Family businesses and governance: why structure matters

Family businesses are unique. Alongside the day-to-day demands of running a successful business, they must also navigate the emotional dynamics that come with being a family. Managing both dimensions well requires effective communication, and that, in turn, depends on having clear governance structures in place.

How are companies governed?

Every company must have articles of association setting out the framework within which it operates: the constitution of the board, the rights attached to shares, and how decisions are made. This is a public document. Where confidentiality is needed, a shareholders’ agreement can sit alongside the articles as a private contract, covering matters the parties do not wish to be on public record, such as pre-emption rights on the transfer of shares, drag-along and tag-along provisions, and permitted transfers.

Do families need their own governance too?

Smaller or closer-knit families can often manage without formal arrangements. A shared value system and mutual understanding of the boundary between ‘business’ and ‘family’ can be enough to keep effective communication going. But as families grow, span generations, or become more geographically dispersed, that shared understanding becomes harder to maintain. A Family Charter can help.

A Family Charter is not typically a legally binding document, but it serves an important purpose, capturing the family’s values and recording them for future generations. It typically addresses how the family wishes the business to be run, the family’s long-term goals and strategy, a framework for communication / information-sharing between the family and the business, and principles for developing the next generation of leadership.

How we can help

Our corporate team advises family businesses on all aspects of governance, from reviewing and updating articles of association and shareholders’ agreements to drafting Family Charters and advising on succession planning. We can help across a wide range of areas, drawing on the combined expertise of our corporate and private wealth teams, who work closely together to support family businesses in reaching their full potential.