Family Constitutions and Family Forums

A family constitution is one of the most effective tools a family business can use to prevent disputes. Specifically, it sets out how the family will run its business together, how decisions will be taken, and how disagreements will be handled. As a result, the family constitution provides a structured framework for the difficult conversations that would otherwise be avoided. Importantly, a family constitution is not a legal document in the strict sense. By contrast, it is a written statement of how the family has agreed to behave. Crucially, the discipline of putting one in place is often as valuable as the document itself.

This page explains what a family constitution is, what it should cover, how it works alongside the legal documents, and how families put one in place. Specifically, it also covers family forums, family councils and the wider question of how the family talks to itself about the business.

What a family constitution is

In short, a family constitution is a written statement of how the family will work together in relation to the business. Specifically, it covers the family’s values, the rules for participating in the business, the structures for family decision-making, and the principles for resolving disputes. Importantly, it is signed by the family members and is treated as binding in practice, even though it is not usually enforceable as a contract in the same way as a shareholders’ agreement.

By contrast, the family constitution is not a substitute for the legal documents. Specifically, the articles of association and the shareholders’ agreement remain the legally enforceable instruments. As a result, the family constitution sits alongside them, dealing with the matters that the legal documents cannot or should not address. For the legal context, see shareholders’ agreements for family businesses.

Why families benefit from a constitution

Importantly, the family constitution serves several purposes that the legal documents cannot. Specifically, the most important are these.

First, it gives the family a shared language for talking about the business. Specifically, the constitution sets out the family’s values, the principles it wants to live by, and the kind of business it wants to run. As a result, future conversations can be anchored in a document that everyone has agreed to. Second, it sets expectations clearly. Crucially, many family business disputes arise because expectations were never made explicit. By contrast, the constitution forces the family to articulate what each member can expect and what each member is expected to contribute.

Third, it provides a structure for difficult conversations. Specifically, the constitution typically establishes a family forum that meets regularly. As a result, the family has a habit of structured discussion rather than ad hoc and often heated exchanges. Fourth, it anticipates change. Importantly, the constitution typically provides for how the family will handle transitions such as the founder’s retirement, the entry of the next generation, marriages, deaths and divorces. Crucially, this allows the family to think about these events while they are still hypothetical rather than under pressure. For more on the underlying dynamics, see the three circles model.

What a family constitution should cover

Crucially, a good family constitution typically covers a defined set of topics. Specifically, the most important are these.

The family’s values and purpose

First, the constitution should set out the family’s values and the purpose of the business. Specifically, what is the family trying to achieve through the business? What kind of business do they want to run? Importantly, this is more than a marketing statement. By contrast, it is the foundation against which future decisions will be tested. As a result, when the family is faced with a difficult choice, the constitution provides a reference point for what the family stands for.

Rules for participating in the business

Second, the constitution should set out the rules for family members participating in the business. Specifically, can family members join the business directly, or do they need outside experience first? What qualifications or experience are required? How is family member performance evaluated? What happens if a family member is not performing? Importantly, these are some of the most sensitive questions in any family business. Crucially, the constitution allows them to be addressed in advance rather than under the pressure of a specific situation.

Family employment and remuneration

Third, the constitution should set out the principles for family employment and remuneration. Specifically, family members should be paid at market rate for the roles they perform. Importantly, the constitution should commit the family to independent benchmarking. As a result, the question of whether working family members are paid fairly stops being a matter of family dispute and becomes a matter of objective measurement. For more on this issue, see the have and have-not pattern.

Dividend policy

Fourth, the constitution should include the family’s dividend policy. Specifically, what proportion of profits is intended to be distributed as dividends? On what timetable? Importantly, this is particularly important in families with a mix of working and non-working shareholders. As a result, the constitution provides predictability and transparency that defuses the have and have-not perception. Crucially, the dividend policy should align with the shareholders’ agreement so that the two documents are consistent.

