Family Charters – what are they and is it worth making one for your family business?
A family charter is a document used to record agreements made between family members, usually in relation to how a family business is to be run.
Family charters are not legally binding but can be a useful way of clarifying how important and potentially sensitive issues will be dealt with. There is no requirement for those involved in a family business to create a family charter, but they can help a family to work together more effectively and harmoniously to run a business, while reducing the potential for future conflict.
What issues can be covered in a family charter?
There are no specific rules around what can be covered by a family charter, so it can be tailored to the circumstances and needs of the family in question. That said, there are a number of common issues family charters typically cover, including:
- Who can own a family business
- What roles different family members play within a family business
- Succession plans for a family business
- What happens to wealth generated by a family business
- Decision making and governance within a family business
- What happens if family members get married, divorced, cohabit, have children etc.
- The overall ethos of the family and/or family business
It is important to ensure the whole family works together, with advice from seasoned legal experts, to help you create a family charter than truly reflects your requirements.
What can’t a family charter do?
Some of the key limitations of family charters are:
- A family charter has no legal standing, so you cannot use it as the basis for taking legal action if the terms are breached
- It does not replace the need for articles of association, shareholders’ agreements, directors’ service agreements and other legal documents related to the constitution and governance of a family business that is in the form of a limited company
- It does not replace the need for family members to have their own Wills as part of their succession planning
If you do decide to have a family charter created, it is important to understand how it supplements and interacts with these other key documents. You can then make sure you have all of the necessary arrangements in place for the proper running of your family business, as well as to protect its future and the future of your family.
Key benefits of having a family charter for your business
The benefits of making a family charter can include:
- Ensuring all family members views are represented
- Establishing accountability for how family members act
- Providing a framework for bringing future generations of the family into the business
- Avoiding family disputes that can harm a business
- Putting in place a clear succession plan
- Offering continuity in the way a business is run over generations
Ultimately, a family charter can be a very valuable way of ensuring the continued success of a family business over the years, as well as helping to preserve positive working relationships between family members.
How to make a family charter
While family charters are not legally binding, it is still strongly recommended to have an experienced solicitor assist you in preparing the document. This should help to ensure that your family charter is clearly drafted and that all relevant issues are considered and accounted for.
If you are making arrangements in relation to a family business, it is a good idea to work with a legal team who can offer expertise across all of the areas you need to consider, including inheritance and succession planning, corporate governance and business dispute resolution.
The process of making a family charter will normally involve bringing the family members involved together to discuss what issues need to be considered and to reach an agreement. This will usually be done in the presence of a solicitor, who can advise on any points of law and draw up the family charter to record the agreements made.
All family members should have a chance to review and reflect on the agreement before signing off on it. This provides an opportunity for any matters that have not been addressed or points that could cause future problems to be identified and resolved.
Once the family charter has been created, it should be stored securely where all family members can access it as required. Multiple copies can be made, so individual family members can have their own copy.
It is also important to keep in mind that a family charter should be a ‘living’ document i.e. it should ideally be reviewed and amended as required over time to ensure it continues to reflect the interests of the family.
Speak to our Private Client team about a family charter
To discuss making or updating a family charter for your business, please get in touch with Richard Horwood, Partner and Head of Private Client.
Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.