It is crucial that family businesses define their objectives and operating policies in various areas, from business and financial strategy to the inclusion of new partners (family members or outsiders) and the transfer of the business to future heirs. This is formalized through a protocol or agreement that regulates the different aspects that may affect the family business.
As generations succeed one another, certain 'coexistence' problems can arise due to the different interests or expectations that the individuals or families who own the business or family company may have
It is not uncommon to find situations arising from the interest in incorporating a family member into the business, or from the disparity of criteria between those who want to keep the company running and those who are committed to selling it.
If appropriate measures are not taken, these differences in criteria, relationships, and family problems inevitably end up taking their toll on the company's performance.
In family businesses, it is common for partners to sign a "family protocol," which establishes rules to prevent family relationships from interfering with the running of the business.
To prevent this from happening, and thus protect the company from changing relationships within the owning family, it is important to have a protocol or agreement that regulates the various aspects that can affect an owning family. This document covers a wide range of aspects, such as:
- The requirements to join the company.
- Remuneration of working family members.
- The way to channel offers to purchase the business.
- The management of the company's real estate properties.
- What to do in case of the death of a partner.
What aspects does a family protocol regulate?
Among the main ones we can highlight the management and administration of the family business, the form and time in which the succession will be carried out by delegating the management to the successors, the objective requirements to access the different positions and the remuneration of family members, the entry or exit of partners, as well as any other agreements that intend to resolve situations that, due to their importance, are likely to cause future conflicts and endanger the continuity of the company.
This document typically regulates, for example, the requirements that family members must meet to work in the company; or the rules applicable to spouses or in-laws; or, if the company belongs to several families, the rules applicable to maintain a balance between the different branches.
The protocol is binding on those who sign it, so if any partner breaches it, the others can legally demand compliance (plus compensation for any damages caused by the breach). However, they cannot go further and cannot expel the breaching partner from the partnership (who will remain a partner and can exercise their rights as such).
To strengthen the effectiveness of the family protocol, it is advisable to include in the bylaws an additional provision that obligates the partners to comply with it. In this way, in the event of willful non-compliance, the other partners can not only demand compensation from the non-compliant partner but also exclude them from the company (paying them the value of their share).
You can contact this professional office for any questions or clarifications you may have.
Warm regards,
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A Àmbit Assessor, SL has 40 years dedicated to the tax, comptable and labor consultancy of the Pime.
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