Family protocol, strategies preservation family business ownership

The Family Protocol holds significant importance for family businesses in Spain, serving as a critical tool for regulating ownership, decision-making, and continuity across generations. In fact, Family businesses in Spain make up 90% of the total number of companies in the market.

The Family Protocol is instrumental in developing mechanisms to maintain capital stock within the family over time and to ensure the administration of the company remains within family members, thereby preserving the family character of the business. 

What is a family protocol? 

A family protocol, also known as a Family agreement or Family Constitution, is a comprehensive document that outlines the family`s intentions, commitments, and recommendations for the future of their family-owned company. It serves as a guiding framework to preserve the company`s ownership within the family and ensure its long-term success. It aims to put in paper the rules regulating the business and professional relationships between the family members and the company.

Why is it important to maintain ownership within the family? 

One of the primary objectives of a family-owned company is to keep the ownership of the share capital within the family. This ensures that the family`s vision, values, and long term commitments to the business remain intact. It also allows for better decision-making, as family members are often deeply invested in the success of the company. 

How can a family-owned company maintain ownership of the share capital within the family? 

To maintain ownership of the share capital within the family, a family-owned company can employ several strategies. These include proper succession planning, including clauses in the Articles of Association that restrict the transferability of shares and participations, and signing a Family Protocol. The Family Protocol often includes recommendations or obligations that affect the private sphere of family members, such as the commitment to marry under the regime of separate property and the commitment to make a will, limiting the disposition of shares or participations in the family-owned company.

How does a family Protocol protect against unwanted transfers of shares or social participations? 

A well-drafted Family Protocol anticipated various circumstances that could potentially lead to an undesired transfer of shares or participations. It includes provisions such as succession planning, restrictions in the transferability of shares, and clauses that safeguard the continuity of the business within the family. 

Can a commitment to marry under the regime of separate property help protect the family-owned company? 

One common recommendation included in a Family Protocol is the commitment to marry under the regime of separate property. By marrying under this regime, family members can protect the family-owned company from potential complications arising from a divorce. This commitment helps safeguard the business`s assets and prevents the dilution of family ownership.

How can limitations on the disposition of the inheritance protect the family-owned company? 

Another recommendation is the limitation on disposing of the inheritance in the family-owned company. A family protocol may encourage family members to make a will, specifying that their shares or participations should be inherited by other family members or even the company itself. This limitation helps ensure that the ownership of the business remains within the family.

Are the commitments made in a Family protocol legally enforceable?

While the legal enforceability of these commitments may be limited, there are mechanisms that can be included in the Family Protocol and the Articles of Association to promote compliance. Provision can be added to restrict the transferability of shares, establish rights of first refusal, or include redemption rights. These mechanisms help ensure that family members adhere to the commitments made in the Family Protocol.

Can dissuasive penalty clauses be included in the Family Protocol to ensure compliance with the commitments? 

Dissuasive penalty clauses, such as those included in the Family Protocol to sanction the non-compliance of a partner, may not be valid. Since the commitments mentioned in the Family Protocol affect the private sphere and are not legally enforceable, penalty clauses sanctioning such non-compliance may be considered null. However, other mechanisms, such as limitations on the transferability of shares or the obligation to sell, can be included in the Family Protocol and the Articles of Association to guarantee compliance with the commitments or minimize their effects in case of non-compliance. 

For expert legal advice and assistance matters related to Family-Owned Companies, we invite you to consult Gentile Law.