What are the Social Statutes of a family business like?

The Bylaws of a family business, from a corporate law perspective, should not differ too much from those of any other company. However, if we pay attention to the reality and specific needs of this type of organization, it is convenient to highlight some forecasts that will guarantee the prosperity of the project.

Go ahead that throughout this article we will focus on the Statutes of limited liability companies, which turns out to be the preferred legal form of family businesses. However, what has been said will be largely applicable to Public Limited Companies, with the differences arising from the Capital Companies Law and other applicable regulations.

The importance of the Statutes in the life of society

The Bylaws are the cornerstone of the regulation of any company. So much so that the company may not be incorporated without having previously drafted this instrument.

Together with the Capital Companies Law, it is the tool that disciplines the operation of the company. In fact, this standard imposes a mandatory minimum content on them, which includes:

1.- The name of the company.

2.- Its corporate purpose, in addition to the activities that comprise it.

3.- Your registered office.

4.- The capital stock, indicating the participations or shares into which it is divided. Regarding these titles, both their nominal value and their correlative numbering must be indicated. Note that the rights of the partners of a capital company are proportional to their participation in the capital stock of the same. However, through the Statutes an inequality of rights can be established. This is useful, for example, to economically privilege some holdings in exchange for reducing their political weight, which would allow third-party investors to enter the family business if it needs liquidity without thereby putting control in the hands of the family.

5.- The mode or modes of organizing the administration of the company, as well as the form of deliberation and adoption of resolutions by its collegiate bodies. 

In short, if the Capital Companies Law establishes the general regime applicable to these, the Bylaws specify the specific operating system of each company.

As our specialist business lawyers in Barcelona comment, its effectiveness is such that its non-compliance would enable the adoption of some of the protection actions included in the corporate regulation. Among them, the challenge of agreements, demand of responsibilities or cancellation of transfer of shares.

Particular comment: The Statutes in the family business 

Family businesses face particular challenges, including: 

1.- Business continuity in the hands of the family. This means that, at least, the majority share package must remain under the control of the family members. Therefore, it will be necessary to apply certain restrictions to its transmission, which by nature are more typical of a personalist society than a capitalist one.

2.- The coordination of social and family interests. Generally, family businesses not only ensure the prosperity of the business, but also that of the partners and their relatives. This can lead to conflict situations. For example, when a family advisory body tries to give instructions to administrators, when management positions are assumed by family members or when family members are hired. These elements generate conflicts around the appointment and remuneration regime, which can be tackled by means of the Statutes and shareholders' agreements such as the family protocol.

Some of the most relevant aspects to consider in the Statutes of a family business are analyzed below.

Members' rights

By nature, the rights of the members of a capitalist company should be proportional to their participation in the capital stock. But, as we have indicated, the Capital Companies Law allows adjusting this system.

Which is positive in the case of family businesses, where it is common to find up to three profiles of those involved. In the first place, those who are firmly involved in the project and are dedicated to its management and administration. Secondly, those who participate in it by providing services (whether under a labor or commercial regime) but are not partners or have little participation or interest in the management of the company. And, thirdly, those who hold shares, but are not interested in the management of the company or its activity. 

As will be understood, combining these profiles raises at least two problems. The first of them is the one related to the value to be attributed to income from work compared to income from capital. And the second is related to the control capacity that each of these profiles must have.

For this reason, the Statutes of the family business should provide for these potential conflicts early. To avoid them, they can associate different rights to each participation, modify the requirement of ownership of a certain number of votes to exercise rights, calibrate the right to quota in case of liquidation ...

Regarding the rights associated with participation, it should be noted that non-voting shares can be issued up to half of the share capital. These will allow the entry of third parties (investors, key executives ...) without losing control of the company.

Transfer of shares

The Bylaws may also impose limitations on the transfer of shares. These are conducted mainly through the establishment of preferential acquisition rights and the management of treasury shares. Other limitations are also admissible, such as the requirement that the company authorize the transmissions. Lastly, it is possible to use drag or support clauses to maintain an adequate profile in the ownership of shares, which guarantees the family control of the company.

To prevent the blocking of the company, rights of exclusion or separation may be included. However, these cannot prejudice the mandatory regime of the Capital Companies Law.

Corporate bodies 

Finally, the Bylaws are the appropriate instrument to configure the corporate bodies. These are mainly the General Meeting and the Administrative Body, although family bodies can also be created. 

Although the possibilities of the Bylaws are limited in this sense, the truth is that they have a certain margin to vary the competence regime, that of convocation, that of decision-making ... Here the clauses that affect the composition of the corporate bodies will be particularly important, their duties and responsibilities and their remuneration system.

Although the length of the article does not allow us to delve further into the subject, we hope that we have demonstrated the importance of the Statutes of a family business and the complexity of drafting a forward-looking and effective instrument for the company. So, we can only recommend that family businesses in the process of constitution or statutory modification seek the assistance of specialists in Corporate Law when preparing these instruments, critical for their future.

Contact us, and our lawyers specializing in business law will study your specific case. We Have:

Law firm in Barcelona
Law firm in Madrid
Law firm in Reus