Family Charter

Concept

Foundations, trusts, and holding companies decide how a family holds and passes on its capital. They say nothing about why it does so, or on what principles the family agrees among itself. A family charter answers that question: the set of values and understandings a family agrees on for owning capital, governing it, and handing it to the next generation. Among old dynasties such codes last for centuries — the Mogi family, owners of Japan's Kikkoman, trace their family precepts to the eighteenth century and drew them together into a formal constitution in 1925.

Where It Comes From

The idea of writing down a family's rules is older than the management-company industry. Merchant and artisan houses kept "household statutes" for centuries, while the academic form arrived in 1978, when Renato Tagiuri and John Davis of Harvard Business School proposed the three-circle model — family, ownership, and business. The circles overlap, and almost every family conflict lives at the seams: a shareholder brother who does not work in the company and a director brother who holds no shares view the same decisions differently. A charter spells out the rules for each zone of overlap in advance.

The statistics explain why this matters. John Ward's classic study (1987) found that roughly 30% of family businesses reach the second generation, about 12% the third, and only around 3% the fourth (the figures are often generalized well beyond the original sample, so they are best read as a rough guide, keeping the researchers' own caution in mind). Folk wisdom puts it more briefly: the English "from shirtsleeves to shirtsleeves in three generations" and the Scottish "the father buys, the son builds, the grandson sells." A charter tries to break that cycle: along with the assets, heirs are handed the rules for handling them.

What It Includes

A charter usually sets out the family's mission and values, the rules for entering and leaving the business, the order of decision-making and voting, the role of the family office, the policy on distributing and reinvesting income, the mechanisms for resolving disputes, and the rules for those who marry into the family. A separate and most delicate section covers the next generation: how heirs are prepared, what they are taught, and on what terms they are admitted to management and to capital.

The Council and the Assembly: Who Decides What

The industry benchmark is the IFC Family Business Governance Handbook: a family council usually appears once the family passes 30 members, runs at 5 to 9 seats, and decides by simple majority. Neither the IFC nor Family Business UK sets a quorum — that figure the charter has to supply itself.

Family Business UK frames the assembly more softly — a forum for learning about the business, with no power to decide; a voting assembly buys legitimacy, an informational one buys speed. The most detailed published set of rules belongs to the shoemaker C. & J. Clark: 16 council members elected by family shareholders for four-year terms, candidacy requiring the backing of a fixed percentage of the share capital, and four meetings a year attended by the chairman, CEO and finance director.

Money: Distribution Against Reinvestment

The IFC records the conflict plainly: an owner who works in the business votes to reinvest, an owner who lives on dividends votes to pay out, and the handbook offers no template dividend policy. The one confirmed payout figure from a large family belongs to AFM: dividends to family partners amount to «1 % de la valeur des entreprises» — the base there is enterprise value, while a payout ratio is measured against profit.

The law sets the boundaries from both directions. S. 830 Companies Act 2006 permits a distribution only out of accumulated realised profits less accumulated realised losses, so a promise to pay a fixed percentage every year needs a distributable-profits proviso. From below, § 254 AktG allows the resolution on the Bilanzgewinn to be challenged where reserving is unjustified on «vernünftige kaufmännische Beurteilung» and shareholders receive less than 4% of the share capital; standing requires holdings of one twentieth of capital or €500,000. From above, § 58(2) AktG bars the management and supervisory boards from moving more than half the Jahresüberschuss into other reserves. Exit is handled by a redemption fund, which the IFC suggests topping up with a small percentage of profits each year.

The Next Generation as a Programme

Age thresholds reach the charter from tax law. 26 U.S. Code § 2503(c) explains the number 21: a gift to a minor qualifies for the annual exclusion where the property and its income are available to the donee before 21 and pass to them on reaching that age; the familiar 25/30/35 tranche ladder has no primary source. The education requirement rests on the same ground: 26 U.S. Code § 2041(b)(1)(A) keeps a power limited by an «ascertainable standard relating to the health, education, support, or maintenance» outside the definition of a general power of appointment — education is one of the four statutory HEMS criteria.

