Many economically sound SMEs disappear every year as a result of insurmountable difficulties in transferring ownership, due partly to human and financial factors but also to inappropriate legislation. This situation accounts for some 10% of petitions for bankruptcy in the Community, threatening at least 30,000 enterprises and 300,000 jobs each year. Family-run businesses and partnerships are at particular risk. Following consultations with experts, the Commission considers that efforts are needed throughout the Community to help resolve this problem. Therefore, it has adopted a recommendation that sets out a number of principles and methods which will help to eliminate the main obstacles to the successful transfer of businesses. The Member States are requested to take the most appropriate measures to adjust their respective legal systems in line with the Commission's recommendation. Firstly, action needs to be taken to make business owners more aware of the problem, in particular those approaching retirement, so that they can prepare for transfer in good time. Secondly, and even more importantly, Member States must improve the legal, fiscal and administrative environment to facilitate transfers, in particular to: - Enable an enterprise to change its legal form to one more appropriate for preparing a transfer, without having to go through the cumbersome process of winding up the original entity; - Adjust fiscal procedures to ensure that these do not hamper the adoption of a new legal form and apply the principle of fiscal neutrality to all operations conducted in preparation for the transfer; - Ensure that legislation enables partnerships and sole proprietorships to continue as going concerns in the event of a death and that the business can be continued where one partner or heir does not wish to participate but others do; - Adapt inheritance or gift taxes to ensure successful transfers to other family members through a reduction or deferral of the tax burden; - Adjust tax arrangements to enable the sale of family businesses, where there is no likely successor, in particular to encourage transfers to employees. In view of the widely differing legal and factual situations prevailing in the Member States, the Commission has adopted the non-compulsory approach of a recommendation to resolve these problems. The Commission has requested the Member States to exchange experience on their efforts to follow its recommendation. It has also published a background paper in the form of a communication.