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The Family Business Act: from a dream to reality?

In 2011, the Malta Association of Family Enterprises (MAFE) was set up with the objective of acting as a lobby group to actively raise awareness on the importance of family businesses to the Maltese economy.

The resilience of family enterprises was amply demonstrated in 2008 during one of the worst global economic downturns. They have overcome waves of financial tsunamis, severe economic conditions, banking failures and redundancies.

No one should have any lingering doubts on the importance of legislating in favour of family businesses so as to provide them with assistance during their most difficult period, that is, continuity planning and the succession process.

The Family Business Act White Paper is in the final phases of being published. For MAFE this is a very important milestone since we put forward our initial opinion and concept of a Family Business Act to the previous government back in 2012.

There have been very significant developments since then but what does the Family Business Act stand for? What will it establish? How will it assist family businesses?

We have to keep in mind that family businesses have very specific challenges due to the family relations and dynamics at play. It is useless to try to negate the family or isolate it if we believe that our business is a family business. Hence what we need to do is understand these familial dynamics and help the family get better organised, through proper governance structures both for the family and the business.

This seems to be what the Family Business Act (FBA) is striving to establish, according to the latest presentation by Economy Minister Chris Cardona during his most recent intervention on this subject during the BOV-PWC seminar held recently.

The FBA is a first of its kind, in Malta and within the EU. It tackles extremely complex issues ranging from succession and fiscal incentives to dispute resolution.

The proposed FBA has now been presented to Cabinet and a White Paper will soon be issued for public consultation. The new act will create a legal framework through which family members in business can receive guidance and assistance to plan for eventual successful and well-planned transfers, taking into account most sensitivities, vulnerabilities and quirks involved.

The legislation will strive to clarify a number of salient points.

Who is considered ‘family’ for the objective of this legislation? Who can become a shareholder for the businesses to remain a family business? How will the different classes of shares be looked upon by this legislation? How are owners to be represented on the board? What are the exit rules for existing shareholders? There is a very long and complex list to manage and we believe that the White Paper will be merely be the starting point for a considerable amount of hard work.

The legislation begins by defining and clarifying what is understood by the word ‘family’, specifically who is to be considered as an eligible family member for the purposes of the business. In fact, the draft establishes that family members mean the owner’s spouse, direct line descendants and their spouses, brothers and/or sisters and their descendants.

Compared to EU guidelines on family businesses, the act’s definition is wider and more inclusive. In fact ‘spouses’ here does not only mean a husband or a wife under the marriage act but also partners in terms of the Civil Unions Act.

The act also establishes what constitutes a family business in terms of size, ownership, control, decision-making and voting rights.

It also includes the benefits that eligible family businesses will qualify for, which will include any assistance or relief granted in terms of the Duty and Documents Transfers Act, Malta Enterprise Act, Business Promotion Act and any other law as may be prescribed by the regulator.

The act also creates the role of regulator whose responsibility will be to guide its implementation. The regulator will not only be a licensor but his or her objective should be to bring together professionals and family businesses and to implement fresh initiatives and incentives – both through advancements in the legislation and by building bridges with private partners.

This is a very ambitious act, the first of its kind in the developed world. The devil is in the detail of this legislation and in how it is implemented. We look forward to the publication of the White Paper so that as an association which has been at the driving seat of this legislation, through the feedback that we receive from family businesses, we will be in a position to put forward suggestions and amendments.

To start this process, MAFE is going to organise its first information session on the Family Business Act next Monday, May 25. Bookings can be made though MAFE’s website, www.mafe.org.mt.

info@mafe.org.mt

Mario Duca is the president of the Malta Association of Family Enterprises.

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