Will Malta be the first EU state with a Family Business Act?

Will Malta be the first EU state with a Family Bu...

Situated on important trade routes between Sicily and Libya, Malta has always maintained a position of strategic importance when it comes to business. Now, in a bid to ensure succession, this densely populated island is looking to become the first European Union state to adopt a Family Business Act.

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In preparation for drafting the Act, the government is taking into account the challenges inherent in running a family business. This involves seeking feedback on the difficulties faced by these businesses in preparing for the transfer of ownership, whether it takes place as a result of death or inter vivos (a transfer or gift made during one’s life time)

During the month of August 2013, Economy Minister, Christian Cordona, announced that the Maltese government would be engaged in a public consultative process to seek stakeholders’ input on the proposed Act, which aims to encourage family businesses to remain so through a number of key activities. This will include the government helping to facilitate the transition of family businesses between generations.

Family business boosting Malta’s economy

This would in turn help to ensure the future success and longevity of the business and boost the Maltese economy. The Act also aims to encourage financial responsibility on the side of the business, and reduce administrative bureaucracy on the side of the government.

In a novel move, the Ministry has not presented the public with a draft bill, but instead described the content of the bill and encouraged interested parties in the country to share their experiences and come forward with their suggestions.

Four key issues that will impact on the bill

Definition of family: This describes what constitutes a family member for the purposes of the proposed law. Cardona explained that it was important to establish criteria that reduce the possibility of abuse of the law but also allow for the necessary flexibility.

Definition of a family business: The current definition was drawn up in 2007 by the Expert Group on Family Business, which was created by the European Commission, but it has been suggested that a revised definition is in order to account for the Maltese context.

Succession and family governance: The development of clear and formal family governance structures, family protocols, and business organisational structures will play a pivotal role in the ease with which family businesses are transferred. Suggestions on how best to do this have been welcomed.

Proposed incentives for registering a family business: While facilitating succession is a key aim, the government also wishes to provide incentives to family businesses which could be registered as such when the Act becomes law. Stakeholders have been asked to suggest the incentives which should be included to encourage them to register their family businesses in line with the requirements of the Act.

Safeguarding the business through succession

According to Cardona, the reason behind the proposed Act lies with the fact that while family business makes up 75% of Malta’s local industry, employing around 40,000 workers, only 30% is passed on to the next generation due to difficulties in succession…

… “It is fundamental that business transfers are prepared as early on as possible to ensure the smooth transfer of the family business, safeguarding its continuity throughout successive generations.“

At an event launching the consultation process, Cardona concluded that the Act, along with other government proposals such as less bureaucracy, reduction in electricity tariffs, and the Global Residence Scheme, should all lead to much-needed economic growth.

The consultation period ended on 12 August 2013 and members of the public interested in providing their feedback were asked to do so by filling in a feedback form on the ministry’s website.

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