A guide to family constitutions

A family constitution can help provide structure alongside future-proofing the business.

We often hear from family businesses that it is important to have a clear structure and process for how they make decisions.  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.

What is a family constitution?

Ultimately, what the constitution looks like will depend on the family and their aims and objectives.  Generally speaking, a constitution is a confidential document which sets out in writing some guidelines to help the family make important decisions, reach agreement and resolve any disagreements.

What does a family constitution usually include?

The constitution can set out:

• The family's values and commitments
• The family's reasons for maintaining the family business
• How the business should be managed
• How the next generation should become involved with the business
• How the business should be passed down to future generations
• The circumstances in which the business may be sold. 

A constitution can also help the family decide how any funds or wealth might be allocated between individual members and what factors will be taken into account when making those decisions.

Important considerations for a family constitution

When going through the process of putting a constitution in place, members of the family from different branches and generations should be consulted so that (as far as possible) there is widespread buy-in to the process and the final document. 

It is also important that the structures and processes described in the constitution are implemented – so if the constitution provides for an annual family assembly, that meeting should take place. 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.

As time passes, having a formal constitution in place can ensure that the business has direction and a shared vision as well as reducing the risk of conflict or disagreement.  Wrigleys Solicitors is able to advise you on family constitutions, as well as on succession planning and capital taxation issues.