Approximately 70% of Spanish SMEs are family businesses,which accounts for around 57% of the Gross Domestic Product (GDP), and 67% of employment in the private sector.
The family business is not a corporate type, nor does it have its own specific regulation. Interested parties may opt for any of the typical legal forms admitted.
An SME is not the same as a family business, nor that all family businesses are small or medium-sized companies, since there are cases such as Inditex or Ferrovial among others, which are family businesses and are part of the IBEX 35, and in the latter case necessarily take the form of a Public Limited Company (SA).
If you have a family business or you are thinking of setting it up, and you have doubts about it, from AYCE Laborytax we will try to solve them, explaining each and every one of the differences between an SME and a family business.
What is a family business?
We say that a company is family when most of its shares belong to the same family,and the members of that family intervene directly and decisively both in the administration and in the direction of the business.
In general, the family business tends to be more solid than the non-familybusiness, although there is a tendency that with the passage of time, the percentage of family members who work in the company is reduced.
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There are three main characteristics of a family business:
- It is a property concentrated in a family group.
- Family members participate directly in the management and administration of the company.
- The company has a vocation for family continuity, maintaining business values in each generation.
It should be noted that in the family business two different life cycles coexist:the life cycle of the company, and the life cycle of the family.
The first cycle focuses on the gestation of the company, that is, on the constitution, development and maturation. On the other hand, the life cycle of the family goes from the family business to the business enterprise.
Differences between family business and SMEs
The main difference between an SME and a family business is in its ownership. That said, for a company to be considered as family from a tax point of view, it is essential that it is constituted as a Limited Liability Company (SRL) or a Public Limited Company (SA). Likewise, the family group must own at least 20% of the total company,or 5% at the individual level.
Normally family businesses start their activity as SMEs,mainly because it is difficult to access the necessary financing to expand, especially during the first stage. Over time, if a good opportunity is found and the relevant risks are taken, the family business could continue to grow.
It should also be noted that the family business, in general, tends to grow in a much more stable and constant way. In addition, it usually boasts a higher profitability than SMEs, and is managed more easily, efficiently and with total transparency.
Other competitive advantages of the family business:
- Long-term orientation and greater degree of unity.
- Higher percentage of self-financing and reinvestment to finance the growth of the company.
- Greater job stability for employees and management.
- Greater connection with customers, which also translates into greater satisfaction.
- Increased market knowledge.
- Competitive flexibility.
Tax advantages of family businesses
Family businesses that have been established as SMEs can take advantage of the different public support programs available,which large companies cannot access.
In addition, the State offers a number of tax benefits with the intention of boosting the growth of SMEs,such as the option of deducting the total investment expenses, or being able to offset negative tax bases, applying a tax reduction of up to one million euros to the positive tax base.
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For a family business to access these advantages, it cannot count on more than 50 workers on staff, while its annual turnover cannot exceed 5.7 million euros.
Here we must add an additional tax benefit, to which only a family business can benefit, which is a reduction of up to 95% or 99% of the taxable base in the Inheritance and Gift Tax.
This reduction only applies to direct descendants or the spouse, and for this it is not mandatory that the heir who assumes the direction previously has had a stake in the company.
Sometimes, the shares of the family business are also exempt from wealth tax.
Although most SMEs in our country are family businesses, it must be clear that a family business and an SME should not be the same. By setting up a family business as an SME, you will be able to take advantage of a series of competitive and tax advantages, which are very important to be taken into account.
Any questions about this, contact the team of tax advisors of AYCE Laborytax so that they can help you.