Family Constitution Template

Family Constitution (Family Charter) : A Practical Template for Family Businesses

Family Constitution template for family businesses: objectives, values, governance bodies, ownership rules, employment policies and shareholder expectations. A practical family charter structure for long-term continuity and generational transition. The template has been taken from the Credit Suisse Family Governance White Paper.

Family (Company) Constitution (shortly “FC”) is a reference document that defines how family members and the family business will work together over the next 10–15 years.

It clarifies values, governance rules, ownership principles, employment policies and decision-making bodies, and it must never contradict corporate law or the company bylaws.

Introduction

Objective

This FC is designed to serve as a long-term reference for relationships between family members and the business during the next 10 to 15 years, a period in which the transition from the second to the third generation is expected to take place.

The family recognizes its shared bonds and responsibility for preserving the legacy of the business and transferring it to future generations.

Mission of the FC

The FC:

• Clarifies what the family and the business want to be.
• Defines the main principles governing the relationship between the family and the company.
• Strengthens unity and commitment within the family enterprise.
• Must never conflict with applicable corporate laws or company bylaws.

Approval and Modification

The approval and any future modification of this FC fall under the authority of the Family Board.

Guiding Principles of the FC

About the Founders

The FC is inspired by the founders and the entrepreneurial legacy they created.

Values to Be Passed On

The second generation commits to transferring the following values to future generations:

• Strong work ethic and accountability, reflected in high-quality products and hard work.
• Understanding, unity, harmony and strong bonds among shareholders.
• Stewardship of the brand and awareness of the impact of personal actions on the company and the family reputation.
• Ethical conduct based on discretion, honesty and humility.
• Dedication and commitment to company objectives.
• Confidence in company governing bodies and respect for present and future leaders.
• Long-term partnerships with customers and suppliers.
• Equal treatment of family and non-family employees in professional life, including compensation, promotion and working conditions.
• Philanthropy through the family foundation under the supervision of the Family Board.

Other Values to Be Promoted

The first generation commits to ensuring that the following values are understood and adopted by the second generation:

• A healthy balance between work and family life.
• Differentiation through niche focus and customized solutions.
• A strong sense of family and business history.
• Motivation based on contribution to continuity and growth of the family business.
• Respect for all stakeholders: family members, employees, customers, suppliers and competitors.
• Awareness of shareholder responsibilities and collaboration for the benefit of all owners.
• Responsible use of inherited capital and preservation of wealth for future generations.
• Commitment to passing on a company with a strong brand and customer service capability.
• Constructive solutions for shareholder liquidity and peaceful separation.
• Commitment to creating wealth and opportunities for both family members and employees.

The Type of Company We Want to Be

The family envisions a company that:

• Remains under controlling ownership of the family through the Family Board and the Board of Directors.
• Is among the leaders in its industry.
• Is technology-driven and focused on innovation and process improvement.
• Continues to grow and provide professional and personal development opportunities.
• Remains a professionally managed family-owned company with family representation on the Board of Directors and/or the executive team.
• Offers an organizational structure that provides meaningful career opportunities for both family and non-family managers.

Key principles regarding family participation in management:

• Positions are not automatically available to family members.
• Family members working in the business are expected to hold leadership roles and meet professional and technical requirements.
• Development of future family leaders is a priority.

What the Company Can Expect from Its Shareholders

The family business expects shareholders to:

• Maintain a long-term investment perspective.
• Support the development of intellectual capital.
• Support product and market development.
• Contribute industry and operational experience when working in the business.
• Support continuity across generations.
• Respect the different roles of owners, managers and family members.
• Demonstrate ethical and responsible behavior.

What Shareholders Can Expect from the Family Business

Shareholders can expect:

• Growth in operations despite competition and market changes.
• Growth in shareholder value and profitability.
• Continuous investment in products, services and new markets.
• Operational efficiency and cost discipline.
• Reinvestment of at least 30% of annual earnings.
• Expansion through subsidiaries, joint ventures and acquisitions.
• Balanced growth without excessive risk.
• Growth mainly financed through internal cash flows.
• A dividend policy that balances reinvestment needs and shareholder expectations.
• Transparent and regular information on company performance and markets.
• Adoption of best practices and highly qualified professionals.
• Preference for qualified family members in top management roles.
• Professional advice on ownership transfer and succession.
• A company that remains a source of pride for the family.

Working in the Family Business – Family Employment Policy

Family members must be aware that they will generally be held to higher standards of conduct and performance.

An internship program is supported to introduce younger generations to the company.

General Conditions

Family members:

• Must meet the same hiring and dismissal criteria as non-family candidates.
• Are subject to the same performance evaluations.
• Are compensated at fair market value.
• Are promoted based on performance and company needs.
• May participate in structured internship and summer employment programs.
• Must not remain permanently in entry-level or internship positions.
• Must have at least three years of work experience outside the family business, including positive performance evaluations.
• Are encouraged to pursue graduate education in relevant disciplines.
• Are supported by a family career-development committee.
• Spouses are not eligible for permanent employment.

Ownership of the Family Business

Ownership of Shares

Direct descendants of the founder should retain controlling ownership of the shares.

Recommendations for Owners

Owners are encouraged to:

• Consider the impact of estate planning decisions on the business and other shareholders.
• Promote unity and continuity of ownership.
• Enable capable members of the next generation to attend shareholder meetings as informed and responsible owners.

Shareholder Liquidity

The company aims to facilitate shareholder liquidity by:

• Paying dividends where possible.
• Establishing a Liquidity Fund to purchase limited amounts of shares.
• Complementing the existing buy-sell agreement.

Key principles of the liquidity mechanism include:

• Annual purchase limits of up to 1% of total shares, subject to available funds.
• Annual valuation using a formula approved by the Board of Directors.
• Transparent communication of valuation results.
• Authorization of transactions in line with the shareholder buy-sell agreement.

Governing Bodies

Two categories of governing bodies exist:

• Corporate governance bodies (Shareholders’ Meeting and Board of Directors).
• Family governance bodies (Family Board and related committees).

Annual Shareholders’ Meeting

Shareholders receive extensive information on the business.

Confidentiality is expected.

One Family Board meeting follows the Annual Shareholders’ Meeting.

Board of Directors

The Board of Directors supervises top management and is responsible for:

• Approving strategy.
• Monitoring financial performance.
• Ensuring ethical conduct.
• Promoting management development.

Board operation principles include:

• Compliance with laws and company statutes.
• At least three independent external board members.
• Two family representatives.
• Quarterly meetings scheduled at least one year in advance.

Family Board

The Family Board focuses on:

• Education of shareholders.
• Communication between family and business.
• Dissemination and continuous updating of the FC.
• Proposing improvements to family governance.

Membership rules include:

• Family members over 16 years of age.
• Representation by family branches.
• A maximum of 12 members.
• One member also serving on the Board of Directors.
• Occasional facilitation by an external family-business expert.

Problem-Solving and Conflict Resolution Committee

This committee:

• Prevents and resolves conflicts that may threaten family unity.
• Includes family members and at least two independent members.
• Includes at least one conflict-resolution professional.
• Develops procedures and preventive guidelines.

Family Assembly

The Family Assembly meets annually to:

• Strengthen relationships among family members.
• Increase understanding of the business.
• Increase understanding of family wealth and trusts.
• Promote extended family bonds and shared experiences.

Family Constitution template is only a draft to show you how FC looks like. Please feel free to contact us for more information and further inquiries about our unique services. You can also subscribe to Tacirsoft Hukuk Bilgi Sistemi, that is Turkey’s only Corporate Law and Organized Industrial Zones Law database.