Family businesses have to be considered a significant element of the Czech economy which is worth supporting. They often operate in regions, where they create additional jobs and maintain regional products, increase local employment rate and work as a prevention of depopulation of the countryside. They also show a relatively high stability and they can therefore support the economy even in times of recession. Until now, however, we have lacked a national regulation that would clearly define a family business as such.
This changed in mid-May, when the Government ruled to approve the definition of family business. The Czech Republic thus joined the ranks of countries having a national regulation of family business. This opens the way to better support for companies in the future, whether it involves obtaining grants or employing family members, although in the first stage the definition will be used primarily for a statistical tracking of family businesses. The authors of the definition included a team of lawyers from Deloitte Legal who helped with a survey of tried and tested foreign methods in this area and subsequently with the creation of the definition itself.
How did we look for the definition? We involved the international network Deloitte Legal – first of all we mapped whether family business is regulated in other European countries, and if so, how. This research showed that no EU country currently has a comprehensive regulation of family business, but in certain aspects family business is often taken into account in the laws of other countries. In Slovakia, an entire draft bill was prepared on family business, but it was ultimately not adopted. This proposed Slovak regulation became an inspiration for the Czech definition, given the similarity of the Czech and Slovak law.
The Czech Republic has so far not opted to define family business in a legal regulation (the definition was adopted by a Government resolution), but it is certainly not ruled out in the future.
A family business is a family business corporation or a family trade
The Association of Small and Medium-Sized Enterprises and Crafts of the Czech Republic, which has long been fighting for a better support of family business by the state, contacted Deloitte Legal lawyers with the objective of defining what exactly is meant by a family business. Bohumil Havel, the author of the Business Corporations Act, was also invited to cooperate.
The final Czech definition of a family business includes a family business corporation and a family trade and its literal wording is as follows:
- A family business corporation is a business corporation where more than a half of the owners are members of a family and at least one member of this family is the corporation’s statutory body, or where the members of a family directly or indirectly perform most of the voting rights and at least one member of this family is a member of the business corporation’s statutory body. A family business corporation is also a business corporation where the majority of voting rights are performed in favour of a family by a foundation or the trustee of a trust fund, provided that at least one member of this family is simultaneously a member of the statutory body of the foundation or the trustee of the trust fund.
- A family trade is a business where at least two members of a family are involved through their work or assets and at least one of the members of this family holds a trade or similar licence or is authorised to perform business for another reason.
- For the purposes of a family business, the members of a family refer to spouses or partners working together or at least one of the spouses or partners with their relatives up to the third degree, persons related by affinity to the spouses or partners up to the second degree, lineal relatives or siblings. If one of them is a person who is not fully legally competent, this person is represented in voting by a legal representative; if the person is underage, he or she is represented by a guardian.
Have a look at how our flagship Deloitte Private works with family businesses.
The article is part of dReport – June 2019, Legal news.