Australia: Can a family constitution help your family business thrive?

Last Updated: 13 February 2015
Article by Nick Miller and Danielle Larkin

The most successful family owned businesses plan for the future, but starting difficult conversations about the future of the business can be challenging.

These conversations may be tricky, but talking about the future is crucial for ensuring the family owned business succeeds across generations.

A family constitution can be a valuable tool to assist the owners of medium to large family businesses in discussing and implementing a plan for the future of the business.


As good as a family business may be, it can only succeed and endure over time if it has a solid foundation of family consensus and buy-in.

Respondents to the KPMG and Family Business Australia Family Business Survey 2013 identified "balancing of family and business issues" as their biggest challenge, yet only 16% had a family constitution.

A family constitution is a document which records the family's values and rules for managing the relationship between the family and the business. It differs from a company's constitution in several important respects (for example it may not be legally binding, or at least not fully so). A family constitution may also be known as a family charter, code of conduct or family agreement.


Usually, the strength of a family constitution stems from its status as an emotionally-binding, rather than legally-binding, document.

In contrast to legally binding documents such as trust deeds and shareholders' agreements (or, indeed, a company's constitution), a family constitution can extend to family members who are not shareholders or are not involved in the business. This can be very useful, because those in the broader family network can certainly affect, and be affected by, the family business in a number of ways (e.g. through relationships with other family members or as potential beneficiaries of or stakeholders in the business in certain circumstances).

However, it may be in the best interests of the family for some provisions to be enforceable, such as provisions regarding conflict resolution, share transfers and confidentiality. Typically, any enforceable provisions would be found in another document, usually a shareholders' agreement (it is generally best not to mix enforceable and non-enforceable provisions in the same document).

Of course, it is always important to consider how a family constitution interacts with other legally-binding documents (e.g. trust deeds, shareholders' agreements and company constitutions) and to ensure there is no conflict between the different documents.

Often, the best approach is for the family constitution to "sit above" other legally binding documents as an overarching document.


You may think a family constitution seems like a lot of effort for not much gain.

But consider what is at stake; family conflict and a lack of future planning can destroy a family owned business, but the conversations required to avoid these pitfalls are often left in the "too hard basket". This is understandable, as family dynamics can be difficult and future planning, particularly succession planning, can be a very emotional topic.

While by no means a "magic bullet", the creation of a family constitution can be a valuable means for encouraging dialogue about the future and, once created, a useful "handrail" for managing family conflict.


One of the most important elements of a family constitution is a "mission statement" which sets out the long-term goals and strategic vision for the future of the family business.

As Stephen Covey has said, "by creating and living by a mission statement, families are gradually able to build moral authority in the family itself" (The 7 Habits of Highly Effective Families (1997)).

A written "mission statement" can be a powerful catalyst for building collective purpose and keeping the family business strong and focused.

A family constitution can also record the core values of the family. This requires deep reflection on the very essence of the family and the belief-system which everyone agrees must be upheld to protect and grow the family's wealth. Recording these values in a written document can help ensure these principles are embedded into the structure and culture of the family over time.

A family constitution can be tailored to ensure it is the right "fit" for your family; there is no "one size fits all" approach and the document should evolve and change over time.

Issues to address may include:

  • a conflict resolution procedure can be effective and has the benefit of keeping the dispute confidential (as discussed above, you may wish to ensure this procedure is legally enforceable);
  • succession planning issues (e.g. retirement ages) and a procedure for choosing individuals for appointment to management, the board and / or the family council;
  • procedures for determining how key events such as marriage, divorce, birth and death will affect ownership, participation in the business and wealth distribution;
  • procedures for employment and performance management of family members in the business (e.g. entry requirements such as experience and qualifications, remuneration and termination policies);
  • a formal mentoring program for the next generation;
  • procedures for distribution of income and wealth among family members;
  • share transfer issues such as price, transfer restrictions and terms for transfer to other family members or third parties (as discussed above, it will probably be appropriate for share transfer procedures to be legally enforceable and set out in a shareholders' agreement);
  • establish and record rules of conduct for one or more governance bodies (e.g. a "family council"), including clear decision-making processes;
  • arrangements for communication among the broader family (e.g. a "family assembly" or organised social gathering); and
  • periodic reviews of the family constitution.


Consensus is the key to a meaningful and successful family constitution and the first step is consultation to gain support from the family. It is important to decide up-front who will be involved and who will have overall responsibility for the process.

Often, a lot of the work is done at a family retreat or meeting, as a workshop environment facilitates the creative process required to develop a strategic vision. Sometimes, families choose to engage an experienced external facilitator to run the meeting and / or assist with other aspects of the development process (such as drafting the document).

While the process can be time consuming, with the right advice and buy-in from the broader family, you can develop a family constitution which the family can use to protect the family business and build wealth for generations to come.

Hunt & Hunt's Corporate and Business Advisory Group is experienced in assisting family and private businesses with a range of corporate governance and business succession issues.

We can work with you (and your other advisors as appropriate) to prepare a family constitution that's the right "fit" for your family business.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions