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15 June 2020

Where do I start? Practical points to consider for a family charter

A family charter is not a legal document. Instead, it works alongside the formal legal documents covering your assets and interests, providing an overarching framework to ensure that your values infuse all future decision maker.  

The first thing to articulate are your beliefs, values and priorities.  What is most important to you?  What do you consider to be your guiding principles?  What do you want to ensure passes on to future generations?

Which then leads on to deciding who will be covered by the charter and who constitutes a family member? Does every family member get an equal say and at what stage do they get a say? Or would you prefer to establish a family board to make decisions on behalf of everyone? You may want to consider a family board representing different generations, or jurisdictional interests, or imposing conditions as to the character and beliefs of future family decision makers.

What should be covered by the family charter: should it be limited only to business and investment matters, or does it cover the ‘big’ picture too – personal provision and philanthropy, for example?  To what extent should your beliefs and values be applied to each of these aspects for your family in the future?

For the family business, you might establish clear structures and succession plans – relating both to ownership and to the management.  Should management remain only with family members and how can you ensure that they have appropriate experience and motivation?  Alternatively, should external managers be allowed in and how should they be incentivised and remunerated?  Are external investors allowed in and, if so, should there be any restrictions?  And in which circumstances should a sale of the entire business be considered?  Is it important to you that employees and suppliers are protected in the future?  The family charter should strike a good balance between protecting your ethics and values, and giving the remaining family the freedom to manage the business in the future.  

On investment matters, do you want family members / the family board to make all decisions?  Or should external advisers be appointed and, if so, how should they be selected and to whom should they report?  Will the family board oversee the investment strategy, alongside any family business holdings – ensuring that both diversity and synchronicity is maintained? Should the family maintain any specific investment strategies or restrictions? This is another key area where your values and ethics can be considered.

People have different views of philanthropy: many will want to use the family charter as an opportunity to encourage and guide the family’s philanthropic endeavours, whereas others believe that philanthropy is a purely personal choice.  You should use the charter to explain what is important to you and why. Do you want the family to approach philanthropy as a joint effort, continuing to honour your beliefs?  Should funds that are earmarked for philanthropy be invested in a particular way?  Do you want the family to create its own charity or to support any existing charities?  To what extent should tax guide the decision-making in this area?

If you want to include provisions for the personal requirements of family members, think about what is important to you.  Do you want to provide monetary limits for each family member? Do you want to encourage certain types of activity - education, travel, entrepreneurship, philanthropy, cultural or religious activity?  Should assets only be released in cases of genuine hardship or medical needs?  Whatever else you decide, the family charter needs to remain workable and should ideally not prevent family members living their lives with some degree of freedom.

Finally, things do go wrong and circumstances can change. The charter should provide for this. Who should take responsibility and at what stage? Should there be a formal process for resolving issues – whether they are financial or familial? To what extent should the board (or a distinct oversight committee) have the flexibility to change parts of the charter if needed?

Remember the charter is not a legal document.  Instead of carrying the weight of the law, the charter’s power comes from family members “signing up” to it.  So, for it to be effective, family members have to know about it, believe in it and agree to it.  Communication with the family is imperative, as is the opportunity to explain your thought process and why you have chosen various family members to fulfil certain roles.


For more information please contact Sangna Chauhan at sangna.chauhan@crsblaw.com or Heather Maizels at heather.maizels@crsblaw.com.

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