HOMEWORK 1.

Family businesses are built on shared values and aspirations. Kelin E. Gersik, in his
book "Family Businesses, Generation by Generation", points out that property, business
and family are conditions that accompany the development of a family business, and
that the interrelationship between these areas can demonstrate the relevance of the
family in the company. In addition, digital transformation is generating radical changes
in the corporate sphere, regardless of the size or category of the organization, and family
businesses are no exception.

In the first stage, is where the family business is formed, with the project of the person
who starts the organization; on the other hand, in the second stage is when the company
has already had a considerable duration, has already gone through the stages mentioned
by the author McGivern, and therefore is ceded to the children of the founders, who
usually have the same ideologies because they are brothers and were raised by the same
father, which is why, until this stage usually do not find major problems. The biggest
problem is in the third stage of the family business, which Ward calls advanced.

It is here that a number of problems occur within the family business, because it is no
longer the children of the founder of the company who are in charge of the management
and control of the company. In this case it is the grandchildren of the founder who take
charge of the company. In the confederation of cousins there are a large number of
cousins and the problems are basically due to the number of cousins within the family,
conflicting interests among them and ignorance among them.

On the other hand, it is extremely important to bear in mind that it may be the case that
the parents, founders of the company, have had certain differences that have not
managed to reach consensus. Under this assumption, it is most likely that the children
will continue with such a situation of differences, which is further aggravated at this
stage of the family business, since it is no longer only the brothers who will have
differences, But now they have inherited the problem to their children (confederation of
cousins), who by the existing number of them, will be more complicated to agree on
existing differences.
In addition, family enterprises include not only those which are founded and managed
by a family, but also those which belong mostly to one or more families or which are
run by one or the other. In this sense, it includes the cases in which the majority of votes
correspond directly or indirectly to the family that founded it or those who succeeded
them.

In the case of listed companies, family enterprises are generally considered to be those
in which a family holds the management or more than a quarter of the voting rights.
Finally, it should be pointed out that many of the large companies and large
multinationals have their origins in family businesses, even though they are no longer
so.

As the article mentions, family businesses in Ecuador deserve special treatment, as they
have particular conflicts and management systems that go beyond the financial
dimension of a business. Therefore, analyze and model non-financial behavior, such as
the socio-emotional richness of the owner families, which according to the literature
review and the study data are very relevant factors that drive the family business.

With the social changes that incorporate commercial requirements have led to a demand
for parasocial agreements that are not contemplated in our company law. There is a
slow evolution that still hinders the possibility of creating statutory agreements that
condition the corporate vote and facilitate the dynamics of internal government and
prolong the life of the family society.

Parasocial pacts are documents that incorporate pacts that regulate the relations between
family members to society. These are internal stipulations of the organization and have
a contractual effectiveness among its signatories. Commercial practice establishes three
types of parasocial pacts: those that intervene in the will of the partners in the face of
their direct relations with the intervention of the society; those that are signed in order to
provide advantages to the society itself; those relating to the decision-making regime
and forms of organization of society.

An FBD may arise between two or more family members over ownership and/or
business administration. Because litigants have personal relationships, an FBD is not
strictly a commercial dispute between participants on arm’s length terms. So, we can
say that the ADR in the Ecuadorian FBD would work in this type of family business
conflicts.

The protocols in the family societies would be referred especially on this last type of
parasocial pact, where the policies of the company, the business plan, the administrative
organs, the faculties and the special conditions of the members would be established,
among others.

In the field of family business, parasocial agreements aim at institutionalising formal

levels of communication between society and the family or different family groups) in
order to prevent conflicts or family frictions from complicating the life of society and,
therefore, ultimately affect the company.

These types of agreements can be an effective tool for family societies, since they can
include private agreements that, because of their content or nature, must be framed in a
specific way and complementary to legal regulation. In addition, they can help partners
define their work and their role in society and the rules they will be governed by. The
content must be built on the will of the parties to reinforce the norms constituted in the
social contract or to institute minimum lines on the relationship within the business. In
this way, the relations between the members of society are balanced and the
commitments to society are consolidated.

A large part of the Ecuadorian business fabric is made up of family-based societies in

the broad sense, that is, those in which ownership or decision-making power belong, in
whole or in part, a group of people who are blood relatives or related to each other. This
economic, legal and social reality obliges us to take into consideration their peculiarities
and the lawful self-regulation of their own interests especially in relation to the
succession of the family business, removing obstacles and providing the legal operator
with instruments.

Therefore, the intention to protect the life of family businesses through a regulation that
stabilizes them by offering a balance between managers, managers and partners, brings
to light a law that meets the needs of regulating family protocol and good governance of
these companies, whereas it must cover certain fundamental features and, given its
complexity, be subject to the legal rigour already existing in our legislation, such as the
provisions of the Civil Code on family law and inheritance issues; the Companies Act
on Limited Liability Companies, Public Limited Companies and Other Types of
Companies; and the Commercial Register Regulations.

These types of agreements can be an effective tool for family societies, as they may
include private agreements which, because of their content or nature, must be
specifically framed and complement legal regulation. In addition, they can help partners
define their work and role in society and the rules by which they will be governed. The
content must be built on the will of the parties to reinforce the norms constituted in the
social contract or to institute minimum lines on the relationship within the company. In
this way, relations between members of society are balanced and commitments to
society are consolidated.

Much of the Ecuadorian business fabric is made up of family societies in the broad
sense, that is, those in which ownership or decision-making power belong, in whole or
in part, to a group of related persons. This economic, legal and social reality obliges us
to take into account their peculiarities and the legitimate self-regulation of their own
interests, especially in relation to the succession of the family business, remove
obstacles and provide tools to the legal operator.

Therefore, the intention to protect the life of family businesses through a regulation that
stabilizes them by offering a balance between managers, managers and partners, brings
to light a law that meets the needs of regulating family protocol and good governance of
these companies, Whereas it should cover certain fundamental aspects and, given its
complexity, be subject to the legal rigour already existing in our legislation, such as the
provisions of the Civil Code on family law and inheritance matters; the Law on Limited
Liability Companies, Public Limited Companies and Other Types of Companies; and
the Commercial Register Regulations.
REFERENCES

SMITH, Peter. Building the case for Family Business Arbitration in the GCC Región.
Wulters Kluwer. http://arbitrationblog.kluwerarbitration.com/2022/06/17/building-the-
case-for-family-business-arbitration-in-the-gcc-region/. 2022.