Congratulations! 14th February is a celebration of love!
It’s celebration of love of our partner and for every important person in our life, for our family too! Often, in small businesses, our relatives are our business partners too.
Let’s celebrate this event with a little useful guide for us and our relatives who we work with!
The family firm
In this article, I will talk to you about the “family firm”. When I say “family firm”, I mean a particular form of unincorporated business entity in Italy, different from the traditional limited company or ordinary commercial firm. This special kind of family business is a legal institution created especially to protect the relatives of the owners of the business.
In this kind of business model, the owner and his relatives work together in a continuous way and devote most of their time to it. It has various advantages. Let’s analyse the details of these advantages by looking at the main differences with the other business models.
Who can work for a “family firm”?
A family firm may be composed of an owner, his/her spouse, and / or his/her relatives. Relatives include sons, daughters, brothers, sisters, cousins, brother-in-law, sister-in-law, father, mother, son-in-law or other relatives by marriage. Divorce automatically dissolves a family firm.
How do you establish a family firm?
Establishing a family firm in Italy is easy. It involves a few administrative tasks and it is not very expensive.
First, the owner and his/her relatives have to draft a private agreement, confirmed by a notary. New firms must register the agreement at the local government office and, within 30 days of registration. all the other relatives involved in the business must visit a notary to sign the agreement formally.
For existing businesses which want to convert to a family firm, the same notarising process as above must happen by 31 December in the year the agreement was made by the owner.
In each case, the owner has to hold at least a 51% share of the business, while the remaining 49% can be shared between different relatives, according to the quality and quantity of work they provide for the business. In other business models, there are no such rules.
These features mean that the family firm model is suitable for small businesses, for example for those in which the spouse of the owner is also employed, perhaps, in administrative tasks.
In addition, the work of the relatives have to be permanent and mainly devoted to the family firm – there is no similar requirement for other business models.
What other requirements must be fullfilled?
Within 30 days from the date of the agreement, the owner must formally give details of the participating relatives to all the relevant Italian government offices (this is not the same as the notarising requirement above).
What rules are there are about profits and losses?
The participating relatives have the right to share in the profits and the goodwill of the firm (if they wish to sell their share). However, they are not liable for losses as and when they arise. In fact, losses are sustained only by the owner who remains the sole director of the firm. This is one of the main differences between this kind of business and others.
What are the rules on taxation?
The owner, within his annual income report (“Modello Unico”) has to declare that his participating relatives have received a share of the profits.
What legal protections do creditors and customers have?
None of the relatives’ creditors have the right to recoup their losses against the properties of the relatives’ nor secure their repossession.
Who has the power to manage a family firm?
The owner has the exclusive power to manage the business and also to dissolve it.
When and how a family firm be dissolved?
A family firm can be dissolved on the death of all the members of the family, or if it stops trading for any reason.
As well as sharing in profits and goodwill, a relative can sell his / her share but only to another relative. This process must be notarised.
If the owner and his/her spouse want to manage a business, having equal rights and powers, they can choose another model “the marital firm”. Ask us for more information about this!
Is the family firm the appropriate business model for you?
If you are asking yourself if a family firm could be an appropriate business model for your needs, then contact us for further information.
We can advise you if this is a good choice for you and take care of all the related formalities.
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