Business succession in Italy

Let us premise that the family business is a company in which one or more members of the same family collaborate, participating in its management and operational activities. In Italy, the discipline of family businesses is regulated by the Civil Code, which provides that participating family members have the right to a share of profits and of strategic decisions of the business, proportionate to their contribution of work.

The generational transition of a business is a very important moment that requires careful planning activity. In fact, recalled that business succession can take place both through a will and in the absence of a will (legitimate succession), if the succession of a family business is not adequately planned, conflicts may arise between heirs, to the detriment of the integrity of the business.

Reference is made to the rules on inheritance law, which are closely linked to family law. In this scenario, the prime instrument to implement correct planning of the succession of a business is certainly the family pact. Such instrument, which derogates from the general rule of the prohibition of inheritance pacts, is used to avoid the long procedures of inheritance division provided by the Civil Code and the possibility of family disputes arising during the inheritance division phase.

The planning of business succession therefore allows the economic activity to survive the death of the entrepreneur, without being compromised by family disputes or splits during the inheritance division phase.

In the case of foreign citizens, it is particularly important to be aware that, in the absence of specific agreements, Italian rules will apply, which might not correspond to those of one’s country of origin. For this reason, it is advisable to turn to a lawyer for successions, such as us at Boschetti Studio Legale, who will be able to assist you in preparing a personalised succession strategy thanks to our specialist lawyers in the matter.

The family pact, introduced in Italy with a 2006 law, allows the entrepreneur to transfer in advance the business or company shares to one or more heirs, thus avoiding the opening of traditional succession and the conflicts that may arise between heirs, and therefore allowing the de cuius to identify the heir or heirs most suitable to give a future to the business and prevent its disintegration.

The succession of businesses can also have as its object a share of co-ownership of the business, as well as a business branch, that is the functionally autonomous articulation of an organised economic activity.

The family pact can be stipulated:

• by the entrepreneur who transfers the business, in whole or in part;
• by the holder of company shares, who can transfer their shares, in whole or in part.
• The assignee of the family pact must necessarily be:
• the descendant of the disponer, but not necessarily a forced heir, since this quality can be held, in addition to the child, also by the grandchild (or great-grandchild).
• The spouse, conversely, although being a forced heir, cannot be the assignee of the family pact, nor can other family members such as ascendants or siblings hold this quality.

It is well to specify that a difference exists between assignee subjects and participating subjects in the family pact. In fact, by law, potential forced heirs must also participate in the contract, that is to say those subjects who would hold this qualification if, at the time of the stipulation of the pact, the succession of the entrepreneur were to open. Such participation would allow consolidating the acquisition of the beneficiary, avoiding for them possible future actions of reduction and excluding them from the obligation of collation.

Providing for the necessity of participation in the pact of all the forced heirs finds its ratio in the interpretation that would have the family pact as a kind of “advance” of the distribution of the patrimony of the entrepreneur compared to the moment in which their succession opens.

It should be noted that in the context of the family pact, indirect donations can be made to satisfy the forced heirs who do not receive the business. This allows balancing the interests of the heirs, ensuring that all receive a portion of the inheritance, respecting the right of reserved share. It follows that the family pact excludes the application of the rules of collation by imputation and voluntary collation, since the forced heirs explicitly renounce them at the time of stipulation.

In the context of a family that owns a holding, the family pact can be used to transfer the shares of the family holding to one or more heirs, maintaining centralised control of the participations and ensuring that the management of the entire business patrimony remains unitary. In this way, the family pact allows an orderly succession of the holding, avoiding the dispersion of participations among multiple heirs.

Therefore, using the family pact, it is possible to clearly establish who will be the successor to the control of the holding. Family pact and family holding are therefore two instruments that can work synergistically to plan succession, allowing the maintenance of family control of the business and protecting the business patrimony, so as to ensure the generational continuity of the business.

For foreign citizens, legal advice is essential to understand how and when to use this instrument, ensuring that it complies with Italian regulations and any regulatory constraints of the Country of origin, recalling that family pacts, falling within the scope of successions, are regulated at the level of private international law by Regolamento UE n. 650/2012.