Family Charters – Planning the way

Family Charters – Planning the way - Crowe Ireland

Keeping family businesses running smoothly

Transitioning family wealth and businesses to the next generation can be a challenging and time-consuming task. Over time family assets become increasingly complex as business interests grow and asset portfolios expand. Lack of planning can lead to costly public family breakups and dissipation of wealth. Also, relationships across generations and between different family members are more complex than ever. With issues arising from divorce and the potential of children from other marriages, a family charter (or family constitution) is an important safeguard to protect and manage a family’s wealth.

A family charter is a bespoke document created for a family with their input. While it is a living, breathing document and subject to revision from time to time, it is worth a family investing the time at the outset to document what the principles, goals and aspirations of the family are, as well as the family values, not only for the current generation but also for future generations.

The charter sets out to devise a framework for all family-related matters. Typically, it not only focuses on the family’s business affairs but may include succession, education, health, maintenance and detailing support for family members, as well as protection of the family and their wealth.

It outlines how each family member will work together and how they should engage with and approach decisions across areas such as the family businesses and their governance, passive and active investments and family structures. It is common for a charter to lay out principles for dealing with disputes, distributions, responsibilities and power. Underlying legal agreements such as shareholder agreements, trusts, etc., will accompany the charter.

One key area charters may focus on is defining the terms on which a family member may join the family business. For example, what roles family members play, if interviews are conducted and what remuneration is provided. This can avoid conflict within the family business between family and non-family employees. Because entering the family business is no longer a rite of passage, modern charters often outline the minimum experience and qualifications a family member needs for a position within the business. Family charters may also cover the treatment of external appointments.

“Family” has a broad definition and a crucial constituent of a charter is defining who is covered by it. For example, should it be just direct descendants or will it cover the wider family group of relations by marriage?

In today’s complex environment, family charters are far more commonplace than before and an important tool to enable successful succession planning and wealth protection for families.

If you would like to inquire about implementing a family charter tailored for your family’s needs contact Maeve Corr, Head of Private Clients.