Family constitution vs handover charter: what is the difference?

A family constitution sets the rules a business-owning family lives by over many years: values, governance, ownership and who may work in the company. A handover charter covers one transition between a founder and a successor: which decisions move, when, how they disagree and how it is announced. The constitution answers “how do we choose and govern?”. The charter answers “what happens on Monday?”.

The two are easy to confuse. Both are written documents, both are about the family and the business, and both are usually described as not legally binding in themselves. Families sometimes assume that having one means they do not need the other.

They do different jobs. This article looks at how they relate in practice: which to start with, how they fit together, and what goes wrong when only one exists. For a full description of each, see what is a family charter, and does our family need one? and the Handover Charter: what parent and successor should agree on in writing.

The one-sentence difference

A family constitution, also called a family charter or family protocol, is written by the family for the family, and is meant to outlast any one leader. A handover charter is written by two people, the founder and the successor, and is meant to make one handover work.

A useful way to hold them apart: the constitution sets the principles for choosing and supporting a leader. The handover charter records what happens once that leader has been chosen.

How do they connect?

When both exist, the handover charter sits inside the frame the constitution sets. A few examples of how that works:

On who leads. The constitution may say the next leader is chosen on merit, perhaps with outside experience required. The handover charter assumes that choice has been made and deals with how authority passes to that person.
On the founder’s role. The constitution may say former leaders can stay on the board, or set a retirement age. The handover charter sets out what the founder’s role actually becomes, and from which date.
On disagreement. The constitution may describe how the family resolves disputes in general. The handover charter sets the specific rule for how founder and successor disagree in front of the team, the board and the family.
On communication. The constitution may say how the family communicates with the company. The handover charter decides who tells the company, the board and key partners about this handover, and in what order.

The constitution sets the boundaries. The charter is the practical agreement inside them.

Which should a family start with?

It depends on where the family is.

When the handover is close

If a handover is coming within the next year or two and there is no constitution, it often makes sense to start with the handover charter. It is short, involves fewer people and deals with the situation in front of them. A constitution usually takes longer to agree, because it involves more of the family and covers more ground.

Starting with the charter does not rule out a constitution later. Often the conversations around one handover show the family which wider questions it needs to settle next.

When the family is large or ownership is spread

If several branches of the family own shares, if more than one family member might lead, or if the question of who leads is itself in dispute, the wider principles may need settling first. A handover charter between a founder and a successor rests on everyone accepting that this person is the successor. Where that is not yet agreed, the charter is premature.

When a constitution already exists

If the family already has a constitution, the handover charter becomes much easier to write. Many of the principles are settled. The charter simply applies them to one handover, with names, decisions and dates.

What goes wrong when only one exists?

A constitution without a handover charter

A family can have a thoughtful constitution and still see a handover stall. The document says the next generation will lead. It does not say who approves the budget from next spring, whether the founder still attends the weekly management meeting, or what happens when the two of them disagree in front of the senior team. Those practical questions are where most handovers struggle, and a constitution rarely reaches that level of detail.

A handover charter without a constitution

A handover charter can work well on its own for a smaller family with one clear successor. Where the family is wider, the risk is that the charter settles something other family members never agreed to. A sibling who owns shares, for example, may not accept a decision made between the founder and the successor alone. In that case, the gap is not in the charter. It is in the wider family agreement that should sit above it.

How do you keep them consistent?

A few practical points help:

Check one against the other. When the handover charter is written, read it next to the constitution. Anything that contradicts it needs to be resolved, not left.
Use the same words. If the constitution speaks of a “chair” and “CEO”, use the same titles in the charter.
Tell the family council, where there is one. If the family has a governing body, it should know the handover charter exists and what it covers, even if it does not approve its detail. What is a family council? explains how those bodies usually work.
Review both at the right time. A constitution is usually reviewed every few years. A handover charter is reviewed as the handover progresses, and largely retires once it is complete.

What about the legal side?

Neither document usually creates legal obligations on its own, although a family constitution is sometimes connected to legal agreements such as shareholder agreements, articles or trust documents. Where ownership, control, employment or money are involved, the family should work with its lawyers and other advisors. This article is not legal advice, and nothing in a handover charter should be treated as replacing a legal agreement.

In short

A family constitution sets the family’s long-term principles for the business. A handover charter makes one specific handover work.
The constitution sets the boundaries; the charter is the practical agreement between founder and successor inside them.
With a handover close and no constitution, a family can often start with the charter. Where the choice of successor is itself disputed, the wider principles come first.
When both exist, read them side by side and resolve any contradictions. Legal questions belong with the family’s lawyers.

A free one-page Handover Charter template is available to print, and Second Chair™ facilitates that conversation at the end of every engagement, as described on the method page.