Succession ABC: Family Constitution – what is important to know for those planning their wealth transfer?

Let your wealth serve the way you want it to – not only today, but also in the future

The importance of succession planning is an integral part of every family, especially when it comes to businesses and investments. Only 17% of family businesses in the world have a well-communicated and responsibly thought through business transfer plan. And only a few people know about the most important document for the implementation of a smooth succession plan – the family constitution.

In this article, the Taurus Wealth family office team aims to briefly and simply explain the benefits of this document for the family and review the most important aspects of its preparation.

What is a family constitution?

A family constitution is a written formal document that lays down the rules and outlines the family’s core values, strategy and governance structure for managing the family’s wealth-related affairs.

Many businesses fail for one reason – family conflict. Only 30% of family businesses make it to the second generation, 12% to the third and, unfortunately, only 3% of all family businesses survive in the hands of the fourth generation. The purpose of the family constitution is to prevent conflicts. When properly structured, it can ensure a sustainable family business for many generations.

When is it worth drawing up a family constitution?

A family constitution can be drawn up at any time during the existance of a family business. However, it is advisable to prepare it as early as possible, if possible before starting a family business or any important transaction. It is important that the business goals, structures and roles of the family members are clear when drafting the family constitution.

• A family constitution can help the family in the following ways:
• Brings the family together through an emotional bond;
• Encourages family members to get involved and participate in business management;
• Helps to avoid conflicts and tensions between family members;
• Provides a common basis for sharing concerns and future plans;
• Helps establish a clear business mission;
• Eliminates the risk of public disputes over family wealth;
• Helps to create plans related to unexpected events in the family;
• Helps to solve problems quickly and harmoniously;
• Clearly defines the roles of all family members and the difference in responsibilities between family, business and ownership.

Examples of questions that should be asked when writing a family constitution:

• Should the business always be family owned?
• What are the criteria for hiring family members?
• How should the next generations get involved in the family business?
• Should younger family members be trained in family asset management processes?
• What criteria should the role of mentors meet?
• How should family management processes work, who should lead?
• What are the criteria for leadership?
• Should family members have the right to have their own trusted advisors on specific issues?

Every family and family business dynamic is unique. The task of professional consultants who will help the family in creating a family constitution is not only to understand well the structure of each family and business, but also to listen to the needs of each family member and create a space for a constructive discussion of the whole family. Let’s not forget that such conversations in the family will most likely take place for the first time. Sometimes not the most pleasant topics will be touched during these discussions, so the team of professionals must not only have a good knowledge of financial and business matters, but also have good communication skills with representatives of different generations, be able to listen and ask the right questions. The role of the professional must be based on the principles that the family, often the founder of the business, has already defined.

Long-term experience of Taurus Wealth family office in the fields of investment management and wealth planning, together with the experience of independent partners in the fields of law and taxes, allows us to accompany you in every step of succession planning. A flexible approach and a team of professionals from various fields ensure that the solutions selected together will meet your vision even if wishes, assets or the generation that owns it change.