Family business

What it means

A family business is a company whose ownership, and usually management, is held by one family and which is meant to pass to future generations. It may be a sole trader helped by a spouse or children, or a company with several family shareholders and outside managers.

Family businesses make up a large share of Slovak SMEs. Their strengths are a long-term outlook, trust and stability; their weaknesses are the mixing of family and business relationships, informal decision-making and postponing the question of succession.

A sole trader can involve a spouse or children as cooperating persons and, within statutory limits, allocate income and expenses to them. In a company, relationships are governed by the articles, a shareholders’ agreement and the employment contracts of family members.

How it works in practice

With family companies we deal not only with the accounts but also with rules that arise naturally between unrelated shareholders: who decides what, how profit is shared, who may join the company and on what terms. A pre-emption right and clear rules on inheriting stakes help.

We recommend proper employment contracts at market pay for family members working in the business. This separates pay for work from profit shares and makes clear, in an audit or dispute, who is paid for what.

For larger family groups we consider a holding structure that owns the stakes in operating companies and simplifies transfers between generations. The work also includes a business valuation and a continuity plan in case the founder drops out.

What to watch out for

Informal family agreements work as long as everyone agrees. On divorce, death or a dispute between siblings, it turns out the company has no rules, and stakes may pass to people with no connection to the business.

Payments to family members without an employment contract or above market pay may be disallowed as tax-deductible expenses. Likewise, family private expenses paid by the company lead to additional tax and fines in an audit.