Family forum or family council

Fifth, the constitution should establish a family forum. Specifically, this is a regular meeting of family members at which the affairs of the business and the family’s relationship with the business are discussed. Importantly, the forum is separate from the board of directors. As a result, family matters are discussed in the family forum, business matters are discussed at the board, and ownership matters are dealt with at shareholder meetings. Crucially, this separation prevents the wrong issues from being decided in the wrong place.

Succession and the next generation

Sixth, the constitution should address succession. Specifically, how will the family handle the founder’s retirement? How will the next generation be brought into the business? How will leadership transitions happen? Importantly, this is the area where the absence of a constitution causes the most damage. As a result, families that have addressed succession in their constitution typically navigate the transitions much more smoothly than those who have not. For more on this, see succession planning and the next generation.

In-laws and marriage

Seventh, the constitution should address the role of in-laws. Specifically, what role can in-laws play in the business? Can they be employed? Can they hold shares? Importantly, what happens to family member shares on divorce? Crucially, these questions are difficult to address once a marriage or divorce is underway. By contrast, they are relatively easy to address in advance through the constitution.

Communication and confidentiality

Eighth, the constitution should set out the family’s commitments to communication and confidentiality. Specifically, how will family members communicate with each other about the business? What information should be kept confidential? How will the family handle disagreements between members?

Dispute resolution

Finally, the constitution should include a dispute resolution clause. Specifically, the family should commit to attempting family mediation before any legal proceedings. Importantly, this is consistent with the direction of travel in the law confirmed by Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416. As a result, the constitution provides a structured route through any disagreement. For more on the mediation context, see why mediation is usually the right starting point.

The family forum in practice

Importantly, the family forum or family council is one of the most useful structures the constitution can establish. Specifically, it provides a regular, structured space for the family to discuss the business and their relationship with it. As a result, issues are surfaced before they become disputes. Crucially, the family forum is not the same as the board of directors. By contrast, it sits alongside the board, dealing with family matters that the board would not address.

In practice, family forums typically meet two to four times a year. Specifically, the meetings are usually attended by all adult family members who have an interest in the business, whether or not they work in it. Importantly, the meetings are structured, with an agenda, minutes and clear outcomes. By contrast, they are not informal kitchen-table conversations. As a result, the family develops habits of structured discussion that significantly reduce the risk of disputes.

Crucially, the typical agenda for a family forum includes updates on the business, discussion of any major decisions on the horizon, succession planning, family employment and remuneration matters, dividend policy, and any concerns raised by family members. Importantly, the forum can also commission specific projects, such as a review of the shareholders’ agreement or an external benchmarking exercise.

The role of the family forum chair

By contrast, the role of the chair of the family forum is critical. Specifically, the chair facilitates the discussion, ensures that everyone has a voice, and keeps the meeting on track. Importantly, the chair is sometimes a family member and sometimes an external facilitator. Crucially, in families with strong personalities or significant tensions, an external facilitator can be more effective than a family member.

In practice, the choice of chair depends on the family. Specifically, where the family is large and the dynamics are complex, an external chair is usually better. By contrast, where the family is smaller and the relationships are functional, a family member can chair effectively. Importantly, the chair should be reviewed periodically. As a result, a family that started with a family chair may move to an external chair as the family grows, or vice versa.

How the constitution relates to the legal documents

Crucially, the family constitution should be consistent with the legal documents. Specifically, the articles of association, the shareholders’ agreement, any trust deeds, and the wills of family members should all align with the constitution. Importantly, the family constitution does not replace any of these. By contrast, it provides the framework within which the legal documents operate.

In practice, the most common approach is to draft the family constitution first and then to ensure that the legal documents are consistent with it. Specifically, this is because the constitution articulates the family’s values and intentions, which the legal documents then give effect to. By contrast, where the legal documents are drafted first and the constitution is bolted on afterwards, inconsistencies often emerge. Crucially, where there is a conflict between the constitution and the legal documents, the legal documents prevail in court. As a result, ensuring consistency is essential.

