Articles

Article

Family Business Act sets to help family-owned businesses

02.04.2015

A draft Family Business Act (FBA) would extend diverse incentives and benefits to family-owned businesses, but these family-owned businesses would need to ensure that their structures are up to scratch in the process.

Malta’s act would be the first in the EU and would tackle extremely complex and thorny issues ranging from succession and fiscal incentives to dispute resolution. It will now be presented to Cabinet and a White Paper will then be issued for public consultation.

The act defines family businesses as those owned by at least two members of the same family, although a small minority stake by non-family members is permissible. Besides, a structure where one member owns 99% and the other owns the remaining 1% will not be deemed acceptable for the purposes of this act.

Furthermore, the proposed FBA would aim to encourage family-owned businesses to register themselves and to clearly establish their organisational structures - who occupies what position, the actual ownership structure, who has voting rights and decision-making rights.

About 70% of Maltese businesses are family-owned or controlled and employ around 40,000 people. Economy Minister Chris Cardona noticed they are more resilient than most in economic crisis, and described them as a vital element of the Maltese economy. Nevertheless, they face various difficulties, especially the issue of succession, where only 30% of family businesses successfully complete a transition to the second generation, and less than 10% actually make it to the third.

Dr Cardona also noted that, during preparation for the legislation, a number of common governance problems were identified. Apart from succession and the dependence on its owner, other issues include an aversion to surrender control, even when it would benefit the business, members abusing business assets for their personal benefits, nepotism, as well as tunnelling.

Registered family businesses under the act, including international firms based in Malta, would qualify for certain assistance and benefits ranging from fiscal incentives under the Duty and Documents Act to schemes administered by Malta Enterprise and Malta Industrial Parks. Several incentives involve the modification and extension of existing schemes, including increasing the guarantees that can be provided through the Micro-Guarantee Scheme, extending special benefits provided to start-ups under the Micro Invest scheme to family businesses, and providing advisory services that are specific to the needs of family-owned businesses, including legal and accountancy services related to succession and services of an arbitrator to address any possible disputes relating to assets transfers.

Form further information, please contact: 
Karl Cini
Partner
karl.cini@nexiabt.com