Family businesses represent approximately three-quarters of Malta’s enterprise base and form a central pillar of the local economy. They account for a significant share of employment, contribute to long-term economic stability, and dominate Malta’s SME footprint. Given their importance, policy attention has increasingly focused on effective governance and the smooth intergenerational transfer of family-owned enterprises to secure continuity from one generation to the next.
This policy focus culminated in the enactment of the Family Business Act on 1 January 2017. The Act reflects Malta’s unique economic composition and was introduced to encourage the governance, regulation and orderly succession of family businesses. It provides a dedicated framework to support the transfer of family businesses across generations and to assist families in enhancing their internal structures and operational organisation with the aim of achieving a successful succession process.
Amongst the measures introduced to facilitate intergenerational transfers in family businesses is the reduced duty rate of 1.5% on inter vivos donations of qualifying shares in family business. In the 2026 Budget, Government confirmed the extension of this preferential rate for a further year. As a result, the typical stamp duty rate is reduced to 1.5% where the donation is made by gratuitous title between qualifying family members, such as parents to children. This fiscal incentive continues to encourage the early transfer of ownership interests within family businesses and supports long-term succession planning.
In practice, the reduced duty regime has encouraged a rise in donations of shares in family businesses, often structured in a manner that separates ownership from economic enjoyment. A common approach involves parents transferring the bare ownership of shares to their descendants, while retaining a usufruct over those shares. This enables the donor to continue receiving dividends and remain involved in the business, while allowing the next generation to assume ownership in a gradual and structured manner. In effect, it creates an orderly, staggered transfer of ownership, aligning estate planning objectives with business continuity and the gradual involvement of the next generation in the business.
In legal terms, a usufruct grants the usufructuary a real right over an asset belonging to another, the bare owner. The usufructuary is entitled to use and enjoy the benefits and profits derived from the asset, while the bare owner retains title. In the context of shareholdings in family businesses, this distinction raises practical questions regarding the rights attached to shares and how they are exercised when title and enjoyment are separated.
Historically, uncertainty existed as to which rights attached to shares devolved to the bare owner and which were exercised by the usufructuary. While dividends are considered “fruits” under civil law principles and therefore fall to the usufructuary, the position on voting rights was far less clear. The Companies Act did not expressly regulate the exercise of shareholder rights where shares were subject to usufruct, leading practitioners to rely on general civil law principles and leaving room for doubt in practice. Questions frequently arose regarding participation at general meetings, the right to vote, and the administrative treatment of such structures. Given the increasing use of usufruct as a tool for succession planning, this lack of clarity posed practical challenges.
To address this uncertainty, Article 117A was introduced into the Companies Act by Act XVIII of 2025. The provision clarifies the default position in relation to the rights attached to shares that are subject to usufruct. It provides that the usufructuary has the right to attend general meetings and to receive dividends, but does not have the right to vote unless voting rights are expressly granted either in the public deed creating the usufruct or in the company’s memorandum and articles of association.
Accordingly, the default rule is that voting rights remain with the bare owner, unless the parties agree otherwise through the constitutive deed or the constitutional documents of the company. This rule operates subject to the general principles of usufruct under the Civil Code, which require the bare owner to exercise shareholder rights in a manner that does not prejudice the usufructuary’s right of enjoyment.
The introduction of Article 117A has been welcomed as a practical and timely clarification. It provides a clear legal foundation for a structure that has become increasingly relevant in the context of family business succession. When viewed alongside the renewed preferential duty regime, it offers families both a fiscal incentive and a clearer, more predictable framework within which to plan intergenerational transfers of ownership interests.
The effectiveness of a usufruct structure in practice, however, depends on thoughtful implementation. Article 117A establishes a default rule that can be varied either through the public deed creating the usufruct or the company’s constitutional documents. To avoid uncertainty, it is advisable to ensure that both instruments reflect the intended allocation of rights, particularly voting rights and participation in decision-making. A staged transfer may create a scenario in which the bare owner holds voting rights while the usufructuary enjoys economic benefits. This separation requires a mature governance framework to ensure that shareholder decisions take into account the interests of both parties.
Further, while the entitlement to dividends is clear, other corporate actions may raise questions as to which rights belong to which party. The deed creating the usufruct should, where possible, anticipate such events and establish mechanisms for dealing with extraordinary transactions. Clear documentation also facilitates interaction with external stakeholders such as banks, auditors and regulatory bodies, who may require clarity on who has authority to bind the company and represent the shareholders.
Article 117A may also have transitional implications. In existing structures where usufructuaries had been exercising voting rights in practice, those rights will now need to be expressly secured through amendments to the constitutive deed or the company’s memorandum and articles of association. In the absence of such amendments, voting rights may revert to the bare owner, effectively altering the balance of rights established under legacy arrangements.
The clarification introduced by Article 117A marks an important development in Malta’s company law, particularly in the context of family business succession. The renewed budget measure encourages the early transfer of ownership, while the company law reform supports the use of usufruct as a tool for staged succession. Together, they provide greater confidence to families planning their succession and help create conditions in which structured transfers can take place within a clear legal framework. This coherence between fiscal policy and corporate law supports business continuity and enables the long-term sustainability of family businesses in Malta.
