By Antonio Mazzucco, partner at Mazzucco&Mello Law Firm.
Family planning is very useful for maximizing the benefits of a merger and acquisition (M&A) transaction involving family-controlled companies.
The strategic integration of succession planning with an M&A transaction allows business families to optimize the asset value for all involved.
This is achieved through the definition of a robust succession plan and a governance structure that ensures the alignment of future generations with the management of operational assets.
The absence of such planning results in systemic risks: the death or departure of a partner can trigger corporate conflicts among heirs, as well as the lack of a succession plan that ensures the operational continuity of the company.
A well-structured succession plan (holding company, shareholder agreements, governance, wills) ensures that business activity does not suffer any interruption, preserving the value and growth of the business.
Structure and governance in the family business
Family businesses have their own dynamics, characterized by the intersection between business and personal relationships, which requires a well-defined legal and governance structure to avoid conflicts and ensure long-term sustainability.
Generally, the governance of a family-owned company is structured around a Family Council, a Board of Directors, and/or Executive Management and Operations.
The foundation of the entire structure lies in the family as the holder of the assets. It is crucial to clarify that this definition only encompasses members who hold the legal status of partners or shareholders of the company, that is, those who own shares or stock in the company.
These are the individuals who effectively possess property rights (such as profit sharing and receiving dividends) and political rights (such as voting in shareholder meetings and participating in strategic decisions).
In contrast, we have the other family members who do not have a stake in the company's assets, but are part of the "family" in a broader sense. These are the children, spouses, and grandchildren, who do not own shares or stock. In the natural order of things, these members will become the owners of the assets through inheritance.
Although interest in managing the estate may or may not manifest itself from the second generation onwards, legally all direct heirs will acquire patrimonial rights to the exact extent of the succession.
The strategic challenge, therefore, lies in reconciling the relative rigidity of the legal rules of succession with the maintenance and preservation of the business itself.
The separation between ownership and management.
This challenge is a common reality today: founders and partners seek to ensure business continuity and asset succession, without allowing heirs to take over the management of the business and preventing disputes. The secret is to separate ownership (who holds the assets) from management (who runs the business).
From a practical and legal standpoint, this is implemented through the creation of asset holding companies (which concentrate real estate and family assets) and operational holding companies (which house the target company for sale).
Thus, in an M&A transaction, the buyer acquires only a stake in the operating holding company, without being exposed to family disputes or assets that are not of interest to the business.
This model brings clarity and increases the attractiveness of the business, while also ensuring a source of income for the family, derived from the ownership of other assets.
Governance and risk reduction tools
An essential tool for reconciling the interests of the family and the heirs is the Family Protocol. This is a document agreed upon between the members of the business family (partners and direct heirs).
The purpose of this document is to regulate the relationship between family, assets, and business, preventing future conflicts.
This document establishes a code of conduct for the business-owning family, formalizing rules for coexistence, succession, and participation.
However, the protocol itself does not have the force of law when isolated, but it can and should be incorporated into binding legal instruments that ensure its compliance.
One such instrument is the Shareholders' Agreement, which should include specific clauses regarding voting, succession, and, most importantly, the purchase and sale of shares. Some of these essential rules will also be included in the Articles of Association or Bylaws.
The family can also use wills whenever the business owner chooses to retain a portion of the assets for themselves instead of fully transferring the inheritance.
It is also very useful to divide the family into branches, defined by the lineage of each founder. Each branch can elect a representative to the various decision-making bodies.
This strategy ensures that all branches of the family have a voice in decisions and prevents larger families from exerting dominance solely due to the number of their members. Within each branch, heirs can also organize the internal distribution of their shares or stock.
The coordinated use of these legal instruments is a way to ensure efficient management of the family business, removing sources of conflict and creating attractive conditions essential to the success of an M&A.