A strong foundation for your family business

How can your family business benefit from a Family Constitution?

For families intricately woven into the fabric of business, preparing a Family constitution isn’t just prudent; it’s the cornerstone of sustained prosperity. This guiding document holds the potential to foster unity, preserve values, resolve conflicts, and ensure seamless transitions across generations. By embarking on the journey of crafting a Family constitution, you’re sowing the seeds of harmonious growth and securing a legacy that stands the test of time.

What is a family constitution?

A family constitution, often referred to as a family charter or family governance document, is a powerful tool designed to establish a solid framework for family harmony, communication, and decision-making across generations. It acts as a guide, defining the principles, values, and guidelines that govern how your family interacts, manages its assets and addresses conflicts.

What a Family constitution DOES Cover:

1. Family Values and Vision: Articulates the core values, principles, and shared vision that guide your family’s actions and decisions, preserving its legacy for future generations;

2. Roles and Responsibilities: Clearly defines the roles, responsibilities, and expectations of family members within the family business, wealth management, and other areas of family life;

3. Communication Guidelines: Outlines effective communication strategies to foster open and respectful dialogue, helping to prevent misunderstandings and conflicts;

4. Succession Planning Intentions: Summarises the family’s current intention for transferring leadership and ownership of family assets, such as businesses or properties, to the next generation;

5. Decision-Making Processes: Establishes transparent decision-making processes to avoid power struggles and encourage collaborative choices that benefit the entire family; and

6. Conflict Resolution: Offers a structured approach for addressing conflicts in a constructive manner, preserving relationships and finding solutions that align with the family’s values.

What a family constitution DOES NOT Cover:

1. Legal Documents: A family constitution does not replace legal agreements such as:
   1. Wills;
   2. Succession Planning Agreements;
   3. Shareholders Agreements;
   4. Company Constitutions;
   5. Partnership Agreements, or
   6. Binding Financial Agreements.

Instead, it complements legal structures by providing a broader framework. For example, if your family business consists of a company, and a shareholder decides to sell their shares –  whilst the  Family constitution may set out guidelines for this transfer, it will not provide an enforceable process. Clients wishing to achieve legal enforceability should seek legal advice as to the appropriate documents to achieve this desired outcome.

2. Specific financial details: It does not delve into detailed financial plans or investment strategies.

3. Day-to-day operations: It does not dictate specific operational details of family businesses or ventures, leaving those to be managed through appropriate operational protocols.

4. Personal relationships outside the family: The constitution focuses on family interactions and dynamics and does not interfere in personal relationships beyond the family context.

5. Immediate problem-solving: While it addresses conflict resolution, it may not cover every immediate issue. It guides the process but may not have answers for every unique situation.

6. Preventing claims: While a family constitution may provide insight as to a person’s expectations, it does not:
   1. bind the division of assets as part of any proceedings of the Family Court, should a family member experience a personal relationship breakdown; or
   2. prevent an estate claim.

Benefits of a family constitution:

1. Unity: Helps create a united front by aligning family members around common values and goals.

2. Transparency: Encourages open communication, fostering trust and reducing misunderstandings.

3. Longevity: Builds a resilient structure that adapts to changing circumstances, ensuring the family’s legacy endures.

4. Prevents Conflicts: Provides a roadmap for addressing conflicts constructively, promoting harmony.

5. Succession Clarity: Clarifies the process of transferring responsibilities, preventing ambiguity and potential disputes.

By crafting a family constitution, your family can cultivate an environment of collaboration, growth, and shared purpose. It acts as a guiding compass, empowering your family to navigate challenges and celebrate successes together.

For more information reach out to our Wills, Estates, Planning + Structuring Team.