Setting the groundrules

We would recommend that any  family business considers entering into a Family Charter. 

The Family Charter (sometimes called Family Constitutions or Protocols) are statements of intent or agreements entered into by the family members in relation to the family business. A Family Charter is a formal agreement between family members regulating their conduct in respect of the family business and although not normally legally binding, parts can be legally binding if this is required by the family.

The Family Charter would normally set out confirmation of:

• How the family want the business to be run
• The goals and long term planning and strategy for the business
• The family members’ different relationships with the business
• How the family members should behave towards each other in the context of the business

We find that, rather like entering into a Shareholders’ Agreement, the process of working through the various elements of the Family Charter is, in itself, a very important and positive exercise for a family business to undertake.  The Family Charter can be a route map for both the business and the family moving forward.  It can also be a way of reaching an overall agreement on how a number of issues should be addressed in the future.  These issues can be whatever the family members think are relevant, but could cover:

• Future employment for the Directors of the business.  Should these be from within the family or external Directors?
• Who should be employed in the business?
• What happens if somebody wants to sell their shares?
• Should all family members be entitled to own shares regardless of their involvement in the business?
• Should spouses and in-laws be entitled to own shares?
• What happens if there is dispute between family members in relation to the business?
• How does the family tackle a difference of views as to why the family are in business together or which direction the business should take?

The above list is not an exhaustive list and the things to be considered by each family business in the Family Charter will be unique to them. 

The benefit to the business can be significant.  We would also recommend that businesses that have a Charter should look to review and amend it on a regular basis to ensure that the route map is still the right direction for the business and the direction that the family members continue to wish the business to take.

Please feel free to contact any member of the Family Business Team to discuss the benefits that a Family Charter can bring to your business.

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