and
the quality of human capital and technology resources will make the
difference and will enable economic players to continue to compete with
the best on the international market.

Business transfer processes

The following specific data focuses on the business transfer situation.

The common source is the Stock View – Infocamere database which
represents the official Italian register. The data portrays the situation up

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to Dec. 2006 (the most recent official data available).

Italy
At a national level there are more than 5 million companies, shared in 16
official business lines (NACE code). More than 1.1 million have operated
over 18 years: these companies are, in our opinion, potential clients for
the REINO services, because one of the first steps/goals is the increase
in general awareness. Why do we consider this kind of parameter?

In general, the European data shows that an entrepreneurial life lasts

approximately 28 years and the business transfer processes last about
8-10 years. Therefore, the analysis suggests as a starting point, that
companies that have operated at least 17-18 years should begin to
consider the business transfer process.

If we examine separate business lines, we can see that commerce/

trade, agriculture, construction sector and manufacturing altogether
account for more than 70% of the whole economy.

Legal status
Sole shareholder companies still account for over 60% of the total,
general partnership companies about 20% and limited companies only
15%. Nevertheless, if we consider the trend during the last 5-10 years,
we can note a positive increase in the number of limited companies.
This kind of legal status is more useful in regard to business transfer
processes, because the problems can be solved by modern tools.

The age of the entrepreneurs

First of all, the Stock View – Infocamere database categorizes people
according to their role in the company (i.e. owner, partner, CEO,
president, member of the board, etc; people in management positions).
At a national level there are about 8 million people working in company
management; a high percentage of them are over 50 years old, namely
42%. If we consider separate business lines, the highest number of over
50-year-olds is in commerce/trade, real estate/leasing/ICT, construction
and manufacturing. The situation is quite critical: approximately 7% are
over 70 years old.

Gender: male and female entrepreneurs

Female entrepreneurs constitute currently approx. 26% of the total.
Moreover, in some sectors (commerce/trade, hotel/catering, public
sector and social services) the proportion of female entrepreneurs is

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even higher. Concerning the average age, approximately 40% of female

entrepreneurs are over 50 years old, while the percentage amongst
male entrepreneurs is a little higher (43%).

The region of Veneto

At a regional level, there are about 460 000 companies, shared again
in 16 official business lines (NACE code). More than 110 000 have
operated over 18 years: these are the potential companies involved in
the REINO project, since the Italian partners (StudioCentroVeneto and
Unioncamere/Eurosportello del Veneto) are implementing the project at
a regional level in different phases.

If we consider separate lines of business, we can see again that

commerce/trade, agriculture, construction sector and manufacturing
altogether represent more than 70% of the whole economy.

Legal status
Sole shareholder companies still account for over 62% of the total,
general partnership companies about 20% and limited companies
only 15%. For the REINO project, these 288 000 micro companies
are the direct target, because the project focuses specifically on micro
companies.

When facing a business transfer process, the problems the micro

companies encounter with are:
- the small dimensions do not permit basic consultation services;
- knowledge is not easily transferred, because the owner has
usually built it up gradually during the years, and it has become
tacit knowledge;
- the local government sometimes does not give enough support
for this kind of companies (probably because they are not export-
oriented or opinion leaders).

The age of the entrepreneurs

At a regional level there are about 745 000 people working in company
management; a high percentage of them are over 50 years old:
approximately 42% (the same as at the national level).
If we consider separate business lines, the highest number of over 50-year
olds is again in commerce/trade, real estate/leasing/ICT, construction
and manufacturing. In general, the situation is quite critical (i.e. again
about 7% are over 70 years old).

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Gender: male and female entrepreneurs

At present, female entrepreneurs constitute approximately 25% of the
total (a little less that at the national level). Moreover, in some sectors
(commerce/trade, hotel/catering, public sector and social services)
the proportion of female entrepreneurs is even higher. Concerning the
average age, approximately 40% of female entrepreneurs are over 50
years old, while the percentage amongst male entrepreneurs is a little
higher (43%).

The district of Vicenza

Finally, we have to consider the local situation: Vicenza.
Vicenza is quite a large district and, above all, there is a high number of
companies: about 77 000 in total. Many of them are quite old: about 21
000 have operated more than 50 years. At the same time, there are more
than 130 000 people; about 43% are over 50 years old, concentrated
on the same lines of business as above.

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EXPERIENCES IN BUSINESS TRANSFERS, ANALYSIS OF

THE CURRENT STATE OF BUSINESS TRANSFERS

StudioCentroVeneto has started to analyse the business transfer

processes at the beginning of 1980’s. During these years, we have
collected a lot of information and carried out several analyses (surveys,
interviews, private client meetings, exchange of experiences with
colleagues, etc).

