By Ivan Kubala, Luis Felipe Meira M. Simão, Nicoly Crepaldi Minchuerri and Vitor Antony Ferrari

A family protocol is a legal document through which values and principles are agreed upon between the members of a business family to regulate relations between family, company and assets, in order to mitigate possible disagreements. According to studies by the Brazilian Institute of Geography and Statistics (IBGE), 90% of Brazilian companies have a family profile. In other words: they are business corporations in which more than one family member acts, whether as a partner, administrator, investor or even employee.

Although they are very important to the Brazilian economy, as they represent more than half of the GDP and employ around 75% of the national workforce, they are extremely fragile companies: approximately 70% are extinguished in the second generation, and only 5% reach the third generation of entrepreneurs. The short lifespan of these companies is due to the emergence of family problems, in addition, of course, to the adversities common to all companies. In addition, many family businesses are closely linked to the founding partner, who ends up centralizing the activities, which makes it difficult to maintain them in the long term, especially after his death. This fatality highlights another chronic problem of these companies: the lack of preparation of the successor generation.

An efficient way to combat such problems, ensuring the maintenance of
The main component of business activity over the generations is its “professionalization” through the family protocol: an agreement signed between all family members who have influence over the company. Its content, in addition to describing the history of the business family, ensuring a legacy to be passed on to future generations, contains the values and principles that will guide the management of the company. Furthermore, the family protocol encompasses legal issues relevant to business activity: the rights and duties of each family member partner, the succession of partners, the relationship of successors who are not interested in the business, how the company’s shares are distributed, and any other issues relevant to the specific case.

In other words, through the family protocol, a document is created that is capable of not only keeping the legacy of the business family and its tradition alive and present; but also mitigating the possibility of family conflicts related to the company; pre-establishing forms of administration of the business society; determining the responsibilities, rights and limits of each partner; in addition, of course, preparing the new generations to assume control of the business society in a cohesive manner and under pre-established terms.

The family protocol is a unique document and is closely linked to the characteristics of both the company and the family that manages it. Due to this specificity, it is important to emphasize that there is no single formula for preparing the document. Professionals with expertise must be hired to draft the document, otherwise the effect may be the opposite of what is desired.