Why Charter…?

14 July, 2017

What is a family charter?

A family charter (sometimes called a family constitution) is a document entered into by family members in relation to their business. It sets out a road map as to how they wish the family business to be run, and a shared vision as to their aspirations and goals.

 

What’s the difference between a charter and a company’ articles?

Articles of association are legally binding documents available on the public register, and set out the rights and obligations attaching to classes of share. As such, they are only relevant to those family members who actually hold an equity stake in the business.

In comparison, a charter is a private document that is not accessible on any public register. The parties to a charter are typically far wider and will include family members who are directly involved in the business as well as those who are not. Trustees of family trusts can also be included to ensure a shared vision is embraced across the broadest spectrum.

Often, large parts of a charter are not legally binding – they take the form of a mission statement, rather than a dictate.

 

What sort of issues does a charter address?

The size and complexity of family charters varies widely (as do family businesses themselves). Some charters touch only on high level, long term strategy whereas others provide a more rigid framework in which the family agrees to operate.

Typically, a charter will include:

  • a statement setting out the shared views of the family as to the future of the business
  • some form of family governance, usually in the form of a family council which meets on a regular basis and acts as a conduit between the family and the board
  • a procedure to encourage the education and promotion of the next generation
  • guidelines on employing family members in the business
  • how the family intends to support members who are not directly involved in the business
  • a list of key business decisions over which the family should be entitled to have a say
  • any ethical or charitable aims.

 

If a charter isn’t legally binding, what is the point of it?

The decisive test for the long term success of a family business is whether the family has a shared purpose. This includes a shared vision as to what the family wishes to achieve, and a shared value system as to how to achieve it.

A charter gives the family the opportunity to debate these and other sensitive issues such as retirement and succession, and agree a unified approach in anticipation of any predicted point of change. In so doing, it can avoid a significant degree of stress and acrimony which can be damaging to the family and business alike.

 

Should we adopt a charter?

No two families are alike; each has a unique set of dynamics through which it operates. Some families embrace discussion and structure whereas others function perfectly well with seemingly no shared dialogue at all.

Whether a charter is right for your family will depend on your family and your business. If you would like to discuss this further, please contact Victoria Symons on +44 (0)1732 224 097 or at Victoria.Symons@cripps.co.uk.