As a result of this long experience, we can underline the following

aspects:
- the level of entrepreneurship is very high in the region of Veneto
(1 company per 11 inhabitants);
- the agricultural sector: still has a significant role, therefore
particular rules should be considered within the business line in
regard to business transfer processes;
- In Italy the micro (<10 emp.) and small (<50 emp.) companies
are still crucial (they represent 98-99% of the total);
- Female entrepreneurship is increasing; in fact, it accounts for 50-
52% of the start-ups in the district of Vicenza, and at least 30-
32% of business transfers;
- the number of incoming workers and entrepreneurs from the EU
is rapidly increasing;
- key aspect: the Venetian clusters (about 45 at the moment) are
strongly linked to the business transfer issues;
- the level of awareness is increasing, but there is still a long way
to go;
- there is still psychological barriers, especially for senior
entrepreneurs;
- the effective way of supporting a client at the beginning of the
process is to give him/her only a general view of the problem;
- in the region/district most business transfer processes still occur
within the family (93%), but especially in the craft sector the
number of potential transfers outside the families is increasing
(for internal or external reasons);
- there are very different kinds of needs, typologies, and
expertise, as well as many operators, public or private, with
different skills;
- few real specialists at different levels;
- the market underlines a strong need for facilitators and
coordinators;
- at present, business transfer is one of the most important

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regional issues, and the region needs a systematic approach

to the issue (i.e. a good initiative that includes a transnational
exchange as well).

We can only add a recent analysis carried out on March 2007 by the
Fondazione Nordest, a development organization of the Italian North-
East region. The study indicates:
- approximately 64% of the Venetian companies are facing a
business transfer (at present and in the middle term, i.e. the
next fifty years);
- considering the risks, 85% of the company representatives stated
that “we can carry out the transfer without problems or help”
(only 15% said that the business transfer issue is difficult and
complex).

This means that the problem in the region exists but, at the same
time, there is not enough awareness, especially among senior company
founders/owners.

Finally, in terms of consultation, we can underline that:

- it is quite difficult to exchange experiences with colleagues;
- nevertheless, especially during the last 3-5 years, a number of
trainers and consultants started to regard business transfers as a
new market;
- we have to consider that there are different levels of expertise:
o the generalist (who has a general overview of the problem,
and can take care of general aspects);
o the specialist (i.e. a lawyer or a business consultant, with
specific knowledge in addition to general knowledge).

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BUSINESS TRANSFER SERVICE PROVIDERS

Government
No specific governmental/centralized services are available.
Nevertheless, owing to the Ministry of Development and Innovation
and the involvement of the National Chamber of Commerce there is
now a general and national virtual network (public/private), which was
launched two years ago. This development created a good and pro-active
environment at a national level, where many operators can interact with
and support each other.

Moreover, in Nov. 2000 the European Commission (DG Enterprise) set

up the European Expert Group on business transfers, which has two
Italian operators:
- at institutional level Unioncamere Rome (Mr Carlo Spagnoli);
- at private level StudioCentroVeneto (Mr Toni Brunello).
During these years, the two experts supported:
- continuous interaction at a national level
- a good collection of best practices
- an effective national policy on the issue.

Regional operators
- Public: some regions developed innovative and effective services
for the business transfer processes and financed pilot initiatives
(i.e. Veneto, Lombardy, Friuli Venezia Giulia, Marche, Emilia
Romagna).
- Quasi institutional/private: owing to the public initiatives, some
focused instances (i.e. special agencies, regional development
agencies, several trade associations) started to provide a wide
offer of qualified services.

Private sector
There are many types of experts and different levels of intervention
(general information, initial guidance, consultation and training):
- expert organizations, small or medium, with good and wide
experiences in the field of business transfer, that can support
the whole process (growth of awareness, research, training and
consultation) at the local/regional and national/transnational
level;
- organizations, usually medium-size, with an appreciated, but not
focused, experiences in the field of business transfer, that can
give support in some phases of the process;

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- training centres, small or medium, that have established new

services in recent years in the field of business transfer that
can support the crucial phases of awareness growth and initial
guidance;
- Banks, financial institutions and insurance companies that
provide traditional services plus some innovative approaches
(‘creative’ financial services, focused loans, etc.);
- Banks, financial institutions, brokers, separate consultants that
provide new marketplace services (how to find successors, lists
of potential transferors, databases, etc);
- Traditional business consultants (usually focused on fiscal/legal
matters) who work in small or semi-structured agencies and who
provide technical and quite personalized services;
- Free-lance operators: separate business consultants who
sometimes provide specific services (especially owing to their
previous experiences and expertise in different sectors).