Terms of entry into the business are best documented at SABIS, whose policy the IFC reproduces as a model: «A job at SABIS® is neither a birthright nor an obligation for family members». The requirements are a university degree and «a successful working experience (of 3 to 5 years) outside of SABIS®», with candidates over 40 reviewed separately by the board. Teaching falls to an education committee, and the handbook's stock assignment is an accounting seminar so that relatives can read their own company's financial statements. AFM runs the same circuit as a programme: Affectio Societatis since 1995, the CDE incubator since 2007 (more than 40 entrepreneurs, 26 companies, 1,100 employees), with involvement starting at 16.

Legal Force

On its own, a charter generally carries no direct legal force — it is the family's "social contract." Its principles are translated into binding documents: company charters, shareholders' agreements, the terms of trusts and personal foundations, and managers' mandates. Voting rights and dividends are fixed by a shareholders' agreement; control over assets without transferring them directly to heirs, by a trust or a private trust company; protection against the fragmentation of stakes in divorces and through marriage, by prenuptial agreements and the holding company's charter. The charter remains the source; these instruments are its execution.

From Charter to Binding Documents

The translation runs line by line: every rule gets a carrier and a legal basis.

The Russian catch sits in art. 67.2(2) of the Civil Code: a corporate agreement cannot oblige participants to vote as the company's own organs direct, nor fix the structure of those organs, so a charter rule under which the family council tells shareholders how to vote is void in that part — the mechanism has to be built from the shareholders' own direct undertakings on listed matters. Under para 6 a breach can void a resolution of a company organ where all participants were parties to the agreement. The marriage row of the table is unpacked in Cross-border prenups and Property division in a cross-border divorce.

Publicity of the charter itself stays a family's choice. Spain is the only known jurisdiction with a dedicated instrument on the family protocol: Real Decreto 171/2007 (BOE núm. 65 of 16 March 2007) applies to unlisted companies and offers three degrees of disclosure — a note in the company's registry sheet that a protocol exists, deposit of a copy with the annual accounts, and publication of the text on the corporate website whose address is recorded at the Registro Mercantil.

When It Is Written

A family charter is worth creating once the capital and the family have grown to the point where informal understandings no longer suffice: several branches, a next generation, a shared business. The occasion is often preparation for a handover of management or the assembly of a family holding for succession — the moment when the questions of "who decides" and "how we divide" arise in full. Where the charter sits among the family's other decisions — the property regime, the instruments and the events — is set out in the family cluster map. This is work for years ahead, and the text is updated whenever major changes occur in the family.

How Families Actually Do It

The best-known example is the French Association Familiale Mulliez (AFM), which unites the owners of Auchan, Decathlon, and Leroy Merlin. The association has operated since 1955, the first family charter was written in 1968, and the principle "Tous dans Tout" ("everyone in everything") means mutual participation by all branches in all assets, with no outside investors. On the association's own figures, 2025 counts 1,650 family members and 994 shareholders, against 210 and 20 in 1960; membership comes by birth or by marriage, but not automatically — the conditions are written into the charter itself. What holds any single branch in check is a hard ceiling, stated by the president of AFM's conseil de gérance before a French National Assembly committee on 7 May 2025: «aucun des membres ne détient plus de 10 % du capital ou des droits de vote».

Japan's Kikkoman rests on the constitution of the Mogi family, and its rules are strikingly specific: each of the eight branches may place only one representative in the business per generation, and a relative is valued by character and contribution to the enterprise. The rules look harsh, but they keep the company from turning into an almshouse for the whole clan and keep it governable over a horizon of centuries.

Living Document

A charter is not written once and for all — it is revisited as generations change and at major events: the sale of a business, a divorce, the appearance of new branches. To keep the document alive, the family sets up bodies: a family council for day-to-day decisions and a family assembly, where once a year everyone gathers, including the young and those who have married in. These institutions, together with the family office, are what turn a fine text into working practice.

How the Text Itself Gets Revised

Neither the IFC nor Family Business UK supplies a revision procedure: both stop at «a living document that evolves as the family and its business continue to evolve» — no initiator, no majority, no interval. The consultants' favourite «every three to five years» has no primary source. The firm reference comes from company law: s. 21 Companies Act 2006 lets a company amend its articles by special resolution, and s. 283 requires «a majority of not less than 75%». The real rhythm shows in AFM's chronology: «Tous dans Tout» formalised in 1955, the first council elections in 1961, the charter in 1968, the crisis of the 1980s resolved by electing three co-presidents, Affectio Societatis in 1995, the incubator in 2007.