What is a family constitution?

A family constitution documents the goals and rules which a family sets for itself both as owners of a business and as a family covering both business and non-business issues. In particular, a family constitution can provide rules for succession in ownership and management of the family business.

Creating a family constitution can help families to consider their succession options. A family constitution assists the family to develop agreed goals and rules for succession in ownership and management of the business. The process is collaborative and is as much about enabling the family to begin dialogue on the issues surrounding success as preparing the constitution.

In our experience, family constitutions are most effective when they:

  • confirm the principles objectives and values of the family both as a family and as a family in business owning and investing in assets;}
     
  • include a visual diagram or map of the family corporate structure to assist all family members understand the companies, trusts and assets which the family holds;
     
  • record an agreement which has been reached in relation to the conduct of the family business or farming enterprises by the family at the current time and in the event of the death of the family leaders; and
     
  • outline proposals in relation to the division of assets following the death of the family leaders with the distinction being made between business assets and operations of the family and other investments.

There are no strict requirements as to  what must be included in a family constitution and this flexibility allows varying business and family dynamics to be catered for. Some families wish to include a particular focus on social corporate responsibility and philanthropy, whereas others may prefer a more traditional focus, and limit the content to transition the ownership and control of the business.

Importantly a family constitution strengthens the prospect of the family avoiding the detrimental effects that disputes or unforeseen events can have on families and businesses.