- Also called
- Family charter, family protocol
- Legal status
- Often not enforceable unless drafted as a contract
- Binding route
- Shareholders' agreement, articles, LLP agreement, trust deed
- Who signs
- Every adult member affected
- Review
- Every few years, and after a major event
On this page
What should a family constitution cover?
- Values and purpose, in a few honest lines
- Who counts as family, including spouses and adopted children
- Rules for members joining the business: qualifications, outside experience, pay
- Who may hold shares, and how a member can exit
- Family council: who sits on it and how it votes
- Dividend, loan and spending rules
- Philanthropy
- Divorce, death and incapacity of a member
- How disputes are resolved
- How the document itself is changed
Is a family constitution legally binding?
It depends on the wording and on who signed it. A paper that speaks of values and hopes is unlikely to be enforced. A clause drafted as a promise, between adults who signed it, may be a contract. That leaves real uncertainty, so we move the rules that matter into documents courts already recognise.
| Rule | Better home |
|---|---|
| Limits on selling shares | Shareholders' agreement and articles of association |
| Who sits on the board | Articles and shareholders' agreement |
| Who benefits from family assets | Trust deed |
| Who inherits | Will |
| How property is divided | Family settlement |
One case shows why this matters. In V.B. Rangaraj v V.B. Gopalakrishnan (1992), the Supreme Court held that a share transfer restriction agreed among family shareholders did not bind the company or members because it was not in the articles. Later law on this has developed, but the lesson stands: check that each promise sits where it can be enforced.
How should disputes be handled?
Set up steps: first a family council, then a named mediator, then a formal forum. Some disputes cannot go to arbitration. Matrimonial and many succession questions stay with the courts, and trust disputes need care. So write a separate route for each type. Under family law, Family Courts must first try to help parties settle.
When should a family write one?
The best time is when nobody is in a dispute: before the next generation joins, when a parent is planning to step back, before a sale or when a new branch takes shares. Once a dispute starts, people read every proposal as a move against them. If that has already happened, begin with mediation and then write the rules.
What if a member refuses to sign?
Nobody can be forced to sign. Find out why, as the objection usually points to a real problem. The family can still bind those who agree, and the articles of a company can be changed by the required majority, subject to the law on protecting minorities. A rule that binds some branches and not others needs careful drafting.
How do you draft one that people follow?
Speak to each adult separately first, including those outside the business. People raise concerns privately that they will not raise at a table with a parent. Keep the draft short, in plain language, and let the family, not the lawyer, decide the values. We can draft the charter, or only the binding documents beside it, as part of succession planning and our family office services.
This guide is general information, not legal advice. Tax points must be confirmed with your chartered accountant, and rules change, so we check the current text before acting on your matter.
Founder and Managing Partner, VIVS Legal. BLS, LL.B, LL.M, PGDBM, JAIIB.
