At present in Poland we have no legal instruments to construct a flexible family enterprise system once an entrepreneur/nestor (doyen) has ended his/her professional career. This is because there are no legal mechanisms which on the one hand would ensure that an entrepreneur’s legal successors can maintain control of the firm, while at the same time would make it possible on the other hand to avoid involving them directly in the day-to-day management of the predecessor’s undertaking.
The answer to the challenges related to succession in family businesses is to create a new type of organizational unit, i.e. the family foundation. SK&S law firm, in cooperation with the Family Business Institute, is co-initiator of a legislative project concerning this issue.
A family foundation should constitute a separate organizational unit, having legal personality, created for the purpose of carrying out specific tasks. These tasks will include in particular day-to-day management of the assets furnished by the founder as a passive investor whilst ensuring a specific group of beneficiaries a fixed part of the profit generated by the enterprises managed by the foundation.
A postulate of the authors of the project is the creation, as part of the operation of family foundations, of attractive tax frameworks which will induce founders, nestors (i.e. future testators) for conveying accumulated assets to one’s successors, as well as for capital investment in Poland.
Similar legal mechanisms are applied with success in such countries as Austria, Liechtenstein, Holland and Switzerland.
Transitional provisions and adapting provisions
In view of the difference in regulations concerning the institution of the family foundation it will be required to introduce it on the basis of a special statutory act. On the other hand, in the scope not regulated by the Act on Family Foundations, the already applicable provisions on charitable foundations will apply accordingly.
The Act on Family Foundations, as a new regulation, will require the introduction of amendments to a range of particular statutory acts.
Assumptions of the draft Act
The essence of the proposed solutions and purpose of the draft Act on Family Foundations
In spite of an upward trend, just 8.1% of the successors of entrepreneurs declare their desire to continue to conduct the business activity. This is contrary to the assumption of the continued operation of the family business and of control of assets and the enterprise remaining with a group of successors (family).
On the other hand, enterprises hitherto deprived of leaders require a professional management team which often the successors of the founder of a given enterprise do not have, and they have no desire to change this state of affairs. From the point of view of the potential for permanent development, it is in the interest of the firm that there be continued uninterrupted operations, without the need to divide and break down the existing operations amongst the legal successors of the firm’s founder.
A challenge for family business is also that of finding the balance between building up the enterprise’s brand in the long-term, and the day-to-day management and distribution of profit to the entitled parties. Often disputed interests between the family members cause conflicts and make further development of the operations impossible. In addition, from the point of view of entrepreneurs a key factor of actions taken is that of aiming to limit the risk of failed succession in the enterprise. From the point of view of the Polish economy, a key factor having an impact on its development is undoubtedly the creation of favorable legal and tax conditions for a permanent building of tradition and recognizability of Polish brands on the market.
The scope of the planned regulation and essential issues which require regulation:
- Scope of operations of a family foundation
- Registration obligation and legal personality
- Minimal value of assets
- End beneficiary
- Governing bodies of the family foundation
- Taxation of the family foundation operations
- Ending of the family foundation operations