Succession planning for family businesses: what are family business charters?

Family business charters (FBCs) are becoming an increasingly popular tool in estate and succession planning, used to document the instructions and values of a family-owned or family-managed business.

This charter usually sits alongside the shareholders’ agreement, articles of association and directors’ service agreements. It’s not legally binding, but it expresses how the business should be run, how succession should be handled and what the core values of the business are.

What does a family business charter include?

FBCs can vary depending on your needs and wishes. There’s no fixed structure, but most include:

• A background to the business
• Rules on family working in the business (for example, whether family members can be dismissed, family members’ career paths, whether spouses can join the business)
• Provisions for family members who are not part of the business, such as dividend payments
• Succession and transition procedures
• Procedural rules (for example, mediation, company decision-making and voting rights).

Why are family business charters useful?

Creating an FBC encourages open communication between family members on important business issues, such as values of honesty, support for family members and commitment to growth. By being open to these types of conversations, you can reduce conflict later down the line and set clear expectations.

Succession and asset planning can be an emotional and sensitive subject. An FBC can help make these discussions more objective by framing them in a professional, business-like manner.

Because an FBC is not a legally binding document, sensitive issues can be discussed in a more relaxed context. This can be especially helpful in opening communication channels between older and younger family members, bridging generational views on how the family business should be run.

It’s usually advisable to involve the whole family in succession planning, so everyone understands your plans. An FBC can provide a framework for these conversations.

Once you have an FBC, it’s important to review it regularly, alongside your will, as your family and business evolve.

Our Private Client team can support with family business charters to help ease estate and succession planning for your family-owned or family-managed business.