The constitution of a family business – what is it and why is it needed?
Date: 16.10.2015 / Marcin Szołajski
The constitution of a family business is a relatively new document among Polish entrepreneurs. The first document of this type was issued at the end of 2010 – the constitution of the Roleski family business (see also: www.fundacjaroleskich.pl).
Ideas and components of the constitution of a family business
It should not be surprising that a family business, created and developed for many years, gives rise to a strong attachment of the founders to their family business. However, with each successive generation, this attachment may become weaker. In addition, expansion of the family increases the likelihood of possible difficulties, e.g. related to the successful management of the company. Therefore, the collapse of the company must be prevented even before the first problems or crisis symptoms appear. In order to avoid them, family entrepreneurs need to create a document clearly defining the objectives and the values of the family, its vision and guidance in terms of managing the business, decision-making and dispute resolution.
Creation of a family business constitution seems to be a good solution.
Among the many reasons why a family business constitution is worth drafting, we should mention the regulation of the relationship between the family and the business, and the guaranteed existence of the business in the future. Moreover, the constitution allows for integration of the family around the business, it promotes its coherence and integrity, as well as defines common tasks and plans by supporting communication between family members. Another important element is the possibility to create the so-called governing bodies in the family – performing similar functions to those exercised by managing or supervisory bodies in companies.
As far as the practical aspect of such constitution is concerned, this document may determine the manner of profit sharing in the family, the principles of employment of individual family members, the principles of share disposal or introducing amendments to the constitution.
It should be noted here that each constitution is directly related to a specific family and a specific business. Due to discrepancy in objectives and values, creation of a single, generally applicable specimen constitution is not possible. Such documents are developed for each family on an individual basis. Furthermore, the constitution of a family business does not have a binding force and therefore should be harmonised with other documents, e.g. articles of association/company deed.
The studies conducted in Germany in 2011 indicated that that in 80% of the surveyed family businesses, the expectations related to the constitution had been fully met and the effects of its creation had exceeded the expectations (source: www.firmyrodzinne.org).
The constitution of a family business offers intergenerational stability to family businesses.
In my opinion, a constitution of a family business is an excellent choice to ensure continuity of the business. At the same time, it is a great way to regulate the relationships between individual family members, and between the family and the business itself. I recommend this solution to those entrepreneurs who are interested in maintaining both the identity and ownership of their family business.
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Marcin Szołajski
Legal counsel, CEO
Marcin specialises in advising on acquisition and implementation of public contracts: analysis of tender documentation, assistance in the preparation of bids, participating in negotiating o the contract with the Contracting Authority, and participating in the contract implementation process. He guides clients through the appeal procedure before the National Board of Appeal and Regional Courts. Read more