Family protocol and governance rules for the family business

Why it is written before the disagreement

Rules drafted once the conflict exists get negotiated with the conflict on the table, and someone almost always signs feeling they lost. The same rules discussed calmly, when nobody has an immediate stake in a particular answer, are agreed without that cost. That is the argument for doing this work early, even while the family gets along.

What a protocol does not solve

This is worth saying before starting: a document does not replace a decision the family does not want to take. If the underlying disagreement is who runs the company, how much each person earns, or whether a shareholder wants out today, the protocol does not resolve it; it merely records it. In those cases the work starts with that conversation rather than with drafting, and we say so at the first meeting.

What goes into the family protocol

The protocol gathers the family's agreements about its relationship with the company. It is drafted in language the family understands, and it states explicitly which parts are moral commitments and which are carried across into legally enforceable documents.

• Family members joining the company: requirements, selection process, terms of engagement and pay.
• Dividend policy: what is distributed, what is reinvested and how often that decision is revisited.
• Use of company assets by the family, and the handling of loans between the family and the company.
• Rules on in-laws, on prior work experience outside the business and on the return of someone who left.
• How and how often the family is informed about how the business is doing.

What goes into the shareholders agreement

Whatever has to be enforceable is written here, with the precision of a contract rather than the tone of a statement of principles.

• Reinforced majorities and veto rights for the decisions the family regards as structural.
• Restrictions on transferring shares and pre-emption rights among the shareholders.
• Call and put options, and the mechanism for setting a price when someone exits.
• Orderly exit routes, so that ceasing to be a shareholder does not mean litigation.
• Rules for resolving disagreements between shareholders without going to court.

What goes into the bylaws

Some rules bind third parties only if they sit in the bylaws and are filed. We assess what has to move up from the agreement into the bylaws and draft the amendment, with the clauses on share transfers, pre-emption rights and the conditions for admitting third parties.

Governance bodies

• Board of directors. Composition, reserved matters, the information it must receive and how often it meets.
• Family council. Who sits on it, what it decides, what it merely recommends and how it relates to the corporate bodies.
• Notice and information rules. What is circulated before each meeting and how far in advance, which is usually where mistrust starts.

How we run it

• Individual conversations. We speak to family members separately before bringing them together, because what each one expects does not always match what is said in the room.
• Decision agenda. We set out the questions that have to be answered, in order, so family sessions do not become open-ended arguments.
• Successive drafts. We draft, circulate and adjust, recording what was agreed in each version.
• Signing and execution. Bylaw amendment, filing and updating of the corporate books where required.

What the client receives

• The signed family protocol, with a clear line between what is moral and what is enforceable.
• The shareholders agreement drafted as a binding document.
• The bylaw amendment and its filing, where the rule needs to bind third parties.
• Charters for the governance bodies and the calendar of meetings and reporting.
• A periodic review of the protocol, because families change and rules that are never updated stop being applied.