The Community of Madrid recently announced a Family Business Support Act. At Confianz, after years of advising on succession processes and seeing how many viable companies fell by the wayside, we believe that this regulation comes at just the right time. But beyond the headlines, what does it really mean for your family business? Let’s analyse it from our experience in the field.
The figures that explain why urgent action was needed
There are 450,000 family businesses in Madrid. They represent 93% of the region’s entire business fabric, generate 65% of GDP and employ 60% of private sector employees. If you work in Madrid, you most likely work for a family business or with a family business as a client or supplier.
But there is one fact that keeps us awake at night as advisors, and that is that only 33% of family businesses survive into the second generation, and barely 15% make it to the third. We are not talking about unviable or poorly managed businesses. We are talking about profitable companies that disappear due to tax problems, poorly managed family conflicts or a lack of succession planning.
Every month at Confianz, we see cases of solvent companies that are forced to sell or close because the tax bill for succession is impossible to bear without decapitalising the business. We have seen siblings at odds due to a lack of prior agreements, children who do not want to continue the business without a plan B, and entrepreneurs who postpone succession until it is too late.
What really changes with this law
1. Taxation: less pressure where it hurts most
Inheritance tax has historically been the great enemy of business continuity. Inheriting a business should not mean having to sell it to pay taxes, but that has been the reality for many families.
What changes now:
- Reduction from 95% to 99% in the tax base for inheritance and gift tax
- Extension of the 95% allowance to uncles and nephews, with no conditions regarding the existence of a spouse or descendants
- Expansion of the concept of a family business to include uncles and nephews in the required 20% shareholding
What does this mean in practice? Let me give you an example: a company valued at €2 million that is passed on from parents to children paid, with the 95% allowance, around €100,000 in taxes. With the new 99% rebate, that figure is reduced to €20,000. It is the difference between being able to take over the business or having to seek external financing that compromises the business.
For nephews and nieces who inherit the business from an uncle with no descendants, the change is even more dramatic. Until now, the tax burden was much higher. With the new regulations, it is practically the same as for direct descendants.
2. Succession without a family replacement
One of the most complex problems we deal with at Confianz is when the founder wants to retire but none of their children want to or are able to continue the business. The company is viable, it has a team, customers, structure… but it has no future due to a lack of a successor.
The solution proposed by the law: A platform that will connect companies without generational succession with external professionals interested in continuing the business. It is an innovative concept that already works in other countries: the institutionally facilitated «management buyout».
Our experience: We have managed cases where a trusted manager or even a competitor could have continued the business, but the lack of financing, ignorance of options or simply the absence of a framework to facilitate the process made it impossible. This platform could be the missing link.
3. Family mediation
This is where one of the most sensitive aspects comes in: the family.
What the law provides: A specialised public family mediation service. This is not family therapy, but professional mediation focused on finding business solutions that respect family dynamics.
Why it is important: In our experience, 70% of inheritance disputes are not really about money, but about recognition, perception of justice or lack of communication. A professional mediator can avoid years of litigation that destroy both the business and the family.
4. Professionalisation
Many family businesses operate with informal structures that worked when they were small but become a burden as they grow. Lack of protocols, absence of professionalised governing bodies, confusion between family and business assets…
The aid provided:
- Grants to hire consultants specialising in succession processes
- Funding for training specific profiles
- Support for modernisation and digitalisation plans
Our recommendation: Take advantage of this aid before it becomes urgent. A family protocol cannot be drawn up in three months when the founder is 75 years old and has health problems. It takes time, consensus and a vision for the future.
5. Funding for growth
The average size of Spanish companies is one of the major constraints on competitiveness. Many family businesses could grow, but the leap requires investment, and traditional investment (sale of shares, injection of funds) clashes with the desire to maintain family control.
What the law offers: Specific lines of credit for the acquisition of productive assets, land or strategic investments.
Where we see it as critical: Companies that need to make the leap to automation, internationalisation or digitalisation but do not want to take on debt under market conditions or dilute their capital. These lines of credit may be the necessary push.
What the law does not solve
Let’s be clear: no law, however good it may be, can replace planning. In our office, we constantly see the same mistakes:
- Postponing the conversation about succession «We’ll talk about it when the time comes» is the most expensive phrase in a family business. Succession is planned 5-10 years in advance, not when the founder turns 70.
- Not having a family protocol Only 15% of Spanish family businesses have a protocol. It’s like driving without a seatbelt: as long as nothing happens, nothing happens. But when it does…
- Confusing family and business roles Being a child does not automatically make you the best CEO. Being the founder does not mean you should continue to make all the decisions at 75.
- Not professionalising governance Boards of directors where everyone is family, with no independent directors, no specialised committees, no performance evaluation… It’s a recipe for stagnation.
- Ignoring key non-family members That financial director who has been there for 20 years, that salesperson who brings in 40% of the turnover, that production manager who knows every process… If they are not in the succession plan, they will leave when you need them most.
The family business seal
The law provides for the creation of a distinctive seal for family businesses. It may seem anecdotal, but it is not. Identifying yourself as a family business can be an important commercial asset.
Think about it: when you choose a supplier, do you prefer a company with three generations of experience and local roots, or one that may close its British branch tomorrow if the next quarter’s figures are not up to scratch? Customers are increasingly thinking the same way.
The opportunity of the decade
This law comes at a critical moment. The founders of the business boom of the 1980s and 1990s are reaching retirement age. It is the largest generational transfer of wealth and business control in Spain’s recent history.
According to ADEFAM, with just €2.5 million in public investment, this legislation could mobilise between €20 million and €45 million in private investment in the first year, preserve between 15,000 and 45,000 jobs, and facilitate the creation or modernisation of up to 1,200 family businesses.
But these figures will only become a reality if family businesses actively take advantage of them. It is not enough for the law to exist. It is necessary to plan, act and, above all, start now.
As you know, at Confianz we have been helping family businesses with succession, optimising their taxation and professionalising their operations for years. This law opens up opportunities that did not exist before, but only for those who know how to take advantage of them.
If your family business is in Madrid, if you are thinking about succession, if you want to optimise your tax structure or simply want to know how these changes affect you, let’s talk. Because the best legacy you can leave is not only a profitable business, but a business that is prepared to last.
The law puts the tools on the table. Now it’s time to use them well.
Would you like to know how this law affects your family business? Contact our team of family business specialists.