Databases/online resources/initiatives/projects/books on business

succession in Italy:

Link / database / Main services for business successors/

initiatives business transfers
MARKET-PLACES
http://www. A three-year project; a business transfer
generazioneimpresa. market-place. It offers also information
com/index.html on orientation services, searching
for potential entrepreneurs, business
transfer support and assistance.
www.cn.camcom.it/Page/ A business transfer market-place
t04/view_html?idp=250 portal managed by Cuneo Handicrafts
Association. It offers information on
orientation services, searching for
potential entrepreneurs, business
transfer support and assistance
http://www. Business transfer market-place of
ricambiogenerazionale.it/ Ancona CNA - Handicrafts and small/
medium size enterprises – in the region
of Marche.
http://www. Business transfer market-place of
piazzaimpresa.it/ Confcommercio Reggio Emilia – Traders
Unions.

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generation@hk-cciaa.
bz.it
INFORMATIVE
PORTALS
http://www.cnavicenza.it
http://www.crespmi.it
www.generazionale.it
http://www.aidaf.it/
http://www.ust.it/servizi/caaf/
default.htm
http://www.abconsul.it/
archivio/cessio_c.html
PROJECTS
www.continuitadimpresa.
it
http://www.
impresacontinua.it
www.spinner.it
www.reinoproject.eu
Bolzano Chamber of Commerce offers
orientation meetings and specialized
support on business transfers.
Portal of Vicenza Handicrafts Association.
It offers a fast check on business
transfers and an online handbook on how
to assist a company during the transfer
process.
Regional service centre for small and
medium-sized industrial enterprises in
Friuli Venezia Giulia. It offers services
on business development, management,
research, and business transfers.
An online portal focused on business
transfer: links, bibliography, news on
seminars and training conferences,
questionnaires.
The Italian family business association:
information on business transfer
agreements within a family.
Districts of Cislago and Como. Offers
information for successors/heirs.
Fiscal and legal information on business
transfers.
A portal of a business transfer project
focused on the regions of Treviso and
Veneto. It aims to develop know-how
and best practices. Assists companies
concretely through screening and check-
up tools.
A portal of a business transfer project
focused on the Veneto region. It aims to
develop know-how and best practices.
A consortium that manages the Global
Funding of the ESF in the Emilia
Romagna region. Focused actions on
supporting business transfers (training
for trainers).
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http://www.apifinser.
com/
http://www.gainclub.it/
ricambio/ricambio_home.
htm
http://www.saturno.lombardia.
it/show.jsp
CONSULTANCIES
www.studiocentroveneto.
com
www.contractmanager.it
http://www.
shortconnection.com
http://www.altadirezione. A business consultancy offering business
it/CD/CD10 transfer services.
http://www.studiobarale.
it/Passaggio_
generazionale.html
http://www.
euromedfinanza.it/
A European project funded by the ESF
(2000-01) It aims to develop services/
tools to facilitate business transfer
processes in the Tuscany region.
The ESF project Emilia Romagna aims
to study and develop tools to support
female entrepreneurship and women
facing a business transfer.
A project funded by the ESF. Studied the
different phases of a transfer process.
A Lombardia region project funded by
the ESF. Focused on entrepreneurship
development: start-up, business transfer.
A business consultancy focused on
business transfer services, research,
training, and development.
A temporary manager consultancy,
specialized also in business transfers.
A business consultancy that offers
business transfer services.
A business consultancy offering business
transfer services.
Technical and fiscal information on
business transfers. Created for giving
support on venture capital, private
equity, and stock exchange.
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Existing business transfer training:

Institution Website Main content of the

trainings
www.kit.brunello.net On-line business transfer
tool. It helps to point
out the strong and weak
points of a transfer. It
has been recognized as
the first European good
practice on the issue.

CRES http://www. E-learning tool focusing

imprendero.it on increasing the
awareness on business
transfers. Offers a first
self-check.
Employment http://www. A service for people
Office Ferrara City provincia.fe.it/ interested in taking over
lavoro/passaggio_ an existing company. It
generazionale.htm is structured as follows:
orientation course +
balance of competences/
skills.

Bologna Chamber http://www. E-learning tool to develop

of Commerce a business idea.

Bologna Chamber http://www. Offers personalized

of Commerce assistance to the
company that is selling
or buying a company
through the market place.

