Death of a Founder: Companies Face Immediate Paralysis – How to Prevent It
Originally published on HirTV/Origo – read here
According to professional estimates, approximately 145,000 companies will be affected by succession over the next ten years. These businesses account for roughly a quarter of the Hungarian workforce. Csaba Karaszi, Managing Director of Duna Capital, highlighted: if the owner dies as the sole Managing Director, the company is immediately left without legal representation, as the executive directorship terminates upon death and cannot be inherited. This creates a legal vacuum: there is no one authorized to sign contracts, process wire transfers, or submit regulatory financial statements. During the months-long probate proceedings, the business can become inoperable, potentially leading to the revocation of its tax number and the complete collapse of the enterprise.
What happens if the business owner does not return home at night? Most Hungarian entrepreneurs prefer not to discuss this question, even though the livelihoods of not just a family, but dozens of employees often depend on it.
Generation Change: 145,000 Companies in the Next Ten Years
The founders of SMEs established in the 1990s—typically generating HUF 1–10 billion in revenue today—are now reaching the age where succession or a company sale becomes inevitable, yet conscious preparation is overwhelmingly absent. According to professional estimates, approximately 145,000 companies will be involved in succession in some form over the next decade. These businesses account for roughly a quarter of the Hungarian workforce, yet only about 30 percent of family businesses survive into the second generation, and barely 12 percent reach the third.
"In Hungary, succession readiness among businesses is extremely weak; we lag severely behind Western, German-speaking markets," says Csaba Karaszi, Managing Director of Duna Capital. "Most owners have poured decades of work into their company and view it as their own child, making it incredibly difficult to let go. This is understandable, but it carries immense risk: if something happens to them today, tomorrow there may be no one left authorized to sign."
Legal Vacuum Upon Death
The drama often unfolds not during the first days of grieving, but at the first operational deadlines. In legal terms, the office of the Managing Director terminates immediately upon death and cannot be inherited. If the owner was the sole Managing Director and signatory, the company is left without legal representation overnight: there is no one to execute contracts, process bank transfers, issue invoices, or submit financial statements to regulatory authorities. Probate proceedings can drag on for months, while deadlines for the tax authority (NAV) and the Court of Registration do not pause.
"We had a client where the breadwinning father passed away suddenly in April, and as the sole Managing Director, no other signatory was left behind," recalls Csaba Karaszi. "The company could not submit its annual report by the end of May because there was simply no authorized signatory. Although the family tried to appoint an ad litem representative, the tax authority was unmoved; the tax number was revoked, and a stable, dividend-generating business worth billions of forints built over decades of hard work fell apart practically overnight. A single unmade decision altered the lives of dozens of families."
The Cost of Procrastination: Lost Billions and Human Tragedies
Lack of preparation causes not only legal chaos, but deeply human tragedies. Years ago, an 80-year-old company founder could have sold his business at a premium in an ideal market environment, navigated the entire negotiation process, but ultimately failed to sign the Sale and Purchase Agreement. Since then, a series of economic crises hit, business volume declined, and today the company is worth roughly half of what it was back then—while the founder still works every day, and her daughter has already retired from the firm that her mother continues to manage personally to this day.
In another instance, a 54-year-old, constantly overworked executive suffered a fatal stroke: while he was open to succession discussions, daily operational emergencies always took precedence.
"His wife was left with a corporate portfolio worth over ten billion forints, which, due to a lack of preparation, she simply had no idea how to manage," says Csaba Karaszi. "Often, the most expensive decision is the one we fail to make on time. When one chooses to just keep pushing through, hoping things will sort themselves out, they fail to realize that time is working against them: company value deteriorates, personal risk escalates, and ultimately, their family and employees pay the price."
Chaos Is Avoidable If We Start Talking In Time
Most tragic scenarios could be avoided if business leaders began planning their retirement years in advance. This can include appointing a second Managing Director with corporate representation rights, separating operational activities from real estate and high-value assets into distinct legal entities, obtaining an objective business valuation, or utilizing structural legal solutions such as trust asset management (fiduciary asset management) structures or key person insurance.
"Preparation always starts with the owner finally confronting the core question: what is the company actually worth?" emphasizes Csaba Karaszi. "Most company leaders have no idea. Once an objective valuation is in hand, one can evaluate whether that figure meets the emotional threshold where they can envision a sale, a generation change, or bringing in professional external management."
"A good advisor plants seeds: their job is not to draft a contract the next morning, but to initiate dialogue within the family. We cannot avoid death, but we can avoid chaos—however, to do so, we must start talking in time."
Cover photo: Csaba Karaszi