The importance of Legal Agreements in the field of Family Businesses: Brief comments on the ruling “Strella v. Strella”

The importance of Legal Agreements in the field of Family Businesses: Brief comments on the ruling “Strella v. Strella”

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The importance of Family Businesses in Argentina’s economy is indisputable. In fact, the international consulting firm Ernst & Young estimates that around 90% of the country’s small and medium enterprises are family-owned.

Beyond the ups and downs of Argentina’s economy, Family Businesses face an additional challenge regarding the management of relationships between partners, which is conditioned by personal ties within the family group. The challenges usually increase in the event of generational handovers in the management or shareholding of the company. That is why it is highly advisable for companies composed of members of a family group to have a Legal Agreement for their Family Business. This instrument is an associative contract that regulates the relations between the members of the family and the company and provides tools to avoid, address and resolve conflicts that may arise between them. This Agreements, unlike mere shareholder agreements between partners who are not bound by family ties, seek a healthy balance between the different patrimonial and moral values at stake.

Recently, the ruling “Strella v. Strella, passed by the Civil and Commercial Court of Tartagal District, Province of Salta, highlighted the central place of Legal Agreements in Family Businesses. In this case, the court refused to summon a court-mandated shareholders’ meeting of the company CAMPOS DEL TROPICO S.A. The meeting was requested by the minority shareholder and sister of the Director of the company. The ruling rejected the claimsof both siblings and ordered them to seek an integral consultancy specialized in Family Businesses, in order to professionalize the enterprise and reduce family and corporate conflicts.

Even though some complaints may be raised about the scope of state intervention in the internal decision-making sphere of the subjects, the ruling shows that on many occasions the courts are not the appropriate place for the solution of conflicts within Family Businesses. Mainly due to the fact that ‑as stated by the court in this case- these conflicts are full of “(…) negative psychological elements, superior to those of any other patrimonial conflict, derived from the bonds between the partners, the previous trust, its loss and the forced coexistence that the corporate regime implies”.

For this reason, Lerman & Szlak recommends that members of Family Businesses take active policies for the prevention of disputes and make Legal Agreements that enable a correct development of the internal life of the company. There is no doubt that this will help to prevent, address and even solve situations that otherwise could end up in court, not without serious damage to both assets and relationships.

For information regarding prevention and/or resolution of corporate conflicts, and drafting of Legal Agreements for Family Business, please write to us at [email protected].

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