Trento school of http://www.tsm. Training course for young

management tn.it/jsp/news/ and senior entrepreneurs
show_ddn.jsp?id_ and managing directors.
news=284

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BOCCONI http://www. Offers training for young

sdabocconi.it/home/ entrepreneurs that are
it/ taking over a family
business
SIDA srl www.sidasrl.it 2004-5 - The University
of Macerata starts the
first university course
in Italy for tutors on
business transfers,
supported by the regional
administration of Marche.
CNA VI- www.cnavicenza.it 2005-06 10-day courses
for entrepreneurs.
It gives an overview
on the fiscal, legal,
economic, planning and
organizational aspects of
a business transfer.
AAVI - Vicenza www.artigiani.vi.it 1998-06 Seminars
Handicrafts and 6-day courses
association for entrepreneurs. It
analyses the fiscal, legal,
economic, planning and
organizational aspects of
a business transfer.
IBAN www.iban.it A non-profit Business
Angels network that helps
young entrepreneurs with
a winning business idea.
Marche region www.regione. 2004 - The region funds
marche.it a course - including e-
learning sessions - to
train managers in the
region and of other
public administrations on
business transfers.
Padova Chamber www.pd.camcom.it 2004 – The Padova SI
of Commerce project. Training for the
Chamber personnel on
how to write a handbook
of business transfer.

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NATIONAL FRAME OF REFERENCE

Financing
At the moment, in Italy there are no specific services/funds for business
transfer processes. In general, banks offer traditional services to the
SMEs; only some financial institutions have started pilot initiatives (e.g.
marketplace databases, innovative loans).

Taxation
At the moment, in Italy there are no specific fiscal laws for business
transfer processes, with one exception: in Oct. 2002 the Government
abolished the inheritance and gift taxes. The new government has
reintroduced a light taxation policy (depending on the typology of the
goods and on the level of family relationship).

Legislation
In general, at a national or regional level there are no specific laws
for business transfer processes, with one exception: the Veneto region
approved, in March 2005, a draft law, which is still the first of its kind
at a European level.
In synthesis, the draft law consisted of two parts:
• Observatory, i.e. a regional renewal centre, in which data,
experiences, tools and initiatives are collected, and always up-to-
date.
• Measures for MSMEs, i.e. support services for companies, in term
of financial aid.

Best practices
See the list of projects and initiatives above.

Concerning legislation in particular, here is a list of some pilot experiences

(regional laws or systematic actions at regional level):

LAW CONTENT REGION

Abolition of By 2006: complete abolition Italy. Ministry
inheritance of inheritance and gift taxes. of Economy and
and gift taxes At the moment it is under Finance.
revision.

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Veneto The Veneto region in Italy is www.regione.

Regional Draft in the process of creating an veneto.it
Law Italian business transfer centre Direzione
which would collect data, Industria
provide training and tools. Corso del Popolo,
The draft law is unanimously 14
approved. 30172 Mestre
(Ve)
Support when Contribution to partners, family Friuli Venezia
taking over employees, and employees of Giulia
an existing at least two years for taking www.regione.fvg.
company over an existing company. it

Voucher: Promoting and developing www.saturno.

Saturno entrepreneurship in the lombardia.it/
Lombardia Lombardia region through a
region system network. There are
vouchers on training and
planning for companies facing
a business transfer.

Agricultural For the agricultural sector. Free Sardegna region

Law 135/97 grants, loans on easy terms to www.regione.
improve agricultural activities. sardegna.it

Funding Funding for female National level

for female entrepreneurs. Free grants,
entrepreneurs. loans on easy terms

Funding Funding for young National level

for young entrepreneurs.
entrepreneurs. Free grants, loans on easy
terms

Honour Loan Honour Loans for micro- National level

companies, franchising
companies, and freelancers
Help for young Help for young entrepreneurs National level
entrepreneurs that are setting up a company
in the service sector. Only for
objective 2 areas.

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CONCLUSIONS

This report gave an overview of the business transfer situation, at the

national and regional level (Veneto). Owing to this data, now we can
continue the project with a better view on the problem, and plan the
next phases in a more effective way.

Sources of information:
- the Stock View – Infocamere database (most recent data from
Dec. 2006);
- Istat (national statistical institute) database;
- Own research and surveys;
- Data collected on the Internet.

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REINO - a proactive stance to business transfers

At the end of 2006 project REINO (Renewal and Innovation to Business

Transfer of Micro Companies) was launched to improve the conditions
for implementing business transfers of micro companies.
The objective is to create a support structure that assists entrepreneurs
in carrying out business transfers effectively. During the two-year long
project partners in Denmark, Greece, Finland, and Italy will map out
and test the implementation of support services in different stages of
the business transfer process.

REINO aims to

• Generate lasting solutions to assist micro companies in

accomplishing business transfers successfully now and in the
future.
• Develop new tools and methods through pilot projects to tackle
the specific challenges of business transfers and give advice to
entrepreneurs about transfer processes.
• Increase awareness among entrepreneurs and stakeholders of
the significance of preparation in business transfer situations;
successfully finalised transfer processes may take as long as five
years.
• Encourage entrepreneurs to start planning well in advance and
to see business transfer as a possibility of renewal and continuity
instead of a threat.
• Safeguard viable companies, jobs, services, and priceless know-
how through its proactive stance.

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