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What Australian acquirers must check before signing on a founder-seller deal in the 2026–2030 succession wave
Thirty days from now, the preliminary sale contract (compromesso) your adviser is drafting will lock your price, fix your deposit at ten per cent of the purchase price, and cap your walk-away rights. Once it is signed, the Italian Civil Code (codice civile) gives you very limited grounds to exit without forfeiting that deposit. If you have not yet asked the founder whether a patto di famiglia exists, whether all his children signed it, or whether his nephew has been on the payroll for twelve years without a written contract, you are pricing blind.
That is the situation facing Australian buyers and search-fund acquirers in the Italian lower middle market right now. Figures widely cited in Italian succession-planning literature suggest approximately one million Italian SMEs will change hands over the next decade. Fewer than 15 per cent of those transitions are properly structured. The founder is often the sole shareholder, the company accountant, and the informal HR department simultaneously. His or her successor may be a child who signed nothing, a child who was excluded from everything, or nobody at all.
A patto di famiglia — Italy's only lawful lifetime succession pact — is the instrument a founder uses to transfer the business to one or more children during his lifetime while buying out the others. Articles 768-bis to 768-octies of the Italian Civil Code govern it. The key point for a buyer: if the patto di famiglia exists and was correctly executed, it effectively insulates the transferred shares from future forced-heirship claims. If it was incorrectly executed, those claims survive the sale to you.
The requirement is unforgiving. Every legittimario — every person who would have a forced-heirship share on the founder's death, meaning the spouse and all children — must participate in the execution of the instrument before a notary. If even one mandatory heir was absent, the patto di famiglia is voidable under Article 768-octies. That heir can bring an action for annulment after closing. The time limit is one year from the date the excluded heir learns of the transaction.
In practice, founders who executed a patto di famiglia in the early 2000s may have since had additional children, remarried, or had a child whose parentage was disputed. Due diligence must trace the founder's full family tree as it stands today, not as it appeared when the instrument was signed.
Yes, and this surprises almost every Australian buyer. Unlike the position under Australian succession law — where testamentary freedom is the default and family provision claims arise after death under discrete state legislation such as the Succession Act 2006 (NSW) — Italian forced heirship is a structural right that travels with the asset. The forced heirship share, or legittima (quota di riserva), is protected under Articles 536 to 564 of the Italian Civil Code. An heir who was cut out of a lifetime transfer can bring a riduzione action to claw back the difference between what they received and what the law guarantees them.
Critically, this action can be brought against a buyer of the transferred asset. Article 563 of the Italian Civil Code allows the excluded heir to pursue third-party acquirers if the estate is insufficient to satisfy the claim, subject to a twenty-year prescription period. The acquirer's good faith offers no complete protection: Italian law looks at the objective shortfall, not the buyer's state of mind. This is the one point most competing due-diligence checklists miss entirely.
For an Australian buyer, the practical answer is a rep and warranty confirming that all legittimari have been identified, have participated in or ratified any succession instrument, and have received their liquidation entitlements. Support that with a specific indemnity. Warranty and indemnity insurance in the Italian mid-market now typically covers this head of risk, but insurers will require you to have commissioned a family-law opinion confirming the patto di famiglia review was done properly.
Three Italian-specific landmines recur in practice on founder-seller deals. None of them appears on a standard legal due-diligence checklist, and none is readily visible in audited accounts.
A patto di famiglia must be executed before a notary and transcribed in the land registry if real property is involved. If the founder transferred the shares informally — via a gift, an unregistered agreement, or a verbal understanding — that transfer carries no statutory protection against forced-heirship challenges. Verify the instrument. Verify the notary's filing. If neither exists, treat the company as if no succession planning has taken place.
Article 2467 of the Italian Civil Code subordinates shareholder loans to external creditors when the company is undercapitalised or in financial difficulty at the time the loan is made. In founder-seller deals, it is routine to find that the founder or family members have made loans to the company — sometimes documented, often not — that are recorded as liabilities on the balance sheet. Those loans, if they fall within the Article 2467 window, cannot be repaid to the family member ahead of trade creditors. If the founder extracts repayment at or around closing, a liquidator or creditor can claw it back for up to five years.
Your financial due diligence must map every intercompany and related-party payable, trace its date and purpose, and apply the Article 2467 test. This is not speculative: the Italian Court of Cassation, First Civil Division, judgment no. 9983 of 12 April 2024 (Cass. civ., Sez. I, sent. 12 aprile 2024 n. 9983) confirmed the restitution obligation attaches even where the loan was documented at market terms, if the company was undercapitalised when it was made.
