A large part of our country's business fabric is made up of small and medium-sized companies that were founded by the parents of a family and are passed down from generation to generation.
However, many of these family businesses fail to continue when their management and leadership pass to the new generations, sometimes due to the various conflicts that arise between the different branches of the family that inherit the business or due to the entry of third parties from outside the family.
For this reason, it is essential in order to ensure the continuity of the family business and avoid certain conflicts that could arise in the succession of the company, to regulate certain aspects of the business, such as the governance and management of the company, the regime for transferring shares between the different branches of the family, etc.
Some of these aspects can be regulated through the articles of association; however, there are others that go beyond their regulatory scope but are no less important for ensuring the proper functioning and continuity of the family business.
What is a family protocol?
These aspects can be regulated through so-called family protocols, an essential instrument for establishing the foundations and rules that will govern the future of the family business.
Royal Decree 171/2007 defines the family protocol as: "The set of agreements entered into by the shareholders among themselves or with third parties with whom they have family ties in respect of an unlisted company in which they have a common interest, in order to achieve a model of communication and consensus in decision-making to regulate the relationships between family, ownership and business that affect the entity".
What aspects are regulated in a family protocol?
Among the main aspects regulated in family protocols are the management and administration of the family business, the manner and timing of succession by delegating management to successors, the objective requirements for access to the different positions and the remuneration of family members, or the entry or exit of shareholders, as well as any other agreement intended to resolve situations which, due to their significance, are likely to cause future conflicts and jeopardise the continuity of the company.
The validity of the family protocol vis-à-vis the Company
However, until a few years ago, one of the problems that arose in the application of family protocols was that, although, as we have indicated, some of the agreements contained in them could be transferred to the articles of association, there were others which, by their nature, could not be included in the articles, which created certain difficulties, since, being private rights and obligations, they could not be enforced against the company.
However, this problem seems to have been resolved in the resolution of the Directorate General of Registries and Notaries of 26 June 2018, which provides for the possibility of including the obligation to comply with the family protocol as an ancillary obligation that extends to the company itself, going beyond the internal limits of the family.
To this end, the resolution establishes that a series of requirements must be met:
- The family protocol must be recorded in a public deed.
- The articles of association must include compliance with the family protocol as an ancillary obligation, which must be fully identified in the articles by specifying the Notary, place of execution, protocol number and date, so that it can be known by both current and future shareholders, who will be bound to comply with its provisions, since this obligation is considered an ancillary obligation that extends to the company itself.
In this way, the family protocol makes it possible to plan the succession of the family business and ensure that it applies to both current and future shareholders, avoiding possible conflicts that could arise in the management of the business when it passes to the new generations.
