In general, the term of family business refers to companies whose majority of shares and management are owned by members of a family. At least two generations have worked within the company, and the continuity of the company often plays an important role in the family’s financial future.
In the report “The Key to Sustainable Success in Family Businesses” prepared by Deloitte, it is seen that family companies produce approximately 90% of the national income in Turkey, and only 2% belong to the fourth generation and later.. The rates are similar for family companies in the world.
According to the PwC “2021 Family Business Survey: US Findings” report, only 34% of family businesses in America have a strong succession plan. In the “2016 PwC Global Family Business Survey-Turkey Results” report, it is stated that only 4% of family companies in Turkey have an effective succession plan.
The above-mentioned data indicate that although the economic impact of family businesses is very high, necessary precautions are not taken in terms of both maintaining their current status and transferring them to future generations. The main reason for this is the belief that family members should trust each other’s words unconditionally, and that if there is no “trust in word”, family relations are weak. However, the weakness or strength of relationships between family members depends on many different variables and it cannot be determined by the presence or absence of a contract. What is important here is how the interests of the company, which is closely tied to the family but also has a completely separate personality from it, will be protected from conflicts that may arise between family members. As a matter of fact, the protection of the interests of the family company will naturally benefit the family members.
The only element that will ensure the continuity of a structure as complex as a company is “certainty”. This certainty can only be construed by detailed written regulations prepared by taking into account the different parameters of life. In terms of family companies, this regulation equals to the the family constitution as well as the company’s articles of association. For this reason, in this memo, the most frequently asked questions about the family constitution and their answers have been compiled.
What is Family Constitution?
The family constitution is a contract signed in order to frame the general functioning and future of family companies within the framework of certain rules. Although the parties to the contract are generally shareholders and/or managers in the family company, this may vary case by case.
Why is Family Constitution Important?
Although “the family” evokes the concepts of intimacy and close bond, it is in fact one of the institutions where the results of miscommunication and insecurity are seen the most. For this reason, the family constitution is important, first of all, in terms of ensuring communication between family members. In addition, it is the only tool that can ensure that the company is much more stable and long-lasting, in terms of drawing a serious framework for the transfer and management of the company to future generations.
What are the matters that may be regulated in the Family Constitution?
In the family constitution, in line with the principle of freedom of contract, any matter that is not contrary to the mandatory rules of law, morality, public order or personal rights can be regulated. In this context;
- Issues directly related to the family (Features that family members are planned to have, family habits, principles, etc.),
- Matters related to the operation of the company (Company’s vision and mission, conditions of employment of family members in the company / becoming a manager, etc.),
- Arrangements for persons joining the family by marriage
- Succession planning,
- Provisions for company shares (preemption, priority, tag-along, drag-along etc.),
- Voting agreements (Agreements to cast or not cast votes in a certain direction, together with other provisions regarding company shares, are important in terms of preventing the alienation of shares.)
and many other issues may be included in the constitution.
Is Family Constitution Binding?
The family constitution only creates a promissary transaction between the parties to the constitution and does not directly affect the company’s legal personality. In order for the company to be bound by the provisions of the family constitution, it must also sign the constitution. However, this is often not recommended.
The binding power of the family constitution may be provided by the obligation to pay high amounts of penal clauses for those who violate the constitution. If such provisions are not enacted, the constitution may form as a gentleman’s agreement rather than a binding contract, causing it to deviate from its most fundamental purpose of “permanently protecting company interests”.
Is it Possible to Regulate Some Institutions under the Family Constitution as a Bridge Between the Company and Family Members?Yes. Generally;
- a family assembly made up of blood-related family members in extended family businesses, and
- a family council, which may be called the family’s board of directors, which acts as a bridge between the assembly and the company is regulated. The family council may also be appointed as an advisory board to the company.
 Deloitte, Akbank, Sabancı Üniversitesi, Yönetici Geliştirme Birimi, Taider; Aile Şirketlerinde Sürdürülebilir Başarının Anahtarları, İstanbul: Deloitte Türkiye, 2016, <https://www2.deloitte.com/content/dam/Deloitte/tr/Documents/risk/aile-sirketlerinde-surdurulebilir-basarinin-anahtarlari.pdf>, (Erişim Tarihi: 06.09.2021), s.4.
 PwC, 2021 Family Business Survey: US Findings, < https://www.pwc.com/us/en/industries/private-company-services/library/family-business-survey.html>, (Erişim Tarihi: 06.09.2021).
 PWC, PwC Küresel Aile Şirketleri Araştırması-Türkiye Sonuçları 2016, s.9; Betül Kondu Kaya, Anonim Şirket Türü Aile Şirketlerinde Esas Sözleşme Ve Aile Anayasası, İstanbul, 2019, <www.tez.yok.gov.tr>, (Erişim Tarihi: 06.09.2021), s. 140.
 Erdoğan Moroğlu, Oy Sözleşmeleri, İstanbul 2015, s. 12; Kondu Kaya, s. 221; Gül OKUTAN NILSSON, Anonim Ortaklıklarda Paysahipleri Sözleşmeleri, İstanbul 2001, s.214.
 Kondu Kaya, s. 111.