Introduction
Italy stands out in Europe for its high number of family-run businesses. In these businesses, the mix of family and business relationships creates unique challenges and opportunities. Statistics reveal that only a minority of Italian family businesses survive to the second generation, and even fewer make it to the third. Succession planning is therefore a crucial moment for family businesses and tools such as “family pacts” can help in this regard.
Family vs. Business: Values and Goals Compared
The intricate and dense network of relationships between family and business, the possible interactions and conflicts that arise when these two entities coexist, have long been a subject of interest in the social, economic and legal sciences.
Family and business operate on distinct principles, values and goals:
• Family is based on emotional bonds, cooperation, solidarity and protection. Family members often seek financial returns rather than prioritizing the operational needs of the business. Furthermore, in family businesses, staff are often hired based on assessments that take into account family bonds rather than skills.
• The company, on the contrary, revolves around profit, economic growth, efficiency, hierarchy and value creation.
The values shared in a family business are influenced by the history of the family itself. The family is the element of continuity and connection that permeates the development of the family business, especially in a socio-economic context such as the Italian one. The well-being of the family depends on the development of the business. The company is therefore an asset to be preserved and passed down.
Succession: A Crucial Phase in Family Businesses
In this context, the succession process represents a critical phase for the continuity of the company.
Choosing the right successor is one of the most difficult challenges an entrepreneur faces. This requires a careful assessment of the skills and potential of family members; this assessment is often tinged with emotional profiles. This difficulty is amplified when the family grows intergenerationally, with the presence of spouses, children and other relatives.
A frequent dilemma in such cases is represented by the identification of the successor; in fact, the question arises whether to rely on a single leader or opt for a shared leadership between several members of the family, the latter choice that presupposes strong collaboration, a clear division of roles and mechanisms to prevent internal conflicts.
Additional factors may contribute to the high “mortality” rate of companies, such as:
• Lack of successors willing to take over the reins of the company. If the heirs follow different career paths, the company may find itself without a family leadership team capable of continuing the business.
• Conflicts between heirs. Succession and leadership disputes can lead to business paralysis or decline.
• Resistance to change. Some business owners fail to recognize the need for succession planning in advance, which can lead to sudden and disruptive changes in management.
The importance of a well-structured transition
Although family businesses are the backbone of the Italian economy, their sustainability depends on effective governance, strategic vision and well-managed succession planning.
Family businesses, by balancing family unity with business efficiency, can successfully navigate generational transitions, safeguarding their assets and maintaining their economic strength.
Planning for the future is not just about preserving the past, but about enabling growth, innovation, and long-term success.
A well-structured transition should include, among other things:
• Identifying potential successors well in advance and gradually involving them in leadership roles. A successful transition requires a gradual transfer of responsibility. Many first-generation entrepreneurs are reluctant to relinquish control, fearing that the next generation will not have the experience or vision to successfully manage the business. This reluctance can stifle the development of the future leadership team.
• Promoting entrepreneurial thinking among family members.
• Participation in training and mentoring programs to prepare the next generation for leadership roles.
• The professionalization of management through the inclusion of non-family managers where relevant to ensure expertise-based decisions.
• The provision of clear governance structures to define roles, responsibilities and decision-making processes.
• Legal and tax planning which takes into account the complex legislation starting from that on successions and property.
The “Family Pact”: A Legal Tool for Business Succession
From a legal perspective, succession can be effectively planned through various strategies and types of regulatory instruments, including wills, donations, trusts, opening of capital to external investors and, last but not least, the sale of the business.
Among these tools, it is also worth mentioning family agreements, regulated by articles 768-bis-768-octies of the Italian Civil Code.
Through a family pact, an entrepreneur can, during his lifetime, transfer all or part of his business or his shares to one or more descendants, i.e. children or grandchildren, who will continue the business without resorting to a donation or a will.
Essentially, the family pact allows the business owner to manage the succession of the business in advance, facilitating the generational transition within it, avoiding future hereditary conflicts and ensuring stability and continuity in the management of the business.
In an increasingly complex economic context, the family pact represents an option to avoid the risk of fragmentation of the company and to guarantee competent and consolidated management over time.
Main features of the family pact
The main characteristics of family agreements are the following:
- Family agreements are not subject to Article 458 of the Italian Civil Code.
Article 458 of the Italian Civil Code prohibits any contract or agreement that provides for succession before the death of the owner. However, “family pacts” are an exception to this rule, allowing owners of family businesses to plan the transfer of their business to descendants during their lifetime, without risking that they will be considered null and void. - Mandatory public deed.
Family agreements must be formalized through a deed drawn up by a public notary. - Involvement of all “legitimate heirs”.
Family agreements must be signed not only by the entrepreneur and the descendants who receive the assets or shares, but also by the other legitimate heirs who do not benefit from them. The latter are entitled to a share of the inheritance established by law (the so-called legitimate share), regardless of the provisions of the will. Consequently, even if the will included provisions in conflict with this share, the right of the legitimate heirs would still remain unaffected. - Right of legitimate heirs to be liquidated.
The legitimate heirs participating in the pact who do not receive assets or shares in the family pact must be paid by the heirs who benefit from the transfer of the family business or the company shares for an amount corresponding to their legitimate share, unless they expressly waive it. This payment must be regulated in the family pact. - Protection against legal challenges.
The family agreement protects against legal actions that could affect the validity of the transfer made to the beneficiary heirs with the agreement itself; what is attributed with the agreement is in fact not subject to the obligation of collation pursuant to art. 737 et seq. of the civil code and to the action of reduction pursuant to art. 553 et seq. of the civil code - Protection of legitimate heirs not participating in the family agreement.
The law also protects subsequent legitimate heirs, i.e. those who did not take part in the family pact, guaranteeing them the right to be paid at the time of the opening of the succession for an amount corresponding, with reference to the value attributed to the family business or the company shares transferred with the pact, to the legitimate share due to them by law.
Benefits and challenges of the family pact
Among the main advantages of the family pact are therefore:
• Succession planning, reducing uncertainty and preventing conflicts between heirs;
• Business continuity, avoiding the risk of fragmentation and ensuring competent leadership;
• Protection of all legitimate heirs, ensuring a settlement for non-beneficiary heirs that does not damage their legitimate share.
However, the family pact also presents problems starting from the need for an accurate regulation of the fiscal, regulatory and financial aspects that result from it.
Conclusions
The family pact, despite its complexity, is an effective legal instrument for transferring the family business to the next generation while the owner is still alive. It guarantees the protection of the rights of the legitimate heirs and helps prevent conflicts between successors. To ensure its validity and effectiveness, it is essential to carefully analyze and regulate all legal and fiscal aspects, with the support of a notary and experts in the sector.
Content by the Lawyer. Daniele Giombini
