Succession · Free template

Family Constitution Template (Free Word and PDF)

A family constitution, also called a family charter or family protocol, sets out what a business-owning family has agreed: its values, how it takes decisions together and its rules on shares, dividends and jobs in the business. Our template gives you the structure as a 12-page draft in plain legal English, with the main choices written out as options.

What is in the template

Notes on using the template, a short background section, then 16 clauses:

1. Definitions
2. Purpose and status
3. Values and vision
4. Family membership
5. Family Assembly
6. Family Council
7. The family and the business
8. Ownership of shares
9. Dividends
10. Employment of family members
11. The next generation
12. Philanthropy
13. Confidentiality and communication
14. Resolution of disagreements
15. Amendment and review
16. Signature

Annex A, where the main rules become binding, and Annex B, decisions to take before drafting, close the document, followed by the list of sources.

How it works

• Options instead of one answer. Where a family has to choose, for example whether spouses may hold shares, who sits on the board or how much profit is paid out, the clause gives two or three options in brackets. Keep one and delete the others.
• Drafting notes with sources. Short notes under the main clauses explain the choice and give the source in a footnote: the IFC handbook on family business governance and law firms in England, Turkey and the UAE, two of them on the UAE law on family companies.
• Annex A: where rules become binding. A constitution is often not enforceable on its own. The table shows which rules usually go into the articles of association, a shareholders’ agreement, wills or trust documents.
• Annex B: decisions before drafting. A checklist of 16 decisions for the family to take before anyone writes the text.

What a family constitution is

The International Finance Corporation (IFC), part of the World Bank Group, describes the family constitution in its Family Business Governance Handbook as a statement of the principles behind the family’s commitment to the core values, vision and mission of the business. The handbook lists other names for the same document, among them family creed, family protocol and statement of family principles. [1] In England, the law firm Russell-Cooke calls a family charter “a document which sets out a common understanding between family members”. [2]

There is no fixed form. According to the IFC, the form and content depend on the size of the family, its stage of development and how involved family members are in the business: basic while the founders are in charge, more detailed as the family grows. The handbook calls it a living document that should be updated regularly. [1]

Many family businesses do not have one. PwC’s 2023 Global Family Business Survey, which polled 2,043 family business leaders in 82 countries, found that only 30% had a family constitution or protocols in place, and only 19% had a mechanism for resolving conflicts. [6]

What goes into one

The IFC handbook lists the usual elements: [1]

• the family’s values, mission and vision;
• family institutions, such as a family assembly, a family council, an education committee and a family office;
• the board of directors (and a board of advisers, if there is one) and senior management;
• who is responsible for what between the family, the board and management;
• policies on matters such as family employment, share transfers and the succession of the chief executive.

Russell-Cooke’s list adds who may own the business, including whether spouses may, restrictions on transfers, whether the business is run mainly for income or for growth, and expectations of family members who marry or live with a partner, such as prenuptial agreements. [2]

Family assembly and family council

The IFC describes two family bodies. A family assembly brings the family together and usually meets once or twice a year; it becomes important once siblings and cousins are involved, while founders usually hold informal family meetings instead. A family council is usually set up once the family has more than 30 members; the IFC suggests 5 to 9 members, meeting 2 to 6 times a year. [1] Clauses 5 and 6 of the template follow this structure, with an option to start with a simple family meeting.

Is a family constitution legally binding?

It depends on the country and on what the family does with it.

• England and Wales. Russell-Cooke writes that for the most part a family charter “is not intended to create legally binding obligations”. It adds that a charter can lead fairly quickly to binding steps, such as changing the company’s articles, setting up a trust or a family investment company, or making wills. [2]
• Turkey. According to the Istanbul law firm Erdem & Erdem, a family constitution binds the family members who sign it, as a contract, but not those who do not sign, family members who join later or the shareholders of the family companies. Some of its rules can be copied into the articles of association or a shareholders’ agreement, within what the Turkish Commercial Code allows; detailed rules on matters such as share transfers and dividends usually go in the shareholders’ agreement. [3]
• The UAE. Federal Decree-Law No. 37 of 2022 allows families to enter into a family constitution for the governance of the family and of a family company registered under the law. [4] According to BSA Law, the constitution is approved or amended by a majority of the family assembly’s members (or of the partners, if there is no assembly), and where it conflicts with the company’s memorandum of association, the memorandum prevails. The law requires partners holding at least three quarters of the capital to approve a transfer of shares to someone outside the family, unless the memorandum sets another percentage. [5] A registered family company may buy back up to 30% of its own shares. [4, 5]

So rules that must hold even if a family member later disagrees, such as limits on selling shares or the exit price, need a binding document as well. Annex A of the template lists them.

How to use the template

Russell-Cooke warns against an “off the shelf” charter: it should reflect the family’s own circumstances. It adds that a charter lets sensitive issues be discussed in a relaxed setting, without negotiating binding documents. [2] So treat the template as an agenda rather than a text to sign as it is:

1. Start with Annex B and agree the 16 decisions.
2. Fill in the square brackets, keep one option where there is a choice, and delete clauses that do not apply.
3. Delete the drafting notes before anyone signs.
4. Take Annex A to a lawyer in the country where the company and the family are based, to reflect the binding rules in the right documents.

Questions