Family businesses—governance

Family constitution

Successful family businesses are different in many ways, but they have at least one thing in common; they are well organised. Their success is achieved through thoughtful planning and part of this organised approach often involves creating a family constitution. Other names that are used for ‘family constitution’ include family charter or family creed or family protocol.

Some family constitutions are intended by families to have moral, rather than legal force. However, the family constitution may contain provisions about ownership and other matters that the family want to be legally binding. In such cases, there is a need for some convergence between the family constitution and other forms of legal agreements.

Some families introduce sanctions for breach of a family constitution. For further guidance, see Practice Note: Family businesses—the family constitution.

Family governance

A family business that has no formal structures and policies in place does not completely lack governance. There is always a ‘natural’ or ‘organic’ governance system based on understandings, assumptions and expectations that everyone in the family and in the business adheres to as ‘the way we do things around here’.

Formal

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