Family companies have an important place among the companies already established both globally and locally. In this article, we will focus on the role of the family constitution in the transfer and the institutionalization of family companies to future generations and how the constitution of the family is formed.
The main point for family companies is to provide the development and change in harmony with family members and to ensure the sustainability of company. Since the family companies have a shareholding structures which family members are predominantly shareholders, and those companies generally had been managed by a single family member, they may encounter big problems if they are not completed with the necessary institutionalization process while they transfer to next generation. In this context, in our article, we will focus on importance of institutionalization and the necessity of establishing a family constitution during the institutionalization process.
I. AN OVERVIEW OF FAMILY CONSTITUTIONS
- Shareholder Structure and Current Status of Family Companies
Family members have dominance of a family member ("family leader") and the family leader determines the fate of a company. On the other hand, family companies can establish partnerships with non-family members.
As explained below, family companies have become one of the most
preferred partnership structures from past to present. However,
sustainability of these companies is open to discussion. Since
family companies consist of partners who are related to each other,
it will not be appropriate to undergo a commercial perspective. In
addition to commercial perspective of family companies, it is
important to consider line of descent and line of descent between
family members in terms of their effects on the company. In this
context, we would like to emphasize that one of the most important
factors affecting the continuity of family companies is that the
line of descent between the family company partners are reflected
to the company at minimum level and the family is kept away from
domestic conflicts. This condition can only be established with a
- Transfer of Family Companies to the Next Generation
Generally, family companies have experienced the most brilliant periods in the period when the first generation managed the company, they either disappeared when they were transferred to the second and third generation, or they became more than one company by dividing. The disappearance of family companies, which have a great impact on the economy of the countries, also adversely affects the national economies. On the other hand, there are the companies which transferred to next generation successfully and strengthen their continuity.
When the partnership structures of these companies are examined, the most important role of the companies in transferring the next generation seamlessly is that the conflicts of kinship relations are not reflected in the company. In addition, the internal and external auditing systems of the company have been made up and running, and the inter-generational cycle procedures are predetermined are also important factors. Briefly, family companies, which can complete the process of institutionalization, also guarantee their continuity.
II. INSTITUONALIZATION PROCESS IN FAMILY COMPANIES
- Institutionalization of Family Companies
Institutionalization is defined as a company's structure that enables its activities to be maintained and developed without being dependent on the existence of individuals1.
As can be understood clearly from the definition, it is to avoid the dependency of the main company for the people.
In institutionalization of family companies, institutionalization of the company and institutionalization of family relations will be considered as two-dimensional.2 The measures taken for institutionalization of the company in family companies are often not sufficient.
In addition to the institutionalization of the company, institutionalization of family relations through a family constitution is one of the important factors contributing to the complete completion of the institutionalization. Another step of institutionalization for family companies is the establishment of internal audit mechanisms and the correct human resources policy. The common trend in family companies is that many needs of family members are met directly from the company budget. This situation can lead great conflicts within the company. Internal control mechanisms to be established will prevent this situation.
Determining fair human resources policy is also important. The involvement of professionals as well as family members in carrying out the company's business has a great importance for company to move forward. In this context, another important issue for family companies is the employment process of family members.
Since it is not possible and appropriate to appoint each family
member in the company, it would be appropriate to establish the
assignment of family members if they have certain competencies
within the framework of the family constitution and corporate
- Family Constitution
If the family constitution is defined legally, it would be best to call them atypical contract. In this context, family constitution shall be prepared within the framework of the freedom of contract.
Family constitutions are not mandatory to be concluded in writing. However, they are preferred to be concluded in writing by family companies in terms of written proof. The legal capacity to be a party to the family constitutions belongs to all family members, whether or not they are shareholders in the family company. On the other hand, the important point to be emphasized is who the family constitution is binding for. Although the family constitution is capable of being a member of each family member, the family constitution will be binding only for the signatories.
The family constitution can be prepared by family members or prepared by expert counselors. We would like to state that the family constitution is prepared more effectively and efficiently by the consultants.
Another point that should be emphasized in the context of the binding of the family constitution is the position of the family company against the family constitution. Since the company is not a party to the family constitution, it will not be binding on the family company, although the regulations will be of interest to the family business. In this context, any legal action will not be initiated against the family company.
On the other hand, the Company's articles of association reflect the arrangements in the text of the family constitution to the extent allowed by the Turkish Commercial Code numbered 6102, so that the company will be obliged to comply with the regulations in the family constitution.
In conclusion, family companies have great importance both locally and globally, and it is important in the economic context that family companies are sustainable and are transferred from generation to generation in a healthy manner.
1 Doç Dr. İclal Attilla, "Aile Şirketlerinde Kurumsallaşma ve Kurumsal Yönetim Uygulamaları", Türkmen Kitabevi, İstanbul, 2016, page 91
2 Ibid.e, Attilla, page 97
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.