Family Charter

A Family Charter is a document which sets out a common understanding between family members in relation to certain key issues. A Family Charter is likely to be particularly useful for those operating family businesses. 

There is no specific form which a Family Charter has to take, and it is not a document which has a particular legal status like, for example, a will, the articles of association of a company or a decree absolute to effect a divorce. In fact, for the most part a "Family Charter" is not intended to create legally binding obligations.

It enables discussions around potentially sensitive issues to take place in a relaxed context which does not involve the preparation and negotiation of specific legally binding documents (such as a will) for a particular individual in the family, but provides a platform to discuss the overall ethos which will then inform the basis of any specific documents in the future.

Addressing these type of concerns and coming to a common understanding now reduces the chances of a misunderstanding or family dispute when issues such as succession planning for a family business, or a pre-nuptial agreement, do need to be more actively considered.

While the Family Charter is not intended to create legally binding obligations in and of itself, in the worst case scenario of a serious family dispute arising it makes it harder for anyone to argue about what the common understanding of the family was (without a Family Charter such matters are often only discussed orally, if at all), or what a deceased's intentions were.

Furthermore, the common understanding set out in the Family Charter may lead to legally binding arrangements following on fairly quickly if appropriate in the circumstances - for example, amendments to the articles of association for a family business, setting up a trust structure, Family Investment Company, or preparing wills.

Families often find dealing with every day decisions, from both a personal and business perspective, easier than discussing more fundamental issues which invariably arise such as new generations entering the business, changes in family structure with marriages or separations, the future running of the business or what should happen on the death of family members. Many of these concerns are also ones which are not really suitable as the subject of binding contractual obligations, and are much better dealt with outside the ambit of a shareholders' agreement or similar document.

There is therefore a more immediate benefit to a Family Charter in that family relations, as well as the family business, are more likely to thrive if the business is run in an environment which promotes stability, openness and sensible governance.

There are no hard and fast rules. If a Family Charter is going to be useful and work in practice, it is essential that it reflects the particular circumstances and wishes of the family concerned, and is not a generic "off the shelf" product.

That said, there are common issues which are likely to form the basis of any Family Charter, or at the very least merit discussion. Some of the most significant are summarised in the table overleaf, but this is very much high level guidance. It is not a substitute for legal advice. Whilst the position on some points may be obvious, in others it may be more nuanced and require further discussion and advice. It is not envisaged that you will have a fully-formed view immediately.

The family

Is there a general "mission statement" or overall understanding relating to the family - in any respect - which it would be helpful to record?

This could be brief and generic, or, for example, a more detailed description of how it is envisaged that family wealth and assets will grow, be protected, and passed down through generations. That might include the establishment of Family Investment Companies or trust structures.

Is there an expectation that certain family members should have particular responsibility for dealing with certain matters?

Do family members have wills in place? Are the wills structured in the most tax efficient way? Are there expectations as to particular provisions which the wills of family members should contain?

For example, should a family member be permitted to leave an interest in the family business to their spouse? Is it anticipated that the wills of family members will contain protection mechanisms such as a will trust?

Family business

What is the understanding around succession in terms of the management of the family business?

For example, do the current family members involved in management have plans for retirement? Will other family members become involved - if so, when? How should the difference in input between family members who are actively involved in the business, and those who are not, be reflected?

How is wealth generated within the family business allocated?

For example, is the family business to be used primarily as a source of income for the family, or is the intention to focus on capital growth?

Who can own the family business?

In particular, should spouses of family members be able to hold ownership interests? Should there be restrictions on transfers of ownership in the family business?

How does decision-making and governance work in the family business?

Family relations

What are the expectations of family members who are engaged and/or begin cohabiting?

For example, is it envisaged that they would be expected to enter into pre-nuptial agreements or cohabitation agreements?

This list is unlikely to be an exhaustive reflection of everything relevant for a specific family - if there are issues which do not appear but which you would like to discuss, please do raise them with us. Equally, just because
an issue is listed below does not mean that it has to be dealt with in the Charter.