The second installment in a series of articles on family businesses. An assessment of the proposed changes to family businesses, the advantages and disadvantages of family businesses, and other important information for family businesses.
WHY IS IT ADVISABLE TO REGULATE THE ISSUES SURROUNDING FAMILY BUSINESSES THROUGH LEGISLATION, AND WHAT SHOULD SUCH REGULATION LOOK LIKE?
This is a question undoubtedly asked by many who have even briefly encountered the topic of family businesses. Many believe that Slovak commercial law is flexible enough to structure relationships between individual partners (family members) according to their mutual needs, even without specific legislation being part of the Slovak legal system. While this is true to a certain extent, in the following lines we will attempt to explain why it would be advisable to introduce specific, separate legislation for family businesses and, in particular, what purpose such legislation should serve.
First and foremost, we note that family businesses entail several specific characteristics compared to other types of businesses, which warrant special legislative regulation. In connection with the specific proposed legislation, it is worth considering whether it is comprehensive and whether it covers all potential aspects of family businesses.
Employing family members in a family business is a given. In our opinion, the regulation of family businesses should also address this issue, for example regarding the payment of contributions, establishing clear rules and boundaries to prevent violations of the prohibition on illegal work and illegal employment, or providing additional benefits when employing family members, so that the legal framework fulfills its purpose and is as attractive as possible to potential registered businesses.
Legislative changes regarding family businesses are also necessary in the inheritance process. According to practical experience, the most problematic situations arise when a business is also the subject of inheritance proceedings. In such cases, it is necessary for the appointed notaries to proceed more quickly and efficiently in these inheritance proceedings, so that the operation of the family business is disrupted as little as possible and succession is resolved in the shortest possible time. One must also consider situations where not all heirs (such as mandatory heirs) will have good relations with one another—on the contrary, they may be estranged, yet as mandatory heirs, they cannot be excluded from the inheritance. In such a case, it is reasonable to assume that the entire probate proceedings will be significantly prolonged, which will also negatively impact the operation of the business itself. The aim of this legal regulation should therefore be, among other things, to resolve precisely such situations that may arise in practice and for which legal regulation is necessary to ensure the smooth and uninterrupted operation of the business.
There is certainly room to take into account the special nature of family businesses and to grant benefits and simplifications in the areas of taxation and accounting as well.
BENEFITS OF LEGAL REGULATION OF FAMILY BUSINESSES
The incorporation of legal regulations for family businesses into the legal system of the Slovak Republic would bring several benefits, which can be divided into basic categories.
First and foremost, there is a statistical benefit, as it would be possible to obtain information based on real data, for example regarding the regional impact of family businesses on the economy and other economic parameters. This would also make it possible to monitor the impact on the social environment and maintain accurate records based on this information. Similarly, certain economic conclusions can be drawn from the collected data, which can be used for further purposes, such as comparing individual business segments, the efficiency and performance of family businesses, etc.
Another benefit is the developmental benefit, the essence of which is the possibility of creating specific conditions for the education of family members, as well as strengthening social security, particularly with regard to contributions to family members’ retirement savings or the provision of various tax benefits.
Nor can we overlook the social benefits, which include the creation and preservation of jobs, raising the profile of locally produced goods, strengthening various local traditions, or promoting regional services.
ADVANTAGES OF FAMILY BUSINESSES
Family businesses are by no means a novelty in practice, even though they have not yet been specifically regulated by law in Slovakia. Family business brings several significant advantages.
For example, family businesses can benefit particularly from the fact that their members are not merely ordinary employees of a given company; beyond this professional, work-related connection, they are close to one another—they form a shared family. Based on such close relationships among individual members, it is therefore reasonable to assume significantly greater loyalty to the business than in the case of other commercial companies. At the same time, regarding the company’s management, it is clear that in family businesses, all actions will be carried out with due care not only for the best interests of the company but also for the family itself and the relationships among its members. The close family ties themselves also ensure more effective communication and a greater degree of trust among those involved. In the case of multi-generational businesses, it is also reasonable to expect that members of these businesses will feel a certain “sense of mission” and commitment to the business. It is also worth noting the greater effort by family members to achieve high quality and maintain standards, precisely because of their stronger bond to the business itself. The success of family businesses is also aided by a deeper understanding of local conditions and the self-fulfillment of family members.
In the future, changes in labor law can also be anticipated, particularly regarding illegal work and illegal employment, in the sense that assistance provided by family members in a family business would not be considered illegal work and consequently sanctioned by labor inspections, but such occasional work would be in compliance with legal regulations. To this end, however, labor law regulations will also need to be amended.
Currently, the term “family business” is used for the purpose of obtaining state support. It can be assumed that the introduction of new legislation on family businesses will result in these existing forms of support being linked to the new proposed legislation.
RESERVATIONS REGARDING THE PROPOSED LEGISLATION WITHIN THE LEGISLATIVE PROCESS
Although many welcome the effort to legislatively address the issue of family businesses, it is essential that we also point out here the shortcomings that experts have criticized in the proposed legislation. Several comments were raised during the inter-ministerial comment procedure, and we would like to highlight some of them. In general, it can be stated that the proposed legislation is criticized for a lack of conceptual clarity, systematic approach, and comprehensiveness.
The objections also relate to the inclusion of family businesses in the Social Economy Act, particularly due to a potential conflict between the purpose of the Social Economy Act and the objectives of family businesses, as not all family businesses focused on entrepreneurial activity necessarily have to meet the requirement of so-called positively measurable social impact.
Furthermore, reservations can also be mentioned regarding the central government body under whose purview the issue of family businesses should fall.
Under the proposed legislation, family businesses fall under the jurisdiction of the Ministry of Labor, Social Affairs, and Family; however, in the opinion of experts, this issue should instead fall under the purview of the Ministry of Justice of the Slovak Republic, with the Ministry of Labor acting solely as a consultant in the legislative process.Based on the above, it can be concluded that while the intent is fundamentally sound and the establishment of family businesses has long been desired by the public, the proposed legislation does not meet the requirements and expectations placed upon it; for it to be capable of making a real contribution to society in the area of family business, it would be necessary to adapt it and comprehensively incorporate the relevant and additional changes into civil, commercial, labor, and tax regulations.One of the most significant shortcomings—which must be pointed out and with which we also agree—is that the proposed legislation in no way reflects the legislative and economic aspects of family business, particularly with regard to addressing the issue of generational transition, the process of inheritance and succession, or the management of family business assets.
