A family constitution is a document which lays down all the guidelines which the family should follow while conducting the businesses owned by it and other family activities. It sets up a framework for the family members to discuss issues, formulate policies and procedures, clearly define family members’ rights and obligations and make decisions about the important issues they are concerned with.
- A family constitution should spell out:
- What will be the mission or purpose of its businesses?
- Which values the business must not compromise with?
- Which principles the family should always adhere to?
- Which types of businesses the family may enter?
- Which are the different policies which govern the interactions of the family with the businesses? (E.g. Business Management, Family Members’ Employment, Leadership Succession etc.)
- What will be the ownership structure of the businesses and all the other assets of the family?
- How will the Family Council be formed, who will be a part of it and what will be its role?
- What will be the role and say of the family members in the Family Council who are not actively working in the business?
- How will the Family Council handle and resolve the disputes among family members?
- How should the ownership, leadership, management of the business pass from generation to generation?
- How the constitution may be modified?
- A family constitution should combine the founders’ needs, the business’ requirements and the family’s wishes. Done properly, it offers a variety of important benefits. It helps in building not only a stronger business but also a stronger family, as well as opening up the succession process and planning for the future of the business.
- A family constitution is an ideal mechanism for family members to confront contentious issues and collectively decide how to handle them. Of course, a family constitution may not be able to prevent conflicts but concrete policies and processes will assure the family that the potential problems can be resolved quickly and that the decisions will be applied consistently to each family member.
- In short, a good family constitution can perpetuate a family business for a long time. Therefore, the founders of every family business should consider the formulation and implementation of a family constitution as a high priority to ensure an efficient planning for the future and the long term prosperity of the family and its businesses.
(Expert advice to GROW your business wherever you are, whenever you want.
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