According to Malta’s National Statistics Office, micro entities – companies which employ less than 10 people – form over 97 per cent of the number of businesses operating in the jurisdiction. Of these, many are family businesses, upon which the local economy has been built over decades of enterprise. “Typically, Maltese businesses are family-owned or dominated businesses,” says Dr David Zahra, founder of David Zahra and Associates Advocates (DZ&A Advocates). “And dealing with them is a science in itself, since the way they tackle challenges is very different from other privately-owned firms.”
Indeed, since opening their doors in 2011, DZ&A Advocates, a small firm consisting of 10 legal and administrative staff, has focused its attention on delivering a personal, practice-driven service to family businesses, whatever the size and scope of their operations. “We give clients more than legal advice. We offer tailor-made services and a personal relationship,” Dr Zahra explains, going on to describe the way in which the firm approaches the specific challenges facing this breed of companies. “It is essential to present legal advice that makes practical business and legal sense. Lawyers are risk managers, but we cannot just present the risks. We need to present solutions in an accessible manner.”
To this end, the firm offers corporate legal advice on mergers and acquisitions, corporate restructurings, as well as succession planning, working hand-in-hand with tax and financial advisors to ensure each family business under their remit prospers. “We’ve become strong and active, as a firm, in helping businesses from a corporate and legal point of view, whether in retail, construction, hospitality or commodities,” Dr Zahra asserts. “We’ve got a wide range of experience with family-dominated companies, and I feel we understand a little bit more what their needs are.” This understanding is a result of the compact nature of the legal firm, in Dr Zahra’s view. “We’re small, so we can be nimble, and we can be practical. Smaller law firms can address the particular needs of these businesses better."
The Family Business Act, as well as the recently-introduced reduction in stamp duty from five per cent to 1.5 per cent on the transfer of companies from one generation to the following, has encouraged these firms to look to the future, according to Dr Zahra.
“Family businesses are becoming more pro-active and are starting to understand that they might not be able to continue to operate in the same way, since they may not be well-equipped to address challenges in today’s world. They might need to enter other partnerships or even sell, but there are considerations which are not necessarily commercial but are of a more personal nature,” he explains. “Legacy, for example, is central, especially when it comes to companies which have been built over time, and over many generations.”
Moreover, to illustrate the particular personality of family businesses – which is based, inherently, on individual relationships – Dr Zahra compares the approach taken by a large corporation when acquiring new entities, to that taken by family-owned or dominated businesses. “Once a due diligence report is carried out, a typical acquiror will look at the red flags at face value and will make its decision on the basis of the risks, foregoing the sale, if need be. However, in a family-dominated or owned business, we have seen that red flags are interpreted differently because they are mitigated by the nature of the personal relationships established during the acquisition process.”
Thus, the unique nature of such firms requires a different mindset, according to Dr Zahra. “It’s a different perspective, and we, at DZ&A Advocates, understand these contexts,” he states. Indeed, Dr Zahra stresses, “a lawyer in this field does not advise a family business in the same way he or she would counsel any other business in which management is separate from ownership.”
Rather, legal advisors specialising in this field would understand the “peculiarities of family businesses”, the local context they are operating within, as well as the particular relationship between the main parties to the agreement.
“These businesses would generally know who the target company is, in a merger or acquisition scenario, and they could even already be in business with them. The target company could also be another family business, so both parties would understand the risks and challenges. There is this personal link,” he stresses. Therefore, the detail and approach are, necessarily, different, even if the process is the same as it would be for any other type of company, Dr Zahra explains.
This bespoke outlook also informs legal advice given in relation to succession planning, though, in this case, lawyers would not be the first port of call, with companies often preferring to seek business, tax and financial counsel first, Dr Zahra explains. “In the case of succession planning, we are generally asked to implement plans devised by their trusted financial advisors from a legal and corporate point of view. As lawyers, we would need to deal with all legal issues that arise such as the community of acquests, as well as any drafting, corporate procedures and authorisations required,” Dr Zahra continues.
Integral to this, he further expounds, is presenting sometimes complex solutions in simple terms. “Sometimes, the biggest problem is that there may be a degree of hesitation in getting legal advisors involved on behalf of the companies concerned, for many see lawyers come in with heavy legalese, reading off clauses and sub-clauses, with which family business may not be familiar. Their priority is closing the deal – if this is a merger or acquisition – or establishing a clear, certain and safe succession plan, so a lawyer needs to be very understanding and clear in his or her approach,” Dr Zahra stresses.
Comprehending the specific requirements of each client is, thus, also essential. “I sit as company secretary on a number of family businesses in Malta and it’s something we, as a firm, are very proud of. We’re on the board and we’re present when important decisions are taken. The benefits include knowing where and how decisions are taken, and the complexities and particularities of each situation. This helps us give appropriate advice.” Moreover, Dr Zahra insists on going to companies’ premises “because you begin to understand their needs even better. You need to go there and see what the process is from beginning to end. A big firm might not be in a position to offer that, but we’re flexible,” he asserts.
"Knowing the client, knowing his or her circumstance and context, as well as understanding the level of sophistication required,” is integral to the success of the transaction, Dr Zahra explains. “A company’s first concern is to tie up all loose ends to get on with business, so we highlight all the risks but know which ones to focus on. We are not decision makers, but advisors, and we make it a priority to communicate practical business solutions while keeping an eye on the personal aspects of any deal. We need to take everything into account, and tailor our advice and recommendations according to the situation at hand.”
This approach works, according to Dr Zahra, because clients are put first. “We can tell, from our clients’ reactions, that they are happy with what we can offer them, since we are able to provide constructive solutions, which prioritise all aspects of their business,” he concludes.
This interview originally appeared in The Commercial Courier