The family business (impresa familiare) is a special legal framework for sole proprietorships in which family members regularly work in the business. It allows for the legal recognition of family members’ contributions and enables them to share in the business’s profits.
The family business is particularly common among smaller family-run businesses, such as craft businesses, retail companies, farms, or businesses in the hospitality industry. However, it does not constitute a separate type of business or corporate structure. The business owner remains the sole proprietor of the business and bears full business responsibility.
Requirements for a family business
A family business exists when family members work permanently and predominantly in the entrepreneur’s business.
In particular, the following may participate:
- the spouse,
- a registered domestic partner,
- relatives up to the third degree,
- in-laws up to the second degree.
The work must actually take place. Mere family support or occasional assistance is not sufficient. The decisive factor is that the work is performed regularly and contributes significantly to the business operations.
Rights of Family Members
Family members who work in the business do not become shareholders of the company and do not receive an ownership stake in the business. However, the law grants them certain property and participation rights.
These include, in particular:
- a share in the profits generated,
- a share in the company’s appreciation in value,
- a share in the goodwill (Avviamento),
- and the right to reasonable compensation commensurate with the work performed.
Tax Treatment
For tax purposes, the business continues to be attributed to the entrepreneur as an individual. Family members do not become independent entrepreneurs.
However, a portion of the business’s profits may be attributed to family members who work in the business. According to Article 5, Paragraph 4, of the Italian Income Tax Code (TUIR), up to 49% of the profits may be distributed to family members.
The allocation must correspond to the actual level of work performed. The business owner must pay taxes on at least 51% of the profit.
Conclusion
The family business is thus a solution frequently used in Italy to account for the work of family members in a sole proprietorship from both a legal and tax perspective. It allows family members to share in the company’s profits without having to become shareholders.