Published: January 17, 2024 | Updated: 17th January 2024
Businesses which are owned by multi-generational and/or extended members of a family often have a unique structure, writes Amanda Brockwell, Corporate Team Partner at Paris Smith.
Family members can be shareholders, beneficiaries under trusts of company shares, directors or employees – or all or one of the above! Inevitably, family politics and relationships can affect the business.
Family members might not agree on operational or strategic direction of the company, or the role of individual family members within the Company. Having a written set of rules and guidelines can help the family resolve disagreements, as well as making the most of the benefits which family ownership can bring.
A family constitution (also known as a family charter) can help provide this structure as well as future-proofing the business and engaging the next generation of family members.
Ultimately, what the constitution looks like will depend on the family and its aims and objectives. A constitution or charter is a confidential document which sets out some guidelines to help the family make important decisions, reach agreement and resolve any disagreements.
It sits separately from the more formal statutory articles of association of the trading company or companies and focuses not just on planning for the business, but also on planning the family and its relationships.
A family constitution can sit quite happily with family trusts which hold shares in the business. Trusts are themselves often used as part of a strategy to manage and minimise inheritance tax as well as to ensure control of future share ownership and distribution of profits or wealth from the business. The key is to make sure that your constitution works with any trusts or more formal articles of association of the business.
The constitution can set out:
Putting together a family constitution is as much about the process as it is the content; members of the family from different branches and generations should be involved in discussions so that there is widespread buy-in to the process and the development of the final document. The process itself can bring family members together and create a focus and interest in the family business.
Going forward, it is important that the structures and processes set out in the constitution are implemented – so if the constitution provides for an annual family conference, that meeting should take place and meetings between any family council and the board of directors should happen in accordance with agreed timelines. Significant decisions should be taken in accordance with the framework of the constitution and the values expressed in it.
Once in place, the constitution should not be seen as a rigid or inflexible document, instead as circumstances change, the constitution should be reviewed so that it remains relevant and fit for purpose. The constitution itself can set out how and when it should be reviewed.