Family Charters What is a family charter?
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Family Charters What is a family charter? A family charter is a non-binding document between family members recording their agreement on how a family business should be run in the short-to-medium term, and the business’ long-term aims and objectives. It can summarise the history of the family and the growth of its business so far, reminding current and future generations of the family’s overarching aims, as well as setting out broader ethical and philanthropic goals. Barney Leaf
John McDermott
Partner barney.leaf@laytons.com +44 (0)161 214 1632
Associate Partner john.mcdermott@laytons.com +44 (0)161 214 1657
Family Charters | What is a family charter?
Do I need one?
•
Representation
In many families there can be a dominant member
There is no legal requirement to have one. However, putting
whose voice and views tend to overshadow those of
a charter in place has numerous advantages. Research has
others. A family charter can help to counteract this in a
shown that only 1 in 5 family businesses survive the 3rd
non-confrontational way by putting measures in place to
generation. Furthermore, the collapse of a family business
ensure sufficient representation for all parties;
is more than just a failure of a corporate entity; it can have a disastrous effect on a family’s wealth and relationships. Relationships in family business are often less formal than
•
Accountability
Due to the hereditary nature of management and
non-family businesses and often involve family members that
ownership of a family business, the level of engagement
do not actually work in the business and so are not aware of
and performance of each family member can vary
the true pressures or successes that a business may be subject
significantly. A charter can address this by setting out
to. Effective governance and planning are key to protecting
clear expectations of every family member involved in
a family business, and the family charter helps clarify family
the business;
members’ expectations and define their roles. It assists in establishing the right ownership and management structure in order to deliver the family’s long-term economic goals.
•
Generational
A family charter can address what will be done to develop and nurture each generation in order to integrate them into the business. For example, you may
Advantages of a family charter
want younger family members to start attending family or company meetings once they reach a certain age.
A key benefit of a family charter is that it can create processes
You may also want to provide for a certain amount of
to record agreements on issues specific to the family that
the family’s assets or the company’s profits to be used in
simply could not be dealt with in the company’s articles of
funding the younger generation’s education or training;
association or shareholders’ agreement. When a family charter is done well it informs and works in concert with, as opposed to being a re-hash of, the company’s articles and shareholders’ agreement.
•
Strategy and succession planning
Is the plan to keep the business exclusively familyowned, or is there a willingness to explore bringing in third party directors and investors? Here you can map
The areas which can be covered in a family charter include:
out what the desired balance is, and how this would be achieved. For instance, if the business is to remain
•
History
exclusively family owned, there may be an acceptance
The charter could include a brief summary of how
of modest short-term rewards in order to ensure the
the family business was founded, what the aims of the
ongoing success of the business. Incoming third parties
founding members were, and how far it has come to
however may seek a more immediate return on any
date. This can help the current family owners to remain
investment, or greater remuneration for their services.
mindful of the overarching aims of the business;
This is the chance to determine the desired balance;
4 | laytons.com
Family Charters | What is a family charter?
•
Ownership
What to do
or strictly blood relatives? The family charter provides
If your family decides that it wishes to put a family charter
a platform to decide on such questions. It can also be
in place, the first step is for the family members to make
a springboard to plan for retention of sufficient family
the necessary time commitment to see the project through;
control in the event that the family’s ownership dilutes
formulating and finalising a family charter can be a lengthy
as the business grows, such as provisions around
process.
Are spouses and step-children allowed to own shares,
family representation at board level, and giving family members weighted voting rights;
The next step is for the family to discuss exactly what its aims are for the business, the family overall, and its role in the
•
Disputes
community, in order to establish a clear underpinning vision.
Family members can agree on a dispute resolution
The discussions need to be frank, open and detailed. It may
procedure. Measures agreed to when relationships are
be worth scheduling them over a number of sittings, as there
functioning well are more likely to be adhered to once
will invariably be a lot to discuss. Each generation of the
disputes arise, therefore it is beneficial to all parties to
family should be involved in the discussions, which need to be
agreed and record how such issues will be approached.
an open forum in which all issues are on the table.
Furthermore, the additional benefit is that even nonbinding provisions could prove persuasive in the event
Whilst the substance of the family charter must come from
of a dispute;
the family itself, it would be wise to have a trusted legal or business adviser present at such discussions from an early
•
Broader aims and ethics
stage. They will be able to make an effective record of
A key benefit of a charter is that it can set out non-
discussions as they progress, and could also act as something
business goals which simply could not be captured in
of an impartial mediator in the event that any emotive topics
a company’s constitutional documents. For instance,
need to be discussed.
the family may have philanthropic aims which it wishes to record, such as supporting a charity close to the
Laytons has years of experience in working with business
family’s heart. Alternatively, the family may feel a strong
owners in order to help them achieve their business and
sense of duty to the local area. A family charter could
wealth management goals. In particular, our Private Client
record the family’s desire to recruit apprentices from, or
and Corporate teams specialise in working together with
maintain a presence in, the local area. The charter could
business owners to ensure that both the business and longer-
also be used to protect the reputation of the business
term family aims of our clients are put in place coherently and
and the family, by giving clear guidance on which sorts
seamlessly. If we can assist you in any aspect of your business
of corporate entities the business should or should not
or family’s succession planning please contact Liz Braude
be associated with.
(Private Client) or John McDermott (Corporate) on 0161 214 1600
laytons.com | 5
Corporate We advise on every facet of our client’s corporate legal needs through the complete life-cycle of an enterprise, from its inception, through its growth and expansion to, perhaps, its sale or flotation on a public market. Our teams focus on acquiring a deep understanding of the particular needs and objectives of our clients to deliver advice and outcomes that are tailored to those needs and objectives and which meet them swiftly and cost-effectively. The approach to technical problems is informed, insightful and proportionate, and we take pride in viewing problems from a fresh perspective to provide innovative solutions.
Our Team Michael Barrington
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Barney Leaf
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Partner barney.leaf@laytons.com +44 (0)20 7842 8000
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Partner liza.zucconi@laytons.com +44 (0)20 7842 8000
This information is offered on the basis that it is a general guide only and not a substitute for legal advice. We cannot accept any responsibility for any liabilities of any kind incurred in reliance on this information.
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