The third article in a series on family businesses, this time focusing on the action plan for the development of family businesses. On October 8, 2021, an inter-ministerial consultation process began, during which the Draft Action Plan for the Development of Family Businesses in Slovakia (hereinafter referred to as the “action plan”), submitted by the Ministry of Economy and drafted in accordance with the government’s program statement for the period 2021–2024.
As the action plan itself indicates, family businesses account for as much as half of all small and medium-sized enterprises in Slovakia, and thus play a significant social role and contribute significantly to job creation in the regions. The primary objective behind the Ministry of Economy of the Slovak Republic’s decision to issue the action plan is to help family businesses navigate generational succession.
The action plan defines the current state of family business, explains its benefits for the Slovak economy, and, most importantly, outlines a set of measures to support them and foster their further growth.
The main contribution of family businesses in Slovakia can be described as their significant social dimension, as they substantially support the development of individual regions by creating jobs even in rural and less developed areas.
Most family businesses in Slovakia were established only after 1989, which is, of course, logically justifiable given the historical context. Currently, however, a generational transition is underway in many family businesses, and succession itself can be quite problematic in some cases. Family businesses must therefore recognize well in advance the need to gradually transfer the business to other family members or external managers, or consider selling the business.
The action plan thus represents a set of legislative and non-legislative measures aimed primarily at eliminating barriers to the operation of family businesses and managing generational transition. Some of the measures focus on strengthening the competitiveness and growth of family businesses. Other businesses besides family businesses will also benefit from certain measures.
The measures themselves can be divided into two categories: (i) immediate measures for the development of family businesses and (ii) medium-term measures for the development of family businesses. The Ministry of Economy of the Slovak Republic’s goal of adopting a legal definition of a family business stands relatively on its own.
The immediate measures for the development of family businesses include the following objectives:
- To unify the conditions for family members working in family-owned businesses within single- and two-person commercial companies—specifically proposing to expand the definition of illegal work and illegal employment for commercial companies with two partners, provided they are family businesses.
- Adjust the possibility of maintaining a business account in the event of a family member’s death – The main objective of this measure is to prevent the potential dissolution of a family business during the duration of probate proceedings by allowing authorized persons to manage, to the extent necessary, the funds deposited in a natural person’s bank account so that the business can continue to operate after the natural person’s death.
- Establish a contact point for family businesses within the Slovak Business Agency – the contact point should primarily provide services such as information on the legal and economic aspects of succession, business transfers, public administration services, and others.
- Implement activities aimed at raising awareness about generational succession and business transfers – this includes, in particular, the creation of widely accessible educational programs for family businesses, as well as advisory and expert services provided by the SBA contact point that would be targeted at family businesses.
- Prepare and publish recommended provisions for articles of association with regard to the specifics of family business – the goal is to publish templates for internal documents that family businesses could use to enhance the protection of the family business.
Medium-term measures for the development of family businesses include the following objectives:
- Amend and modernize inheritance proceedings and the institution of will-making—for example, it is proposed that a testator be allowed to designate a single heir to inherit a business share in the company without legal restrictions, such as the institution of mandatory heirs. Such a measure will allow the founder of a family business to enforce requirements that reflect their vision for the transfer of the family business.
- Create a legal framework for the transfer of family assets and ensure the indivisibility of assets during generational transfers – the goal is to establish the institution of a trust fund and/or private foundation for the purpose of transferring assets (business shares) from the ownership of the business owner to the fund and/or foundation, as well as similar purpose-specific management of assets in the event of death. We will devote a separate article to trust funds.
- Examine the possibility of introducing the concept of a family holding company into the Slovak legal system– the goal is to prepare an analysis of the suitability and appropriateness of introducing the concept of a “family holding company” into Act No. 40/1964 Coll., the Civil Code.
- Introduce the possibility for an authorized person to continue operating a natural person’s business after the conclusion of inheritance proceedings without changes to the contractual relationship that would require a new public procurement procedure—this measure aims to reduce bureaucracy in the public procurement process by in the event of the death of a natural person and the subsequent continuation of the business by an authorized person after the conclusion of the inheritance proceedings, the change of the contracting party would not constitute a so-called substantial change to the contract, or rather, it would constitute a permitted change to the contract without the need to conduct a new public procurement procedure.
- Establish a definition of a family business by regulating relationships among individuals in family businesses in Act No. 40/1964 Coll. Civil Code, as amended – Establishing this legal definition would allow for a greater focus on the legal regulation of relationships between persons conducting business in the form of a family business and on their status within the family business.
Family businesses are increasingly the subject of discussion, and the emerging legal framework signals significant progress in this area compared to the current situation. The law firm Hronček & Partners, s. r. o. will continue to monitor this issue, and we will keep you informed of any changes and updates as they arise.
