The definition of family business approved by the government

18. 5. 2019 | Source: Ministry of Industry and Trade of The Czech Republic

What is a family business or a family trade? It will be clearer since Monday as the government has approved a regulation defining the family business. For the first time, the Czech Republic has a definition that will make it easier to employ relatives and better support them through incentives.

“Family businesses have finally lived to see.  For the first time in history, we have anchored the family business and the family trade into the Czech environment.  We fulfil our promise to the business segment, which is the foundation of a stable state” said Minister of Industry and Trade Karel Havlíček, who presented the regulation. 

Thanks to the definition, some form of support for family businesses will be introduced. “It will also be possible to announce structural calls or programs or introduce tax relieves.  For example, in Spain, they came up with the idea that if an entrepreneur invests its own money in the family business company, the interest rate is determined, on which bases taxes can be reduced. I would like to introduce something similar in our country, for example, on the basis of repo rates” added the Minister.

As the definition of a family business has not existed up to now, there is no evidence showing the number of family business companies in the Czech Republic.  This should now change. Statistical monitoring will help show the impact of family businesses on the economy.

The definition will be binding for all Ministries and other central government bodies.  Other activities, such as the Family Business Labelling System will be linked to the definition.

The management of Czech family businesses is currently facing the first “post-revolution” exchange of generations.  “Most Czech entrepreneurs who started their business after 1989 must decide on how to deal with their businesses and property. Whether they leave the management of their businesses to the children, hand them over to the professional management or sell them” said Minister Havlíček, adding:  “In this context, the MIT is currently considering support for the transfer of family businesses to the existing employees, the so-called management buy-out through the preferential guarantees in the 2015-2023 Warranty Program.”

The basis of the definition of family businesses in the Czech Republic has been proposed by the Czech Association of Small and Medium-sized enterprises and Crafts of the CR.  The proposition was primarily based on the standard formulated by the European Family Business Federation.  At the same time, the experience of neighbouring Austria or the professional resources dealing with this issue under the Czech Republic´s conditions have been taken into account.  Findings resulting from many expert discussions in times of developing the Civil Code as well as the experience from intergenerational change of business owners have also been used.

Definition of family business

A family business is a family business corporation or a family trade.

  1. Family Business Corporation is understood a business corporation where more than one half of its members are members of one family and at least one member of that family is its statutory body or where members of one family directly or indirectly exercise a majority of voting rights and at least one member of that family is a member of statutory body of this business corporation. Family Business Corporation is also understood a business corporation where the majority of the voting rights are exercised in favour of one family by the trust fund or its trustee provided that at least one member of the family is a member of the statutory body of trust fund or a trustee of the trust fund.
     
  2. A family business is a business where at least two members of one family participate in their work or property, and at least one of the family members holds a trade or other similar authorization or is entitled to do business for another reason.
     
  3. The members of one family for the purposes of family business are considered jointly working spouses or partners, or at least one of the spouses or partners and their relatives up to the third degree, persons with spouses or brothers- and sisters-in-law up to the second degree, as well as related persons in direct line or siblings.  If a person, who is underage or not fully legally competent, is among them, it shall be represented in voting by a legal guardian.

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