Confianz

Etiqueta: empresa familiar

  • How to organise succession in the family business: family protocol, family pacts and succession pacts

    The moment of succession is one of the most critical for family businesses. It involves complex legal, fiscal and emotional variables that make it difficult to plan this process and can endanger the very continuity of the business.

    Providing for an orderly generational handover not only at the top of the company, but also in all key positions, greatly improves the functioning of the company and family harmony. In short, it lays the foundations for a long-term common project.

    There are different legal instruments that make it possible to organise succession, to foresee the future organisation of the company and to avoid, as far as possible, family conflicts. On this occasion, we will talk about three of them: the family protocol, family pacts and succession pacts. Let’s get started.  

    The family protocol is the most popular instrument for succession planning in the family business

    The family protocol is a private contract in which the family reaches a consensus and establishes in writing the regulations governing the professional and economic relations between the members of the family and the company. Its ultimate aim is to ensure the continuity of the company, and it can include in its wording as many assumptions as the family council wishes. Including the generational transition plan is one of the most common possibilities.

    The family protocol is the fruit of deep family reflection, and one of its great challenges is to align the vision of the different generations. This is a private pact tailored to each business family that legally binds its signatories. It is also possible to publicise it and even establish compliance with it as an ancillary provision in the articles of association. This clause would make it possible to exclude from the company any partner who breaches the family protocol.

    Family pacts, an option for smaller companies

    For smaller family businesses with a less complex structure, it is possible to regulate succession by means of family pacts.

    The family pact is a private agreement just like the family protocol. However, its scope is much more limited and focuses on regulating concrete, real and immediate concerns of the family. However, each pact serves to mark out how the family will act in the future, in the face of new difficulties that may arise later on.

    Inheritance agreements, only in some Autonomous Communities

    Here we are already dealing with a specific instrument of inheritance law, designed exclusively to organise generational succession in the family business. However, the use of succession agreements is much more limited because they are only permitted in some territories with their own civil law, such as Bizkaia, Navarre, Catalonia, Aragon, the Balearic Islands and Galicia.

    Inheritance agreements make it possible to designate the successors to the family business and to organise the fate of the family assets in a binding manner to the same extent as a will. The major difference between succession agreements and wills is that succession agreements are in principle irrevocable. They can only be terminated by agreement of all the signatories or in accordance with certain very limited exceptions provided for by law. A will, on the other hand, can be modified or revoked unilaterally as often as the testator wishes.

    Conclusions

    As mentioned at the beginning of the article, these are only three of the legal instruments that can be used to arrange the succession of a family business. Some founders of family businesses plan the future of their estate by means of a standard will, although this is not the optimal choice.

    Each option has its pros and cons, and it is very important to choose the one that best suits the particularities of each company. At Confianz we are specialists in advising family businesses and we can accompany you in this process.

  • How to manage the departure of a partner in the family business

    Every company sooner or later faces the departure of a partner. And it does not necessarily have to be the consequence of a major disagreement in the decisions of the board of directors or the family council. Sometimes it may be due to a change of opinion about the viability of the business in a new socio-economic environment or simply personal reasons. In family businesses, a partner may want to leave simply because his or her professional vocation leads him or her to sectors far removed from the one in which the family business operates.

    The exit of a partner is part of the life cycle of any company and does not have to be a conflict. However, it is true that exit processes in family businesses are often complicated. In this type of company, the exit process is orderly in only around 50% of cases. In 25% of the cases, the exit has to overcome a more or less conflictive negotiation. And in 25% of cases, the partner who wishes to leave the family business does not even manage to do so.

    Better to be safe: the procedure for the departure of a partner in the family protocol

    For this reason, it is best for the family business to make provision in the company documents and family protocols for what to do in the event of a partner’s departure. Thus, there should be orderly, clear and balanced procedures for conflict resolution and liquidation of shares or holdings. The priority should be to conduct any possible exit process in an amicable manner, preserving the value of the family business and the relationships between people.

