In the family business it is usual and suitable to establish mechanisms that allow regulating the succession of the family business, the government and management of the family business. When the death of one of the partners of the family entity occurs, necessarily the shares or social participations that he held pass to his heirs. Consequently, the settlements of inheritance that are adopted within the business family, and that regulate the transfer mortis causa of the ownership of the share capital, will play an essential role for the maintenance of the family business as such.
The family business encounters a great difficulty, consisting of the rigidity of the bylaws, which leaves little freedom of movement. The mechanism used to solve this problem has been the signing of private agreements between the different members of the family, commonly known as family protocols. Broadly, they can be defined as a commitment acquired by the partners of the family business with a view to its continuity and to guarantee its legacy to future generations.
The family protocol will help:
- The agreements reached within the Protocol, on critical issues for the company and people, contribute to the union and cohesion of the family group, forming it as a team.
- The setting of requirements and levels of demand in the performance of the functions raises the professionalism of the management of the family business.
- The existence of clear and defined rules of the game promotes equity and the recognition of merit, in addition to excluding the possibility of possible conflicts caused by comparative grievances or ambiguous situations.
In this sense, the protocol’s recommendations are aimed at avoiding the fragmentation of the company and favoring its continuity within the family. Therefore, family protocol may limit, to some extent, the way in which family members have rights pertaining to the family business. However, even if the protocol establishes certain guidelines to be followed by the family members who sign it, it will be necessary to transfer the rules established therein to the channels provided by civil law, through a will or succession agreement (or where appropriate, of a donation, if the transmission was to be made while the deceased was alive).
In addition, there are various effective testamentary mechanisms to guarantee the continuity and control of the family business, as well as to avoid, as far as possible, conflicts between the plurality of heirs who share rights over an inheritance estate.
In the first place, the testator can foresee in the will the partition of the inheritance in such a way as to award to the heirs that he considers most suitable to run the family business a participation that ensures control of the company’s share capital. Accordingly, it is advisable to regulate these extremes in the family protocol.
In conclusion, the testamentary provisions stand as an essential instrument so that the capital of the family business remains in the hands of the family members after the death of one of its partners, and despite the fact that the guidelines to be followed must be establish in the family protocol of the company, it is essential that the partners transfer this content to their settlement of inheritance.