Family business: when it is convenient and how to start it

When starting a new business it is important to work with people you trust 100%. For this reason (but also several others) you might consider opening a family business. After all, even Walt Disney one day said:

“To do business, a man should never neglect his family”.

However, not all that glitters is gold: setting up a family business offers you numerous advantages, but also involves several potentially negative aspects.
In order for the family business to be truly a success, it is therefore necessary that you structure and manage it correctly. To do this, you must first of all know what is meant, by law, by a family business and what are the necessary requirements, know its pros and cons, but also carefully evaluate what costs it has and which tax obligations require the establishment of a family business.

Family business: definition

A family business can be defined as a sole proprietorship in which the owner and his family members collaborate (which can be the spouse, relatives within the third degree and relatives within the second degree). Family members, as reported in Article 230 bis of the Civil Code, are recognized various rights, including a share of the company’s profits, in exchange for the collaboration they provide.

However, there are different types of family businesses:

• the marital business, in which the family business (which can be owned by both spouses or only one of the two) is managed jointly by both spouses, who are under a community property regime;
• the sole proprietorship of one of the two spouses, in the event that the other spouse or family members collaborate with the family business, without however participating in the management of the company;
• the sole proprietorship of one of the family members, in which the collaborating family members have the right, unless otherwise agreed, to the management of the company and the attribution of property rights;
• the social enterprise of several family members, who manage it jointly.

What are the requirements for starting a family business?

The sentence 5603/2022 of the Cassation identifies some key elements of the definition of a family business. Specifically, the conditions for setting up a family business are:

• the existence of a company;
• the particular nature of the participants (spouse, relatives and relatives);
• the carrying out by the family member of a continuous work activity;
• the increase in the productivity of the company resulting from the work of the participant.

Can have the status of collaborator of a family business:

• the spouse, who is civilly united and the cohabitant;
• legitimate, adopted and affiliated children;
• legally and judicially recognized children born out of wedlock;
• children born from a previous marriage of the spouse;
• minors regularly in custody;
• grandchildren in direct line and in collateral line (children of brothers and sisters);
• brothers and sisters;
• ascendants (parents, grandparents, great-grandparents) and those who are equivalent to parents (adopters, affiliates, natural parents of legally recognized children, etc.);
• relatives up to the third degree;
• relatives up to the second degree.

Remember that the degree of kinship must exist for the entire period of existence of the family business. This means that, in the case of a family business between spouses, a possible divorce implies the forfeiture of the fiscal and tax benefits and the exclusion from the subsidized regime provided for this type of business.

Within a family business, the family member must carry out a continuous, regular and constant work activity, even if it is not necessary to be full-time. The work done by him can be both manual and intellectual, but it must be relevant to the business of the company and able to have an impact on its performance. This work cannot consist solely and exclusively in the management of the company, because, in this case, we would be dealing with a mere corporate relationship and not a family collaboration.

The deed of incorporation (notary yes or no?)

You have several procedures for setting up a family business. A company of this type, for example, can be started from scratch or from an existing sole proprietorship.

The Civil Code does not oblige you to set up a family business in the presence of a notary: you can, in fact, only resort to the help of an accountant, but the notary can be particularly useful if you intend to take advantage of all the tax benefits provided for this type of activity.

You must also remember that, even and especially in the case of a family business, establishing roles and responsibilities in time can prove to be decisive for the success of the company itself. To avoid misunderstandings, therefore, it is advisable to put everything in black and white with an informal agreement or a family statute.

On a practical level, after contacting a notary, you have to choose whether to set up a family business through a public deed or with an authenticated private agreement. The deed of incorporation must then be registered with the Business Register (Registro delle Imprese). To do this, you must go to the Chamber of Commerce within one month of setting up the family business. That’s not all: you must then request the VAT number from the Revenue Agency (Agenzia delle Entrate), open your INPS position and, possibly, also the INAIL position.

Advantages (and disadvantages) of the family business

A careful analysis of the advantages and disadvantages associated with setting up a family business is what allows you to understand whether this option may or may not represent the most suitable solution for you.

As already mentioned, the benefits are essentially linked to the possibility of sharing an entrepreneurial adventure with people you trust, on whose support you can always count and on whom you can accurately know your wishes, needs and any problems. This level of knowledge also allows you to communicate more efficiently. Not only that: setting up a family business minimizes the need to find staff and, therefore, shortens the time needed to start your business.

Mutual knowledge between family members and possible excessive confidence, however, can also represent a hindrance in terms of professionalism. Furthermore, personal issues that may arise within a family business can have an even greater negative impact than those that may occur in a “traditional” company. In this regard, as previously highlighted, it is necessary to define roles, tasks and rewards in time and with absolute precision.

There is another negative aspect related to the establishment of a family business: the possibility of counting on relatives allows you to speed up the time for recruiting personnel but, inevitably, it represents a limit from the point of view of skills and experiences that your business can acquire.

Costs and tax obligations of a family business

Previously, we referred to the bureaucratic process necessary for setting up a family business, which is particularly lean; the time has come to devote a more in-depth focus to the costs and tax aspects related to this very important step for you.

In this regard, it is appropriate, first of all, to specify that a variable capable of significantly affecting the costs of setting up a family business is the eventual recourse to the notary. In the event that you decide to do without it, you will have to pay the registration tax (168 euros) and meet the costs for consulting an accountant (which, approximately, are between 150 and 300 euros). Registration with INPS and the assignment of the VAT number by the Revenue Agency are, however, free. As for notary fees, you should know that they are around 1000-1500 euros.

If you set up a family business, you can do without various bureaucratic and tax obligations and benefit from various advantages regarding taxation. The most interesting aspect, in this sense, is linked to the possibility of attributing to family collaborators up to 49% of the income produced. Since taxation on individuals increases as income increases, this possibility allows you to mitigate the progressivity of the tax and, in this way, reduce the tax burden. Furthermore, a family business allows you to provide social security coverage to employees.

Some examples of family business

When you think of a family-run business, the example of a small craft shop, a small shop or a small restaurant often immediately springs to mind; You may not know, however, that there are examples of highly successful family businesses in virtually every business environment, even in the fastest-growing and most innovative, including the tech sector.

Just think, for example, of Comcast, one of the most important providers of telephony and high-speed internet services in the United States of America: it is a family business founded in 1963 by Ralph J. Roberts and still today the family owns over 33% of the company.

Another example of a successful family business in the tech field is Dell, a US multinational, one of the most important in the world in the production of PCs and IT systems.

Ford, one of the most renowned brands in the automotive sector, was born as a family business. Even today, the Ford family owns 40% of the company’s shares and is directly involved in its management.

The establishment of a very successful family business is also possible in Italy: as can be seen from the Family Business Index of 2021, the third family business in the world is, in fact, the EXOR financial holding, founded and controlled by the Agnelli family.