Italian employment law requires every employer to accrue the end-of-service allowance (TFR) for every employee. The TFR accrues at roughly 6.91 per cent of gross annual salary and is payable on termination regardless of the reason. In Italian family SMEs, it is common to find that family members — spouses, siblings, adult children — have worked for the company for years under informal arrangements, with no written employment contract and no TFR accrual on the books. The applicable national collective bargaining agreement (CCNL) determines the accrual rate and entitlements, regardless of whether any contract was signed. On a company with five informal family employees each earning EUR 30,000 per year over ten years, the unbooked TFR exposure is approximately EUR 103,000 — before any interest or late charges.
Request every payroll record, every social-security (INPS) contribution record, and every CCNL applicable to the workforce. Cross-reference against the number of people who physically work in or for the business.
The founder will often resist a clean price. He wants to see how the business performs after he steps back. You want protection against the liabilities above. The tension is real. Deferred payment structures — price adjustments tied to post-closing EBITDA or revenue — are enforceable under the Italian Civil Code, but drafting them for Italian family-business targets requires adjustments that generic earn-out clauses do not make.
First, the calculation base must be normalised for related-party distortions. If the founder has been charging the company below-market rent for premises he owns personally — a common structure to extract cash without dividends — the earn-out EBITDA base must strip that out and substitute a market rent. The reverse is also common: founders pay no salary to a working spouse, so stated costs are artificially low. Both adjustments must be defined precisely in the sale and purchase agreement, ideally with reference to a third-party valuation obtained before signing.
Second, retention mechanics must account for TFR and succession risk. A typical structure in the Italian lower middle market holds 15 to 20 per cent of the enterprise value in escrow for 18 to 24 months, with specific release conditions tied to the absence of forced-heirship claims and the resolution of any identified related-party-loan exposure. The escrow agent is usually an Italian notary or a bank operating under a mandate governed by Italian law.
Third, the founder's post-closing role must be defined under Italian employment or consultancy law. Nemo plus iuris ad alium transferre potest quam ipse habet — no one can transfer more rights than they themselves hold. If the founder's goodwill is embedded in relationships that are personal to him, a consultancy agreement is the only way to contractually retain them. Italian law on self-employed collaboration (Article 2222 and following of the Italian Civil Code) governs that arrangement, not the CCNL. Confusing the two creates a classification risk that INPS can pursue for up to five years post-closing.
The preliminary sale contract (compromesso) is binding. Walk away after signing it without contractual grounds and you forfeit your deposit; the seller may also sue for the full price under Article 2932 of the Italian Civil Code. Sequence your work accordingly.
Before the compromesso, commission: a full patto di famiglia review covering the founder's current family tree; a related-party-loan analysis applying Article 2467; a payroll and INPS reconciliation for all workers, named and unnamed; and a title check on any assets the company uses but does not own. Regulation (EU) 650/2012 on cross-border succession may also affect the estate if the founder is resident in another EU member state — confirm his habitual residence before the instrument is signed.
The land registry search (visura catastale) and a company extract from the Italian Companies Register (Registro delle Imprese) take two to three business days. The patto di famiglia review, if documents must be sourced from the notary who originally executed it, typically takes two to four weeks. Build that into your timetable.
In our files, the most common mistake is treating a clean set of audited accounts as a proxy for a clean legal position. Italian auditors are not required to flag unbooked TFR for informal workers, and the audit scope rarely covers related-party-loan subordination analysis. The gap between accounting comfort and legal exposure is widest precisely in the founder-seller deals where the accounts look cleanest.
Can an excluded heir challenge a completed share sale to a foreign buyer?
Yes. Under Article 563 of the Italian Civil Code, a forced heir who received less than their statutory entitlement can pursue third-party acquirers of transferred assets for up to twenty years. Good faith does not extinguish the claim. The risk is priced through specific indemnity and warranty insurance, not ignored.
Is a patto di famiglia always registered and findable?
It must be executed by notarial deed, which is registered in the notarial archive and — if real property is included — transcribed in the land registry. Shares-only patti di famiglia are not transcribed in a public real-property register, so a buyer must specifically request the notary's file. This is a non-standard due-diligence step that must be expressly commissioned.
What does warranty and indemnity insurance cost on an Italian SME deal?
For Italian lower-middle-market transactions, W&I insurance premiums typically run between 0.9 and 1.4 per cent of the insured limit. Minimum deal sizes for most insurers active in the Italian market are approximately EUR 5 million enterprise value, though some Lloyd's syndicates have written policies on smaller deals. Coverage for patto di famiglia and forced-heirship risk is available but requires a specific family-law opinion as a condition of cover.
HREFLANG BLOCK:
Editorial Team — Panato Law Firm Staff
