A common scene in Paraguayan family businesses: when it comes time to approve the year's results and assess management's performance, those who must make these decisions are often the very same people who ran the company. This model usually works well in the early stages of a business. However, as the company grows, the concentration of the shareholder and director roles can raise legal and corporate governance challenges that are worth anticipating.
The Backbone of the Economy
Family businesses account for between 80% and 85% of the country's companies (ABC Color, 2025), produce around 65% of goods and services, and are one of the main sources of formal employment (ÚH, 2025). These figures reflect their structural importance and confirm the central role they play in the Paraguayan economy.
This prominence now places them in a setting of transformation and growth. Paraguay's business environment is increasingly sophisticated and is attracting growing interest from foreign investors across a range of sectors. This context opens up new opportunities and, at the same time, calls for structures capable of keeping pace with the evolution of the business and facilitating relationships with new partners, investors and sources of financing.
This is where institutionalization takes on strategic importance. Clear and appropriate governance structures help drive the company's growth, professionalize its management, facilitate generational succession, strengthen its capacity to attract investment and open access to new financing alternatives.
The Director-Shareholder: A Common Structure with Legal Implications
In closely held companies and, especially, in family businesses, it is common for shareholders to also sit on the board of directors. In the early days of a company, this is usually the most practical structure, as it brings agility to decision-making.
However, being both a shareholder and a director means taking on two distinct roles: as an owner, participating in the company's major decisions; and as an administrator, assuming responsibility for the conduct of the business. This distinction becomes particularly relevant when shareholders must rule on matters relating to management carried out by themselves, as occurs at the close of each fiscal year.
In Paraguay, the corporate law framework imposes certain limitations to prevent those who sit on the board from taking part, in their capacity as shareholders, in decisions that involve evaluating their own performance. Recent court rulings have reopened the debate on the scope of these restrictions and the difficulties they can create in companies where ownership and management are concentrated in the same individuals. This remains a matter that calls for caution and a careful case-by-case analysis.administración se concentran en las mismas personas. Se trata de una cuestión que todavía requiere cautela y un adecuado análisis de cada caso.
This scenario underscores the importance of anticipating these situations and having governance structures that evolve with the company, bring clarity to decision-making and prevent corporate issues from hampering its operations.
Toward Stronger Corporate Governance
Against this backdrop, family businesses can adopt a range of measures to properly manage the coexistence of the shareholder and director roles while moving toward stronger, more professionalized governance structures.
One practical option is to establish rotation mechanisms among the shareholders who sit on the board, so that, when key matters are considered, there are shareholders eligible to participate in those decisions. For example, siblings who jointly participate in management can provide for this dynamic in a shareholders' agreement or family protocol, setting out clear rules for the appointment and rotation of positions. These instruments can also regulate other aspects of the family-business relationship, such as decision-making mechanisms or the entry of new generations, helping to anticipate and prevent potential conflicts.
A more structural step, generally associated with a stage of greater corporate maturity, is the appointment of directors from outside the family group. This option becomes especially relevant when new partners or investors come on board, as it brings objectivity, experience and a technical perspective that complements the shareholders' vision. It also allows the company to move toward a gradual separation of ownership and management, distinguishing more clearly among the roles of shareholder, director and executive.
An Opportunity, Rather Than a Formal Requirement
Rather than a formal requirement, moving toward greater institutionalization represents an opportunity to professionalize management, facilitate the entry of new generations and prepare the company for new partners and investors. Reviewing the composition of the board in relation to the shareholding structure is a first step toward identifying potential challenges and anticipating solutions. Strong corporate governance thus becomes a cornerstone for family businesses to grow sustainably, preserve their legacy and endure across generations.
