The family protocol is a tool that promotes the progress and continuity of the family business and facilitates the management of both the company and the business-owning family.
This document contains agreements and guidelines aimed at preventing conflicts among members of the business-owning family, as well as promoting the longevity of the family business, thereby ensuring benefits for both the family itself and society over the coming generations.
In this article, we will provide a clearer explanation of what a family protocol is and why it is necessary.
What is a family protocol?
It is a document agreed upon by the shareholders of the business-owning family and their heirs, which outlines their expectations and establishes a framework for the operation of the family business. This document sets out the roles and responsibilities, rights and duties, as well as the rules and sanctions that apply to all members of the business-owning family.
Why is it important to have a family protocol?
In family businesses, it is common and desirable to establish mechanisms that regulate family succession, management, and administration. When one of the shareholders in a family business passes away, their shares or stakes in the company are typically transferred to their heirs.
Therefore, succession mechanisms within the entrepreneur’s family, which govern the transfer of ownership of the company’s capital in the event of death, play a crucial role in the succession of the family business.
Their purpose is to ensure family harmony and the continuity of the business within the family’s control.
This is, therefore, a private agreement that is not legally binding, although it can form part of a more extensive formal contract among family members. It aims to regulate the relationship between the business and the family to avoid confusion between these two realms and, above all, serves as a tool to facilitate the proper generational transfer during the succession of any family business.
Many family businesses face uncertainties when it comes to implementing family succession. For this reason, it is essential to understand the key aspects of the family protocol and seek advice from specialists in the succession of such businesses.
Family Protocol aspects
Some examples of possible contents of the family business protocol include:
Recruitment, promotion, compensation and termination
The family protocol provides greater transparency in the hiring of family members who work in the business or serve on the board of directors, as well as in matters related to promotion, remuneration, and dismissal.
Joining the company
The entry of any professional into the business, whether the heir or not, should always consider the competencies required for the profitable, sustainable and long-term growth of the company.
Budget for family governance
The entry of any professional into the business, whether an heir or not, must always take into account the necessary competencies for the profitable, sustainable, and long-term growth of the company.
Preparing the next generations to become responsible stakeholders
It is recommended to include in the protocol how the next generations will be prepared to continue the company’s activities, as well as the family’s values, education, and aspirations.
Exit of a Family Shareholder
The family must establish guidelines and criteria according to which a family member is entitled to retain his or her share in the company. The purpose of these rules should be to preserve or increase the value of the company in the event of a sale.
The exit rules should be set out in the contract with the company, but can also be attached to the articles of association for implementation.
Parts of Family Protocol
Family Protocols institutionalise three real parts for discussion and decision-making in which members, families, shareholders and the company feel individually represented. They are the administration of the family business.
The Family Council
The Family Council is a leadership and management forum designed to help a business-owning family achieve its mission and important objectives through the following actions:
- Establishment of compelling family values.
- A mission and vision that clarify important family principles.
- Purpose.
- Direction.
- Key objectives.
Decisions are reached by consensus among all members. The Family Council drafts the family protocol and is responsible for reviewing and updating it.
The General Meeting of Members
The primary objective of the General Meeting of Shareholders is to provide shareholders/family members with the opportunity to vote on both corporate matters and the election of the board of directors.
The administrative body of the company
As the company develops and becomes more complex, it is advisable to form a board of directors whose main task is to determine the company’s strategy and objectives.
Our GM Tax Consultancy team consists of the legal and tax advisers you need to plan a successful family protocol and ensure the continuity and growth of your business and assets into the future.
We develop unique strategies, plan effective business organisation, draw up action protocols, create training plans for future generations and resolve any conflicts that arise. Contact our tax advisors in Barcelona by email or phone.
