Legal keys to planning generational transition in family businesses

This article is part of the Newsletter #2 of the Chair in Family-Owned Enterprises (CFOE) of Esade and Andbank. Subscribe here.

The relevance of family businesses is indisputable. In the specific context of Spain, more than 90% of companies are family-owned, and they generate more than 70% of private-sector employment. Moreover, this segment has continued to grow in recent years.

This context—complex due not only to the sector’s well-known heterogeneity but also to the difficulty of achieving coherent, unified regulation—reveals the family business as a “macrostructure” housing widely diverse models, from today’s startups to companies with more than five decades of history. Current data also show that more than 50% of Spanish family businesses are still in the first generation, within a broader environment characterized by a high concentration of ownership. This means that generational transition in ownership remains one of the sector’s most critical and challenging issues.

These data allow us to sketch a first approximation of Spain’s business reality. That said, it is important to remember that—whether in Spain or other countries—in the term “family business,” the family constitutes the company’s DNA. Behind every family business lies a family with its own branches and lineages which, regardless of how the business project or ownership evolves, follows its own path: it undergoes changes and, ultimately, evolves in parallel, but with its own rules.

In today’s legislative and social environment—marked by globalization, constant change, and an expanded legal and social understanding of the family—the identification, analysis, planning, and prevention of so-called ‘family risks’ have become absolutely essential for the internal management of family businesses. This is particularly relevant when considering that the primary objective of such businesses is usually to ensure the continuity of the project within the business family.

In this regard, legal doctrine specializing in business and corporate compliance—especially from the perspective of commercial law—has classified these family risks as one of the essential categories for sound corporate governance in family businesses. Because this area is closely connected to family law and inheritance law—ultimately, civil law—it is now indispensable to deepen our understanding of these family-related risks.

From this standpoint, even a preliminary analysis requires consideration of several legal and social factors that undoubtedly grant this dimension of family business compliance a particularly complex and multidisciplinary character. In practice, this obliges companies to conduct far more detailed and comprehensive analyses, while also adopting an external perspective beyond the business itself.

Several factors stand out in this analysis:

1. On the domestic front, the continuous development of Spain’s regional civil law systems and their specificities—particularly in areas related to family law and succession—has created a unique multi-legislative landscape, very different from that of neighboring countries. Today, seven internal civil law systems coexist in Spain, and they apply according to the concept of “civil residence” (vecindad civil). Although not widely known, this legal concept is essential, as it can change simply through a family member’s move from one region to another. 
   
   On the international front, there has also been a constant increase in European and international regulations. In recent years, these norms have significantly affected matters related to family and succession, even when the family has no direct ties abroad. A clear example is the European Succession Regulation, in force since 2015. As a general rule, it establishes that succession must be governed by the law of the deceased’s habitual residence—wherever that may be—and not by their personal law (i.e., the law of their nationality).
2. A second factor is the widening range of family structures—married families, unmarried partnerships, single-parent families, and stepfamilies—each subject to different regulations and legal consequences depending on the autonomous community of residence. This, combined with a well-known increase in family breakups, leads to family members entering and exiting the family system, resulting in far more varied and variable—thus more fragile—family structures.
3. Third, the increase in geographical mobility, both domestic and international, means that family units may (often unknowingly) undergo implicit changes in the legal framework applicable to relevant family and inheritance matters. These changes may have significant legal consequences, including in the event of the death of a family member.
4. Fourth, certain major legislative developments must also be considered. For example, Spain’s Law 8/2021 on support for persons with disabilities incorporates the nearly worldwide 2006 New York Convention into Spanish law. Among other developments, the law eliminates the possibility of declaring adults legally incapacitated and abolishes adult guardianship, promoting instead the use of preventive powers and other instruments through which each person can voluntarily and freely establish future support mechanisms.

In short, all these factors—directly linked to the development and internal evolution of the family (and, therefore, of the owners)—along with others not addressed here, clearly affect the functioning of the family business and must be considered today, whether in the Spanish legal context or other geographies. For this reason, they should not only be integrated into the family business’s internal risk-management strategies but also analyzed individually and case by case, with the depth required by the complexity of this type of assessment. Ultimately, the purpose is to support, reinforce, and add value to any planning aimed at ensuring effective day-to-day management, the continuity of the business project, and, above all, the successful generational transition that is so essential within family businesses.