The enforceability question

Importantly, the family constitution is not usually a legally enforceable document in its own right. Specifically, it is a moral commitment rather than a contractual one. By contrast, this is sometimes seen as a weakness. Crucially, families that have used constitutions for many years usually take the opposite view.

In practice, the value of the family constitution comes from its moral force rather than from its legal enforceability. Specifically, family members feel bound by what they have committed to, even though they could in theory walk away. Importantly, this is because the constitution is the product of a serious process of family discussion and agreement. As a result, breaking the constitution feels to family members like a breach of trust rather than a technical breach of a document. Crucially, this moral force is often more powerful in family relationships than a legal commitment would be.

By contrast, where the family wants particular provisions to be legally enforceable, those provisions can be included in the shareholders’ agreement. As a result, the constitution and the shareholders’ agreement work together. Specifically, the constitution provides the framework and the moral commitment. The shareholders’ agreement provides the legal teeth where they are needed.

How to put a family constitution in place

Importantly, the process of putting a family constitution in place is itself one of the most valuable parts of the exercise. Specifically, the conversations the family has during the drafting process often surface assumptions that have never been articulated. As a result, the drafting process is itself a form of family business governance.

Typically, the process involves the following stages.

• First, the family agrees to put a constitution in place. Specifically, all relevant family members commit to engage seriously with the process.
• Second, the family identifies a facilitator. Crucially, this is usually an external person with experience in family business work. As a result, the family does not have to facilitate its own difficult conversations.
• Third, the facilitator conducts individual conversations with each family member. Specifically, this is to understand each person’s perspective, concerns and hopes for the constitution.
• Fourth, the family meets for a series of facilitated discussions. Typically, these are spread over several months and cover each topic in turn.
• Fifth, the facilitator drafts the constitution based on what the family has agreed. Importantly, the draft is then reviewed and amended by the family.
• Sixth, the constitution is signed by all family members. Crucially, the signing is often given some ceremony to mark the moment.
• Finally, the constitution is implemented. Specifically, the family forum is established, the legal documents are updated for consistency, and the constitution becomes part of how the family operates.

Importantly, the process typically takes six to twelve months. By contrast, it is not a quick exercise. As a result, families that want a constitution in place quickly are usually disappointed.

The cost of a family constitution

Importantly, the cost of putting a family constitution in place varies significantly. Specifically, the main costs are the facilitator’s fees and any associated legal work. As a result, a typical family constitution exercise costs between £10,000 and £75,000, depending on the size and complexity of the family.

By contrast, the cost should be weighed against the cost of the disputes the constitution prevents. Specifically, a single contested unfair prejudice petition can cost each side £150,000 to £750,000 or more in legal fees. As a result, the family constitution is one of the highest-return investments a family business can make. Crucially, families that have used constitutions for years usually regard them as one of the most important investments they have made in the family and the business. For the wider cost picture, see the cost of family business litigation.

When to put a constitution in place

Crucially, the best time to put a family constitution in place is when the family is functioning well. Specifically, when everyone is on speaking terms and there is no active dispute. By contrast, the worst time is when a dispute has already developed. Importantly, families that wait until the dispute has developed often find that the constitution exercise is hijacked by the dispute. As a result, the constitution either fails to be agreed at all or is agreed only as a partial settlement of the dispute.

In practice, the most common triggers for putting a constitution in place are these. First, a generational transition is approaching. Specifically, the founder is preparing to step back and the next generation is taking on more responsibility. Second, the family has just expanded significantly, for example through marriages or births. Third, the family has just experienced a near-miss with a dispute that prompted reflection. Fourth, the family is bringing in outside investors or non-family executives and wants to articulate its values and intentions. Fifth, the family is engaged in a significant transaction such as a sale or a major refinancing.

The differences between a family constitution and a family charter

Importantly, the terminology in this area varies. Specifically, some families use the term “family constitution”, others use “family charter”, others use “family protocol”. By contrast, the differences in substance are usually minor. As a result, the choice of terminology is largely a matter of preference.

