Germany's highest court ruled on Wednesday a law allowing family-run companies to hand over their assets free of estate tax was unconstitutional, and asked the legislature to make an amendment by mid-2016.

The Federal Constitutional Court in Karlsruhe said the 2009 law ensured small and medium-sized enterprises (SMEs) to secure their position and maintain employment at their succession, but was disproportionate if the exemption extended to big enterprises without necessary tests for economic justification.

Under the current law, Germans can inherit company assets with a partial or even complete exemption of estate tax if they keep the business for several years and maintain employment.

According to the court, German government collected inheritance taxes of nearly 4.3 billion euros (about 5.3 billion US dollars) in 2012, while exemptions granted to companies stood at about 40 billion euros.

The court said current regulation could apply until 30 June, 2016, after which an amendment must be made.

Several business lobbyist expressed their concerns on the ruling, warning that German SMEs, most of which were family-owned, would be forced to reduce investments without the tax break.

The German Association for Small and Medium-sized Businesses (BVMW) said the ruling threatened the survival of 90 percent of the 3.6 million SMEs in Germany.

"The SMEs need a reliable framework for securing business succession and thus hundreds of thousands of jobs," BVMW President Mario Ohoven said in a statement.

According to the association, SMEs make up over 99 percent of all businesses in Germany paying sales tax, creating 70 percent of the jobs and developing 75 percent of all patents and innovations.

A survey by Federation of German Industries (BDI) found that 64 percent of SMEs saw their companies at a serious risk without the inheritance tax relief rules, and 48 percent of SMEs would be compelled to reduce employment.

"The government must now keep their promise to continue to allow the generation change in family business. Anything else would risk investments and jobs," said Ulrich Grillo, president of BDI.

German Finance Ministry said after the ruling it would invite federal states at the start of next year to discuss future procedure for the legal change. Federal government would stick to its maxim of no increase in overall economic burden.