Risks of the Succession Agreement: succession in family businesses

As we have mentioned in previous articles, the Succession Agreement is a legal instrument that regulates the succession of family businesses in Catalonia. It is also present in the legal systems of Navarre, Aragon, Galicia, the Balearic Islands, and the Basque Country (provincial territories).

In a Succession Agreement, two or more people can agree on succession in the event of the death of any of them by appointing one or more heirs and making specific allocations. They may contain provisions in favor of the grantors, including reciprocal provisions or provisions in favor of third parties. 

In other words, it facilitates binding agreements between the future deceased and the heir or heirs, thereby facilitating the succession of the family business.

Risks of the Succession Agreement

Given that this is a binding contract, we highlight the following characteristics of the Succession Agreement that Catalan family businesses should take into account:

1. Revocation of the agreement

The agreements are irrevocable unilaterally (unlike a will) by the grantor.

This means that the Succession Agreement cannot be revoked unilaterally by the grantor if (i) the grantor's financial situation changes, (ii) there is some kind of disagreement with the heir, or (iii) there is a change of opinion regarding the assigned assets.

The revocation of the Agreement is only possible in the following cases:

• a) By agreement of all the signatories to the inheritance agreement, which must be recorded in a public deed.
• b) Due to unworthiness to inherit.
• c) Causes expressly agreed upon in the inheritance agreement.
• d) Failure to comply with the obligations imposed on the heir in the inheritance agreement.
• e) Due to the impossibility of fulfilling the purpose that was decisive in the Succession Agreement.
• f) Due to a substantial, unforeseeable change in the causes that led to the signing of the Succession Agreement.
• g) The appearance of new legitimate heirs or compulsory heirs.

The revocation of the Succession Agreement must be done in a public deed and notified to all the signatories of said agreement.

What happens if there is a marital separation?

In this case, the Agreement would not be altered by the annulment of the marriage, marital separation, divorce, or the dissolution of the stable partnership; however, it would become ineffective in favor of the spouse, cohabiting partner, or their relatives in all matters concerning them, but not the rest of the agreements signed in the same document. 

In other words, the Agreement remains in force in all matters not concerning the spouse or stable partner unless otherwise agreed in the Agreement itself.

The affected person has one month to object to the revocation; if they do not object, the Agreement becomes ineffective. This action expires four years after the event that led to the revocation.

What about the heirs, what risk do they face?

Succession agreements in Catalonia must respect the legitimate heirs; if they do not, the heirs could challenge them.

2. Formalities to be taken into account

They must be executed in a public deed before a notary and communicated to the Registry of Last Wills and Testaments. In the event that an agreement is reached on the continuity and maintenance of a family business, this may be recorded in the Property Registry, in the company's Register of Members, and in the Commercial Registry.

3. Nullity of the succession agreement

Succession agreements that do not correspond to any of the types established in the Catalan Civil Code, those granted by persons who are not entitled to do so, or those granted under violence, serious intimidation, deception, or error are null and void.

Although the succession agreement is a very useful instrument for the succession of family businesses, especially in Catalonia, it entails many risks that must be studied and analyzed in depth, which is why it is necessary to have good advice that can resolve all doubts throughout the process. You can contact our expert family business lawyers here.

• More information about Family Business

Rafael Vallet – Family Business Group

Partner in the family law department