Why your family business might need a Charter immediately
PUBLISHED: 12:46 09 March 2016 | UPDATED: 12:46 09 March 2016
Debbie Austin, Partner at Wellers in Oxford explains, family charters
Sometimes known as a family constitution, a Charter is, a statement of agreed family values and relationships concerning the business. Family Charters sit right on the interface of family and business and the success of that relationship so often determines the prosperity of the business and your family.
Their purpose is to encourage better communication and therefore greater harmony within your family. Commercially, a family Charter can help ensure the long term survival of your business for future generations
When should you create a Charter?
Often, by the time families consider a Charter, it’s too late. The catalyst can be the retirement or death of the founder of the business (usually the head of the family) or when serious disagreements occur such as over a child’s divorce or even prospective marriage. Passions often run high and factions appear.
The best time to embark on your Family Charter is during a period of stability and harmony and when there is little or no conflict. That way decisions can be taken objectively so that the procedures are in place should an unexpected event or disagreement occur.
Why have one?
Formulating your Charter can be invaluable in helping the family business evolve successfully. Because it covers a wide range of matters, and can bring difficult issues to the surface, it’s best done with the assistance of an external consultant who understands the dynamics.
As your business and family grow, creating a Charter helps crystallise the core values at the heart of your enterprise, and reviewing it will keep them alive. Many families have described the process of drawing up a Charter as invaluable particularly if it results in:
1.The family being unified in its approach to the business
2.Management knowing what the family expects of it in terms of the way the business is run
3.Involvement of family members who are neither shareholders in their own right nor employees of the business
What will your Charter contain?
The content will be different for each family but Charters will typically address:
The long-term goals and strategy of the business
Key business decisions which should be referred by the board to the family for their views
Rules and procedures relating to the establishment and running of the family council and how the council communicates the family’s wishes to the board
The family’s policy on who can own shares, together with rules relating to the sale of shares by family members
The employment, remuneration and appraisal of family members
Policies relating to the payment of dividends
Educating and mentoring the next generation
Procedures for resolving disputes between family members
Given the very nature of families and family businesses no two Charters are likely to be the same - differences manifest themselves not just in style but also in levels of detail and length!
As your family grows, the business develops and the economy fluctuates, family attitudes may change and, while the Charter stands as a reminder of the family’s guiding principles, it can’t be ‘cast in stone’. Keep the Charter under regular review.
What is its legal status?
Many family Charters are not legally binding (or only in part). They are designed to be more of a record of the consensus reached by the family as to how the business is going to be run. Where there are a substantial number of family members it is, of course, quite possible that not all of them will agree to every provision in the Charter but will be prepared to put their name to it.
Some provisions in the Charter may in any event be set out in more detail, and in a legally binding form, in the Articles of Association or in a Shareholders’ Agreement - a good example being the procedures that need to be followed on any sale of shares by a family member.
For further information contact Debbie Austin
Tel: 01865 723 131