In practice, the most common usage in the United Kingdom is “family constitution” or “family charter”. Specifically, both terms describe the same kind of document. Importantly, what matters is the content of the document and the process by which it was put in place, rather than the label. Crucially, families should choose the term that feels right to them.

What a family constitution cannot do

By contrast, it is important to be realistic about what a family constitution can achieve. Specifically, a constitution is not a substitute for a functional family. Importantly, where the family relationships are already deeply broken, a constitution will not repair them. As a result, the constitution should be seen as a tool that works best in families that are willing to engage with it in good faith.

Likewise, a family constitution does not eliminate the risk of disputes entirely. Specifically, it reduces the risk significantly. By contrast, disputes can still arise. Crucially, even in those cases, the constitution typically helps. As a result, families with a constitution that finds themselves in dispute usually navigate the dispute more constructively than families without one. Importantly, the constitution provides a framework that the family can return to, even when relationships are strained.

Frequently asked questions

What is a family constitution?

In short, a family constitution is a written statement of how the family will work together in relation to the business. Specifically, it covers the family’s values, the rules for participating in the business, the structures for family decision-making, and the principles for resolving disputes. Importantly, it is signed by the family members and is treated as binding in practice, even though it is not usually enforceable as a contract.

Is a family constitution legally binding?

Generally, no. Specifically, the family constitution is a moral commitment rather than a contractual one. By contrast, the value of the constitution comes from its moral force rather than from its legal enforceability. Importantly, where the family wants particular provisions to be legally enforceable, those provisions can be included in the shareholders’ agreement. As a result, the constitution and the shareholders’ agreement work together.

Who should be involved in drafting a family constitution?

Typically, all adult family members who have or will have an interest in the business should be involved. Specifically, this includes both working and non-working family members, and often includes in-laws as well. Importantly, the breadth of involvement matters because the constitution is only effective if everyone feels they have had a fair voice in shaping it. As a result, an inclusive drafting process is essential.

How long does it take to put a family constitution in place?

Generally, the process takes six to twelve months. Specifically, it involves a series of facilitated discussions, drafting and review. Importantly, families that try to rush the process usually end up with a constitution that is not properly owned by the family. By contrast, families that take the time to engage seriously with the process produce constitutions that work in practice.

How does a family forum work?

In short, a family forum is a regular meeting of family members to discuss the business and their relationship with it. Specifically, it typically meets two to four times a year, with an agenda and minutes. Importantly, the family forum is separate from the board of directors. As a result, family matters are discussed in the forum, business matters at the board, and ownership matters at shareholder meetings. Crucially, this separation prevents the wrong issues from being decided in the wrong place.

Further reading on this site

• Family Business Disputes (main page)
• The Three Circles Model
• Preventing Family Business Disputes
• Succession Planning
• The Next Generation
• Shareholders’ Agreements
• The Role of the Non-Executive Director
• The Founder Problem
• The Have and Have-Not Pattern
• Why Mediation Is Usually the Right Starting Point
• The Cost of Family Business Litigation
• Direct Access Barrister

Get advice on your situation

A well-drafted family constitution is one of the most powerful tools a family business can use to prevent disputes. Specifically, it provides a framework for difficult conversations, sets expectations clearly, and anticipates the transitions every family business has to navigate. As a result, early specialist advice on putting a family constitution in place is one of the most valuable investments you can make. I act as a direct access barrister, commercial mediator and mediation advocate in family business disputes throughout England and Wales.

Call 020 4538 0246, use the contact form, or book a call directly. In addition, my book Winning in Family Business Disputes (forthcoming) covers family constitutions in detail, alongside my published works on shareholder disputes and commercial mediation. Organisations like Family Business United also publish useful guidance for family business owners.

Important disclaimer: This page is provided for general information purposes only and does not constitute legal advice. The content may not be legally accurate for your situation or at all. You must not rely on anything on this page in respect of your legal rights. Before taking or refraining from taking any legal action, you should seek advice from a qualified lawyer. I disclaim any and all liability for any loss, damage or expense howsoever caused by reliance on the contents of this page. If you would like advice on your specific situation, contact me here.