In 2006, the “family pact” was introduced into the Italian legal system.
It allows an entrepreneur to manage the generational transfer of their business by transferring to one or more descendants the company or the shares in the capital of the “family company”, without giving rise to disputes at the time of inheritance.
It is an important innovation in succession law, since in Italy businesses with a “family” nature are very common.
Although it has a significant impact on the entrepreneur’s testamentary succession, the family pact is a contract between living persons which entails the immediate transfer of the family business.
Key features
The family pact must be executed as a notarial deed, under penalty of nullity, and all those who would be “forced heirs” (that is, heirs whom the law does not allow to be excluded, such as the spouse and children) must take part in it, as if the succession of the entrepreneur were opened at that moment.
The pact must provide that the beneficiaries to whom the company or the shareholdings are assigned “compensate” the other parties to the contract by paying them an amount corresponding to the value of the shares reserved to the forced heirs (unless the latter waive such rights, in whole or in part).
The parties may agree that the settlement (liquidation), in whole or in part, is made in kind, i.e. by transferring assets instead of money. In this case, the assets in kind assigned to the other forced heirs (who do not receive the business) “are charged to the reserved shares to which they are entitled”, i.e. they are treated as an advance on their future inheritance.
When the entrepreneur’s succession is opened, new persons may become forced heirs after the execution of the family pact (for example, a new spouse of an entrepreneur who was previously widowed or single, or new children). In such a case, they may ask the beneficiaries of the family pact to pay them an amount equal to the value of the reserved share to which they are entitled by law.
The contract may be terminated or amended by the same parties who originally entered into it:
- by means of a new contract, again executed by notarial deed;
- by withdrawal (if provided for in the family pact), exercised through a “declaration addressed to the other parties, certified by a notary”.