Family Protocol Explained

The family protocol is a tool that promotes the progress of the family business and facilitates the management of the company and the entrepreneurial family.

It is concluded that the family protocol, which contains guidelines for family and company management, promotes the permanence of the family business with all the consequent benefits both for the entrepreneurial family itself and for the society and economy in which it is incorporated.

In this article, we explain more what is a family protocol and why it is needed.

What is a family protocol?

A document agreed between business family partners and heirs, which is a translation of expectations into an agreement embodied in a formal document. This document sets out the roles and responsibilities, rights and duties, rules and sanctions that apply to all members of the business family.

Why is it important to have a family protocol?

In family businesses, it is customary and desirable to establish mechanisms governing the succession of the family business, its management and administration. When one of the partners in a family business dies, the shares or stakes in the company that he or she owned inevitably pass to his or her heirs.

Therefore, the succession mechanisms in the entrepreneur’s family, which regulate the transfer of ownership of company capital in the event of death, play an essential role in the succession of the family business as such.

Its purpose is to guarantee peace in the family and the continuity of the company in the hands of the family.

Thus, it is a legal instrument independent of business regulation, aiming to regulate the relationship between the company and the family to avoid confusion between the two areas and, above all, an instrument for shaping the correct generational transmission in the succession of family businesses.

Many family businesses are hesitant to apply family succession. It is therefore very important to be aware of the most important aspects of the family protocol and family business succession specialists.

Family Protocol aspects

The important aspects of the family business protocol are:

Recruitment, promotion, compensation and termination

The family protocol provides greater transparency in the hiring of family members working in the company or in the governing body, as well as in matters relating 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

It is recommended that the protocol specify the parameters for the distribution of this budget and the criteria for its use, so that there is no doubt about the allocation of funds, for example, what part of the dividend can be used to train family members who will join the company or set up a family office.

Marital status/spouse or stepchildren

One way to reduce the emotional stress associated with these events is to have a protocol that lays out the ideal marriage plan for a business family.

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 family’s heritage, values and aspirations.

Use of goods and services

Ideally, family members should not be allowed to use goods and services, access to employees or other company resources for personal gain. It is also important to establish priority criteria at the family protocol and to bring spouses and other relatives under these criteria.

Completion of a partnership

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 family achieve its mission and important goals through the following actions: Creating compelling family values, mission and vision that clarify important family principles, purpose, direction and key objectives.

Agreements are reached by consensus of all members. The family council draws up the family protocol and is responsible for reviewing and updating it.

The General Meeting of Members

The main purpose of the General Meeting of Members is to allow shareholders/family members 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.

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