‘’You don’t own it. You’re just watching it, guarding it, nurturing it, to hand it over to the next generation in as good a condition as possible’’
Family businesses are an indispensible asset for Malta's economy, generating economic growth and employment. However, the succession of family businesses may become a bone of contention. Statistics show that 80% to 90% of the family businesses in Malta retain family ownership, however the majority of which fail to transition successfully.
The Family Business Act, Chapter 565 of the Laws of Malta, has been introduced to encourage the regulation of family businesses, their governance and the transfer of the family business from one generation to the next; to encourage and assist family businesses to enhance their internal organisation and structure with the aim of effectively operating the business and working towards a successful succession of the family business; and for other matters consequential or ancillary thereto.
The Family Business Act clearly defines a ‘family business’ that may be registered in accordance with this Act to be those: -
Businesses which have direct ownership or involvement by family member/s in:
Indirect ownerships such as holding companies, trustees of a trust which are set up for the benefit of family members and private foundations also qualify.
The legislation also lists those members of the family who are eligible under this legislation. To this effect the Act provides that family business owners include:
The rule of thumb is that the business must be one which is established in Malta. Such business also include any foreign businesses that have a head office, an agency, branch or part of their business carried out in Malta. The inclusion of foreign business was included since Malta has become an international finance centre.
The Act proceeds to establish the qualifying criteria to possess ownership of a family business. This would include that the business must have at least 2 family members. No one of the family members can hold more than 80% of shares, capital contribution or interest. The shares must be issued shares which allow for dividends, voting rights as well as a right of the assets and profits. The business would still be considered a family business if up to 5% of the shares are handed over to 3rd parties as well as if 10% of the shares are transferred to full time employees. For the company to be eligible to be registered in accordance with the Act it would need to have been set up for at least 3 years prior to actually benefiting from the provisions found in the same legislation. Moreover it is also necessary that one of the family members must be involved in the general governance and in the decision making of the company.
The legislation proposes a set of government and financial incentives to assist the family throughout the transition process.
The Act also provides for a number of fiscal incentives aimed at alleviating the burdens that are associated with the transfer of ownership. These include:
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