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07 January 2021
Any legal structure incorporating family governance principles will be a hybrid of elements from corporate governance but with flexibility that is not possible in a truly commercial context; rigid structures and families rarely go together. The most successful governance structures have a level of transparency and include the wider family members within a framework of tried and tested corporate governance mechanisms.
Essentially, family governance is an attempt to regularise family interaction within a framework, to allow for intergenerational participation in the family's wealth in a harmonious way. The underlying purpose is often a mixture of:
The ways in which this can be achieved are diverse and the documents and vehicles used vary from family to family. The choice will depend on the nature of the family – for example, the number of family branches that exist and the generation in which the structuring is taking place.
A family governance structure usually contains a combination of legally enforceable and non-enforceable elements, which may include the following:
Usually, the rules relating to value, power and governance are made legally enforceable:
Family governance can never fully achieve a corporate governance model at every level because absent parties (eg, minors, unborn children and future spouses) cannot be bound to a contract.
However, attempts can be made to bind these parties in the future – for instance, by making it mandatory for every new shareholder to sign a deed of adherence in a shareholders' agreement or providing in trust deeds that beneficiaries getting married must sign pre-nuptial agreements or risk exclusion.
That said, none of these methods guarantee enforceability because the inherent jurisdiction of the court cannot be excluded in relation to trusts and family law.
Environmental, social and corporate governance (ESG) now factors into most investment planning in the commercial and private wealth spheres. It has the potential to be a minefield in the latter with intermediaries (eg, trustees, directors, family office managers and investment advisers) getting caught in the crossfire. ESG can be factored into a private wealth structure as follows:
Both family governance structuring and a focus on sustainability are constantly developing areas within private wealth planning. The latter is still a relatively new factor for families, trustees and family offices to take into consideration.
There is a worldwide determination to achieve a 'green recovery' following the pandemic and many wealthy families feel a personal obligation to contribute towards this. However, it is still vital for them to ensure that the needs and views of all family members are fairly represented. Accordingly, family governance structuring will need to become ever more sophisticated over the coming years to provide the required balance of flexibility and control.
For further information on this topic please contact Catharine Bell or Charlotte Evans-Tipping at Forsters LLP by telephone (+44 20 7863 8333) or email (firstname.lastname@example.org or email@example.com).The Forsters LLP website can be accessed at www.forsters.co.uk.
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