Blogs

What is the Importance of a Family Charter for Family Businesses?



STEPHANIE CREASEY
STEPHANIE CREASEY >

Partner

Mon 23 April 2018 What is the Importance of a Family Charter for Family Businesses?

Running a family business can have many complexities. One of those is the family itself. Associate Solicitor Stephanie Creasey explains the importance of family charters and why having one in place can help the business steer a clear course to continued success. 

What are family charters?

Family charters are statements of intent or agreements entered into by the family members in relation to a family business. Normally they are either not legally binding at all or only partly legally binding and set out:

By having a charter in place, this can help to bring consensus amongst family members on how the business should be run and put some structure on the difficult overlap between family and business. 

As families grow, in a relatively short period there can be a substantial increase in the number of family members with a direct or indirect involvement in the business. For example, two brothers might set up a family business, each brother then has two children who then in turn each have two children. By the time the members of the third generation have become adults, there will be a large number of family members who may have some sort of connection or involvement with the business, which could extend to spouses who may have become involved in the business.

Business succession planning - future generations

This can bring with it a number of different issues and complexities such as:

Differences between a family charter and a shareholders’ agreement

Many people in business have heard of shareholders agreements, which are agreements entered between the company’s shareholders setting out how they will run the company and will usually be legally binding, but a family charter is a relatively little known document A family charter is made only between the family members involved in a business and may include both those family members who hold shares and those who do not, and similarly will exclude non-family members who do hold shares. The two documents may therefore sit together and complement each other as part of a suite of company documents.

Another potential difference is that a family charter may be agreed as not legally binding or only partially legally binding and often includes guidelines or principles for the future.

Issues which might be covered in a family charter include the following:

In some cases, family charters may set out broad, non-binding principles relating to the family’s policy on certain matters, with those principles then being enshrined in a binding form in the company’s articles of association or a shareholders’ agreement. A good example of this is the family’s policy on ownership of shares.

No two charters are the same

Family charters, much like a shareholders agreement, are individual to each business and its unique circumstances – there is no one size fits all document and each will be drawn up to reflect the family’s own requirements. Some charters may be very short while others can be more in-depth and lengthy, particularly where there is a large family or the business is more complex.

It is likely that some family members will have views on the business which may be particularly emotive or difficult to raise with other family members if they feel that they will be judged or it will cause tensions – by having a neutral party to assist with drawing up the agreement, these views can be shared more easily and often on an anonymous basis, and it also avoids the possibility of the agreement being one-sided or biased towards one or more family members.

For businesses looking to draw up a family charter, or those wanting to find out more about these documents and what can be contained within them, please email our Commercial team for information or contact Stephanie direct.

Taylor Rose is a top 60 law firm and operates from offices including in London, Liverpool, Manchester and many other cities and towns. 


SHARE THIS ARTICLE  
Legal guidance from solicitors.
Legal 500
Lexcel
Law Society Personal Injury
Modern law awards winner 2023
Law Society Conveyancing Quality
The British Conveyancing Awards - Rebecca Kelly
The British Conveyancing Awards - Mustafa Hassan
ISO 27001
ISO 9001
LEAP Modern Law Conveyancing Awards
The British Conveyancing Awards - Louise James
Legal 500
Lexcel
Law Society Personal Injury
Modern law awards winner 2023
Law Society Conveyancing Quality
The British Conveyancing Awards - Rebecca Kelly
The British Conveyancing Awards - Mustafa Hassan
ISO 27001
ISO 9001
LEAP Modern Law Conveyancing Awards
The British Conveyancing Awards - Louise James
We use cookies to provide you with the best possible experience. We share these cookies with Google Analytics to help monitor our performance. Find out more about cookies here. Do you consent?
YES NO