The enactment of the Family Business Act will make Malta the only EU member state to have a law that supports the continued existence of family businesses.
“It means there is no existing template but we are happy to be trailblazers,” Economy Minister Chris Cardona said yesterday as he opened a seminar organised by the Malta Association of Family Enterprises (Mafe) in collaboration with Bank of Valletta.
The Act, which is in the pipeline, will tackle the barriers faced by family businesses, such as intergenerational transfers.
Family businesses form the backbone of the Maltese economy, with around 70 per cent of local businesses being run or controlled by families. Unfortunately, they can collapse as the family expands and new generations come to the stage.
Dr Cardona pointed out that there are about 30,000 small family businesses, employing between one and five people. Together, they employ more than 38,000 people.
However, only 30 per cent of businesses which complete the successful transition from the first to the second generation survive for the long term – less than 10 per cent scrape through to the third generation. “Unlike other business models, family businesses become increasingly more complex with passing years as families grow and multiply,” Mafe president Mario Duca explained.
“But succession does not necessary equal fragmentation.”
Mr Duca noted that within the dynamics of a family business, one finds a significant overlap between three main factors: family, ownership and business.
Research shows that many family businesses fail due to internal, not business, factors
Each aspect needs to have proper governance.
“Research shows that many family businesses fail due to internal and familial factors and not due to the business aspect. This is further compounded by the lack of clear legislation.
“Good governance is inherently about institutionalising control of how the family wishes to act together for the greater good of all involved”.
The legislative vacuum means that the term “family” itself has to be legally defined.
Does family include spouses? What about unmarried partners with children or civil unions?
According to Dr Cardona, the Family Business Act will include a “clear definition” of what the word family means “so that there is no room for abuse”.
However, he stopped short of outlining the definition.
Following a public consultation exercise in July and August and discussions with stakeholders, the Government has now set up a committee to continue discussing and paving the way for the drafting of the Bill.