By virtue of ACT No. XLVIII of 2016, the Parliament of Malta has enacted the Family Business Act with the following aims in mind:

  • To encourage the regulation of family businesses and their governance;
  • To assist in the transfer of family businesses from one generation to the next;
  • To assist family businesses to operate their business in an efficient way and work towards a successful transfer of the business;
  • To grant various incentives to family businesses to successfully transfer their business from one generation to the next.

This new legislation was designed after hearing what the concerns of family businesses are and listening to those who care about their future, according to Dr. Nadine Sant. Minister Chris Cardona, who, during a Business Breakfast at the Grand Hotel Excelsior stated that “Malta will be the first European country to enact legislation for Family Business”, described this piece of legislation as exciting since family businesses are precious and important, deserving the support of the government.

Definition of a ‘Family Business’

The term ‘family business’ covers businesses established in Malta which are either one of the following:

  • A public limited liability company whose shares are listed on a regulated market or traded on a multilateral trading facility, the majority of shares held by at least two owners who are family members within the same family;
  • A limited liability company where all the shares are held by at least two owners who are family members within the same family and at least one family member is involved in the general governance, its proper administration and management of the company;
  • A partnerships en nom collectif or en nom commandit where the full capital contribution to the partnership should have been made by at least two owners who are family members within the same family and having the right to receive the majority of distributable profits; and at least one of them holds the majority of the decision-making rights;
  • A trust for the benefit of members of a family as beneficiaries, and which has been established by a written instrument and all the beneficiaries are owners and family members within the same family;
  • Other registered forms of a family business;
  • Other type of business as the Minister may prescribe.

Definition of ‘Family Member’

Family businesses vary from “normal” businesses in that they are motivated by the unity and continuity of family ties. In this respect, it was vital to clearly identify which family members will be recognised within a family business for the purposes of registering as a family business as well as to provide adequate safeguards for their employment.

The definition of “family member” is intended to identify those relatives who, according to Maltese law, will be considered to fall within the parameters of the Act. Such family members include the family business owner’s spouse, ascendants, descendants in the direct line and their relative spouses, brothers or sisters and their descendants or as the Minister may prescribe.

No single family member should hold more than 80% of the shares to qualify for registration as a family business.

Key Aspects of the Act

As per article 7, a business shall only be registered as a family business once it has been accepted for registration by the Regulator. A business shall be disqualified from being registered as a family business if it has not been actively trading or in operation without interruption for a minimum period of at least three (3) consecutive calendar years.

In line with article 14, any acquisition of immovable property, shares, interests, contributions or other assets in respect of which a benefit has been claimed pursuant to this Act must remain within the registered family business for a minimum period of three (3) years and in the event that such immovable property is transferred they must be replaced with a similar asset used for the same benefit of the registered family business or such other period as the Regulator may approve.

In this respect, the owners of the registered family business must undertake to trade and operate the family business during these three consecutive years without interruption immediately following the granting of the benefits or such other shorter period as the Regulator may approve. Where the business does not remain constituted and registered for three years, the business shall make a refund of the benefits, except where the business does not remain constituted due to the unexpected death of a family member.

The Act also introduces a Register of Family Businesses which shall be maintained by the Regulator and shall contain information and data relevant to the registration process as applicable. Each family business shall be allocated a unique registration number, preceded by the letters “FB”, which registration number is called the “Family Business Label”.

This may be quoted by the registered family business on any published materials, letters, notices, advertisements and other documents issued by such business. A list of the names of the family businesses in the Register will be available upon written request.

Interestingly, family businesses based outside Malta are also catered for under this Act. Thus, they can register their family business in Malta and qualify for the incentives as well. This will undoubtedly make Malta a very attractive jurisdiction for the restructuring of Family Businesses wherever the operations may be taking place.

In Malta, family businesses have been the economic pillar and backbone of our society, and have withstood economic downturns robustly. In fact, these have proved to be one of the most adaptive segments of the business community during the past economic crisis.

In the past, many family businesses in Malta have not succeeded to transfer their family business beyond their second generation. This is due, for the most part, to liquidity difficulties and a lack of developed governance during the lifetime of the family business. Consequently, the new Family Business Act aims to reduce such difficulties and will surely enable more businesses to flourish from one generation to the next in the future.