The concept of a family constitution originated in the United States, where wealthier families and family businesses began creating internal documents in the 20th century to regulate family and business relationships. The primary purpose of these documents was to ensure stability and continuity in the transfer of businesses to future generations. Over time, this practice expanded to European countries such as Switzerland, Germany, and the United Kingdom. Today, the family constitution is regaining importance, as it helps family businesses align business interests with family values.
The Goal of a Family Constitution is to Reduce Risks of Disagreements and Family Disputes
A family constitution is a legal document that ensures stability and continuity in the management of a family business or family wealth, and it also provides pre-established rules for resolving potential disputes. Its content focuses on preserving the core values and traditions of the family and transferring them to future generations. Given the complexity of the intersection of family and business relationships in managing a company, and the fact that two-thirds of Slovenian family businesses fail during the transition to the next generation, adopting a family constitution is crucial for the long-term stability and success of the family business.
Various legal acts and agreements can be derived from the family constitution to ensure its implementation. These include, but are not limited to:
- prenuptial agreements,
- postnuptial agreements,
- family wealth management agreements,
- company agreements,
- conflict resolution protocols,
- shareholders’ agreements, or
- codes of conduct.
What Can Be Regulated by a Family Constitution?
The family constitution governs key aspects such as business management, ownership transfer and succession, the definition of family values and vision, financial policies, conflict resolution, the role of inactive family members, family wealth management, and the exit or sale of shares.
Additionally, it includes plans for educating the next generations to ensure the long-term stability and success of the business while maintaining harmony among family members. It also outlines the reasons for adopting the constitution, the business goals, and strategies to achieve these goals. Although the family constitution is not legally required, its adoption is highly recommended.
A family constitution can take the form of either a contract or a code.
Family Constitution as a Contract
If the family constitution is drafted as a contract, it is binding only between the parties involved and does not have effect against third parties. The family constitution can also be included in the preamble of the company’s founding documents to explain the provisions of these acts.
Family Constitution as a Code
When adopted in the form of a code, a family constitution is generally not legally binding, as it contains only recommendations and guidelines that are primarily useful for future generations of the family business. Nevertheless, the family constitution can create binding effects if its provisions establish certain rights and obligations for family members.
Conclusion
The family constitution represents a fundamental pillar for the long-term success of a family business, as it enables a clear definition of values, goals, and rules that guide family members across generations. Through the family constitution, families not only preserve their legacy but also create a stable environment for resolving disputes, strengthening mutual trust, and ensuring business continuity. Therefore, the family constitution is not merely a formality but a strategic tool that fosters unity and sustainable development of the business.