    At the other extreme, the family protocol should not contain excessively rigid clauses that prevent partners from leaving or use the dominant position of the majority to force the minority partner to sell his or her shares at too low a price. These are relatively common situations in family businesses. Because from their very conception, their fundamental objective is to keep ownership in the hands of family members. Many family protocols restrict the free transferability of shares and stockholdings in order to avoid the dispersion of capital in the hands of third parties. And yet, at one time or another, all family businesses have to face the departure of one of their partners.

    When one of the family partners expresses a desire to leave the company, an empathetic effort must be made on both sides to reach a win-win outcome.

    The mission of the family protocol is to guarantee a future for the company in which all family members participate. Although it may seem counter-intuitive, it is the best way to ensure the future of the family business. Because if a fair remuneration for the shares is foreseen, conflicts are avoided and the company’s viability is not jeopardised.

    How to value the shares of the outgoing shareholder

    In addition, it should be remembered that the right of separation guarantees the right of shareholders to voluntarily terminate their relationship with the company and to be reimbursed for their shares.

    Reaching an understanding on the valuation of the shares of the partner leaving the company is difficult. This is because tangible and intangible assets of a going concern are involved in the valuation. If the parties do not reach an agreement on the fair value of these shares, the Commercial Register will appoint an external auditor to clarify this.

    If you want to draw up a protocol for your family business that foresees all aspects of the possible departure of a partner in a non-traumatic way, Confianz can help you.

  • What are the tax benefits for family businesses?

    The family business is an institution in Spain. It is estimated that up to 1.1 million Spanish companies are family businesses, which represents a staggering 89% of the total. In addition to being the majority in total numbers, they also account for 57.1% of private sector GDP and are responsible for 67% of private jobs, with almost 7 million jobs. That is why they enjoy some tax benefits.

    Globally, family businesses are the organisations with the highest turnover and job creation. In the European Union alone, it is estimated that there are 14 million family businesses generating more than 60 million private sector jobs.

    The family business in the legal system

    Despite this obvious importance for the economy, there is no express recognition of family businesses in the Spanish legal system. However, we do find references to this type of company in certain tax regulations that reserve certain advantages for them. We will review them in this article.

    Wealth Tax 

    Family businesses benefit from some tax advantages in the Wealth Tax. To do so, they must meet certain requirements:

    • To dispose of 5% of the company’s capital individually, or 20% jointly by the family group.
    • A member of the family is involved in its management and the remuneration for this work represents at least 50% of his or her total business, professional and personal income.

    If these requirements are met and the entities are not merely holding assets, the shares held in these family companies are exempt from Wealth Tax.

    Likewise, the assets and rights common to both members of the couple are exempt, when they are used in the development of the business or professional activity.

    Inheritance and Gift Tax 

    Inheritance and Gift Tax also establishes state reductions in the case of inheritances or gifts of shares in family businesses. In this case, as the tax is devolved to the Autonomous Communities, it is necessary to review each specific case because there are also autonomous reductions.

    The transfer by inheritance or donation of family businesses enjoys a 95% reduction in Inheritance and Gift Tax. The requirements for this are:

    • The company must carry out an economic activity. In the case of holding companies, those that have the personal and material means to manage their holdings are considered to be carrying out an economic activity. In the case of companies that lease real estate, it is advisable for them to have at least one full-time employee, provided that the number of properties leased and the difficulty of their management justify it.
    • As we have seen in the case of Wealth Tax, the shareholding of the owner in the transferred entity must be at least 5% computed on an individual basis, or 20% at the level of the family group.
    • As in the case of wealth tax, the transferor or one of the members of the family group must exercise management functions and receive remuneration representing more than 50% of his or her business, professional and employment income.
    • The acquirer must keep the shares for between five and ten years, depending on the autonomous community. Only in the case of inheritances can they sell them and use the money received to open a fixed-term deposit, buy another company or invest in investment funds without losing the bonus. However, if you sell them and use up the money received, you will have to repay the tax credit you have received.

    The specific taxation of family businesses and the differences between autonomous communities make it highly advisable to establish tax strategies for the transfer of the company, succession or entry into the management and governance of the company. Professional advice from a consultancy firm specialising in family businesses such as Confianz is essential.