Family Business Act to help family-owned businesses survive is now being presented to Cabinet

The Family Business Act to help family-owned businesses survive was discussed during a business breakfast earlier on this week.

During his opening address, Minister for the Economy, Investment and Small Business, Hon Christian Cardona said that the Family Business Act is one of the initiatives that are being implemented by the Government to safeguard jobs, invest in enterprises and to boost Malta’s competitive economy. Its aim is to address obstacles and problems that those operating a family business face especially in instances of business transfers.  

Family businesses constitute 75% of Maltese enterprises and thus they employ a substantive number of people. Most of these family enterprises pass on to the second generation. However, during this transition, only 30% of these family businesses succeed and only 10% make it to the third generation. For these reasons a committee was then set up  to create a legal framework on which family business owners and members could plan and affect their transfer of business.

In order to have an efficient and effective legal framework, widespread consultation has been carried out. Amongst other things, the Family Business Act will include a clear definition of what constitutes a family business. This will control abuses and is a very important initiative considering that family businesses registered under this Act will be eligible for tax incentives.

Dr Nadine Sant, Legal Advisor to the Economy Ministry,  highlighted  that the structures of family businesses, the vast majority of whom are micro-enterprises, are often poorly defined.

Dr Sant explained that the proposed Family Business Act would aim to encourage family-owned businesses to register themselves, who occupies what position, the actual ownership structure, who has voting rights and decision-making rights. These will have to be clearly established.

The draft 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.

A structure where one family member owns 99% and the other owns the remaining 1% will not be deemed acceptable for the purposes of the act, in part to ensure that other family members would have a say and an interest in the company’s wellbeing but also to encourage the transition from one generation to the next during one’s lifetime.

Malta Enterprise Head of Incentives Administration Karl Herrera said that registered family businesses would qualify for certain assistance and benefits.

Many of the proposed 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 MicroInvest 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 the services of an arbitrator to address any possible disputes relating to the transfer of assets.

GRTU would like to take the opportunity to thank Hon Cardona for involving the  GRTU as one of the main stakeholders which has worked on the legal framework of the Act in conjunction  with other stakeholders which have worked on the Family Business Act.  

The next step is for Parliament to debate and ratify the Family Business Act and next to encourage family businesses to trust the legislation and register.