Family charters and business succession planning

Summary

Running a family business can have many complexities. One of those is the family itself. We explain the importance of family charters and why having one in place can help the business steer a clear course to continued success and deal with tricky and sensitive issues around business succession planning. Family charters are statements of intent or agreements entered into by the family members in relation to a family business. A well planned and drafted charter serves as a roadmap for future generations, addressing issues such as family business succession, wealth distribution, and philanthropy. A family charter can be legally binding, not binding or only partly legally binding and set out: * How the family agrees the business should be run. * The family’s goals and the long-term strategy for the business. * Policies on dividend distribution, investment strategies, and financial management. * Guidelines for the distribution of wealth among family members, including inheritance. * Procedures for resolving disputes related to the family business. * Policy on reviewing and amending the charter at certain times e.g. on death of a family member, or including new family members as part of.

Key information

• •How the family agrees the business should be run.
• •The family’s goals and the long-term strategy for the business.
• •Policies on dividend distribution, investment strategies, and financial management.
• •Guidelines for the distribution of wealth among family members, including inheritance.
• •Procedures for resolving disputes related to the family business.
• •Policy on reviewing and amending the charter at certain times e.g. on death of a family member, or including new family members as part of the business.
• •How will the next managing director of the business be chosen? -will he or she come from within or without the family and how will he/she be agreed upon? What if some family members want to be involved in the business but others wish to exclude them?
• •Who should be employed in the business and who can sit on the board? \- in what circumstances will family members be removed from employment or directorship or even lose their shares?
• •Who is entitled to own shares and what happens if someone wants to sell their shares? \- what are the succession rights, can shares be passed to spouses and will there be any restrictions on what happens to those shares in the event of a separation/divorce?
• •Legal and Tax Considerations - addressing legal and tax implications, such as inheritance tax and business asset transfer.
• •Relations with non-family employees \- how will the family avoid a feeling of exclusion amongst members who are not employed in the business and/or are not shareholders?
• •Running a family business can have many complexities. One of those is the family itself. We explain the importance of family charters and why having one in place can help the business steer a clear course to continued success and deal with tricky and sensitive issues around business succession planning.

Practical guidance

• •Source: [Family charters and business succession planning](https://www.taylor-rose.co.uk/posts/what-is-the-importance-of-a-family-charter-for-family-businesses)

Related topics