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How to consolidate or establish a family business?

Consolidating or forming a family business requires not only business expertise, but also a good degree of legal foresight. There are many vicissitudes that can affect this type of company, so proper planning can become the clan's best ally when it comes to guaranteeing the prosperity of the business and the retention of its control.

The constitution of the family business

Generally, family businesses begin their adventure in the form of the individual entrepreneur. That is, the self-employed or self-employed worker. This usually has the support of other members of the family, who normally fall into the category of self-employed collaborator.

At the moment in which the activity begins to consolidate, it is common to consider the constitution of a company. As the lawyers specializing in corporate law comment, the first step is to choose the appropriate social form for the project.

We talked about the incorporation of companies in Spain in a recent article, which we recommend reading. In any case, almost 99% of family businesses tend to choose the limited liability company form.

Making this decision requires professional guidance, since the chosen legal form will largely determine the fate of the company. In addition, paradoxically there are figures that could be more suitable for family projects, such as limited partnerships.

In any case, once the family business is constituted, the individual self-employed or collaborators will become corporate self-employed. Your tax regime will change, as well as your tax and accounting obligations, which will be those of the selected legal form.

Family business planning

This initial moment (the moment of constitution or consolidation of the company) is the ideal one to implement a family protocol. Family protocols are documents that implement the corporate culture and organization in these types of societies.

Given the existing kinship ties between the partners, family protocols generally extend to issues pertaining to their private lives. For example, your matrimonial property regime or your succession decisions. 

Given that these issues are regulated by Civil Law, which is sometimes imperative, family protocol tends to have a para-social character. That is, in general it is applicable between the signing parties, as would be any other contract, but:

  • It is not usually enforceable against third parties or against society itself. This would require your publicity, which is not always possible or recommended. The truth is that there are different ways of advertising these instruments. The least formal is its publication on the company's website, provided that its domain has been registered in the Mercantile Registry. Its registration in the Registry, the annotation of its existence or the deposit with the annual accounts is also admitted. But, given their nature, most of the family protocols would not pass the Registrar's legality control, which would prevent them from full access and, therefore, that the registration would produce the effects of the Registry.
  • It contains clauses that will not be formally enforceable. For example, those that contravene imperative law or those that have a merely illustrative content. We can think of those that require a will in a certain sense or that impose a matrimonial property regime (generally the separation of assets).

Relevant instruments 

In addition to family protocol, marriage agreements and the testament are of special relevance. Planning them properly will avoid problems in the event of a breakup or death. 

As we have already indicated, family protocol cannot dictate much in these respects. But it is frequent that it includes commitments, the fulfillment of which will end depending on the signer.

In any case, the fact that the shares in the family partnership are of a community nature may generate controversies in the face of a change in the matrimonial property regime. It will undoubtedly complicate the liquidation of the community property, in addition to imposing certain restrictions on the decision-making and / or management capacity of the partner spouse. 

In the same way, leaving the fate of the participation package to the intestate distribution that regulates the Civil Code can cause serious governance problems in the company. Not to mention the potential dissolution of its control, which could involve the entry of third parties outside the family.

Finally, the Bylaws deserve our attention. Especially if we consider that the effectiveness of some of the clauses of the protocol (particularly those that affect the composition and organization of the Governing Bodies) will require their incorporation into the Statutes to be legally enforceable.

The family protocols 

As a complement and guiding guide to the instruments already mentioned, the family protocol can establish precautions that will guarantee that the family retains control of the company and that the generational change is orderly and responds to common interests.

For example, it can establish limitations on the transferability of shares or the voting rights of the partners, as well as preferential acquisition, separation or exclusion rights. You can also determine the entry regime as a partner, administrator, worker or service provider and the applicable disciplinary and remuneration systems.

This set of measures will help complement the provisions of the Capital Companies Law and the Company's Bylaws to facilitate its governance and transmission. Although it is true that they will have to combine disparate elements, typical of Civil, Commercial and Tax Law (at least), it is also true that the advice of an office with experience in the sector will help to establish an adequate, effective and oriented package of measures. to the prosperity of the family business.

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