Family Governance and Constitutions

What family governance means for Chinese family enterprises

Family governance is the set of agreements, bodies and habits that a business-owning family uses to make decisions about the business, the wealth and each other. In China the subject has moved from theory to urgency. Many of the companies founded in the 1980s and 1990s are now passing to a second generation, often educated abroad, with siblings, spouses and in-laws who hold different views about control, dividends and careers. A family constitution, sometimes called a family charter or family protocol, is the document that records those decisions.

The short answer for principals is this: a family constitution is mostly a statement of intent, and most of it will not be enforced by a Chinese court on its own. Its value lies in two things. First, it forces the family to agree the hard questions before a crisis. Second, it becomes the blueprint for legally binding instruments, such as articles of association, shareholder agreements, partnership agreements, trust deeds, wills and marital property agreements, that do carry legal force. Good family governance links the two layers deliberately. This page explains how, as at November 2026. It is general information rather than PRC legal advice.

Which parts of a family constitution are legally binding

There is no PRC statute dedicated to family constitutions. A charter signed by family members is, at most, a civil-law contract under the Civil Code, and many of its provisions, such as statements of values, education expectations or rules of conduct, are too vague or too personal to be enforced. Clauses that purport to restrict marriage, dictate divorce outcomes or override statutory inheritance rights are likely to be void or unenforceable. A court will not order a son to work in the family business or a daughter to attend a family council.

By contrast, the following instruments can carry real legal effect, and a well-drafted constitution will say which of them must be updated to reflect each agreed principle.

The practical consequence is that family governance should be designed as a system. The constitution states the principle, for example that only lineal descendants may hold voting shares. The articles of association, the holding partnership agreement and the trust deed then implement it, and the marital property agreements and wills protect it against divorce and death.

Designing family governance bodies

Most mature family governance structures separate three arenas: the family, the ownership group and the business. Mixing them is the most common source of conflict, because a family dinner becomes a board meeting and a board meeting becomes a family argument.

Family assembly

The assembly includes all adult family members, often including spouses, and meets once or twice a year. It is a forum for information and cohesion rather than decisions. It typically receives a report on the business and the family wealth, approves changes to the constitution by a high majority, and elects members of the family council.

Family council

The council is a smaller body, often five to nine people, that represents the branches and generations. It manages family matters: education and internship programmes, employment policy for family members, philanthropy, conflict resolution and the selection of family nominees to the board. It should have written terms of reference, a chair and a secretary, and minutes.

Ownership council or holding company board

Where shares are held through a holding company, a limited partnership or a trust, the ownership decisions, such as dividend policy, major acquisitions, listing or sale, are taken in that vehicle under its constitutional documents. For a holding limited partnership the general partner, frequently a company controlled by the founder, makes these decisions. For an offshore trust, the trustee holds the shares and the family usually influences decisions through a protector or an investment committee.

Operating company board

The operating company board should include independent or professional directors as the business grows. Under the revised Company Law a limited liability company may establish an audit committee within the board in place of a supervisory board, which allows a cleaner governance structure. A de facto controller who in practice directs the company's affairs can owe director-like duties, so a founder who steps back from the board but continues to give instructions remains exposed.

Family office

A single-family office handles investment, reporting, tax, administration and concierge services. Its relationship with the family council and the trust should be set out clearly, including who can instruct it and who sees its reports. See family office structuring for the vehicle choices.

Key provisions of a family constitution

Each family is different, but the following topics appear in almost every constitution we see in cross-border practice. Each should be drafted with an eye on which binding instrument will implement it.

• Purpose and values. Why the family wants to stay together as owners, and what it expects of the business beyond profit. This section is not enforceable but frames the rest.
• Who counts as family. Lineal descendants only, or also spouses, adopted children, stepchildren and children born outside marriage? Chinese law gives children born outside marriage the same rights as those born within it, so exclusions must operate through ownership vehicles rather than through inheritance rules.
• Ownership rules. Who may hold shares, in what form, and what happens on death, divorce, bankruptcy, emigration or misconduct. These rules belong in the articles, the partnership agreement and the trust deed.
• Transfer and exit. Rights of first refusal among branches, valuation formulas, payment terms and a liquidity window for members who want to leave.
• Employment of family members. Qualifications, outside experience, reporting lines and pay at market rates, with performance reviewed by non-family managers.
• Leadership succession. Criteria and process for choosing the next chair and chief executive, including the option of a non-family chief executive.
• Dividends and family support. A dividend policy that balances reinvestment with family income, and any education, housing or medical support funded by the family.
• Philanthropy. Whether giving is done through a charitable foundation or charitable trust and who governs it.
• Conflict resolution. Escalation from council discussion to facilitated mediation to binding processes for commercial disputes.
• Amendment. Required majorities, typically high, and periodic review every three to five years.

Two topics deserve particular care in China. The first is information rights. Family members who are not directors often have limited access to information about the business, and frustration about that is a frequent trigger for shareholder litigation. The constitution should commit to a reporting rhythm. The second is guarantees and related-party dealings, because family enterprises in China frequently guarantee each other's debts, which can transmit a crisis from one branch to all.

Linking family governance to marriage, succession and trusts

The links between the constitution and personal legal instruments are where family governance most often fails. Three examples illustrate the point.

Marriage. Under the Civil Code, income from production and business operations and investment returns earned during marriage are, as a rule, joint marital property unless the spouses agree otherwise in writing. Shares acquired during marriage, or the increase in value of shares that results from a spouse's work, can therefore become divisible on divorce. A family that wants shares to stay with lineal descendants should encourage marital property agreements under Article 1065 of the Civil Code, ideally before marriage, and design ownership vehicles so that a spouse who receives value on divorce receives cash or economic interests rather than voting shares.

The Supreme People's Court's second interpretation on the marriage and family book, effective 1 February 2025, adds rules on, among other things, gifts of joint property to third parties and transfers of shares held in one spouse's name, as explained in the Supreme People's Court release.

Succession. Under the revised Company Law, the heirs of a deceased natural person shareholder of a limited liability company may inherit shareholder status unless the articles of association provide otherwise. That default can introduce an heir who is unprepared, or a surviving spouse from a later marriage, into the shareholder register. Articles can instead provide that heirs receive the economic value while the shares are bought by the company or other shareholders at a formula price. Wills should mirror those rules. See succession and estate planning.

Trusts. A trust can hold shares and implement the constitution's ownership rules over generations. China's trust business classification rules, in force since 1 June 2023, set a minimum of RMB 10 million for a family trust run by a licensed trust company, but onshore trusts of equity still face practical difficulties because there is no general trust property registration system. Many families therefore use offshore trusts for offshore holding companies and onshore trusts for financial assets. See family trusts.

Building family governance step by step

A family constitution written by advisers and signed without discussion rarely survives the first disagreement. The process matters as much as the text. A typical project runs six to twelve months.

1. Diagnosis (one to two months). Confidential interviews with each adult family member and key non-family executives; a map of the current ownership structure, including nominee holdings, guarantees and cross-border vehicles; identification of the issues that genuinely divide the family.
2. Education (in parallel). Short sessions for the next generation on the business, the structure and the legal environment, so that they can participate as informed owners.
3. Principles workshop (one to two months). Facilitated meetings to agree the core principles: who may own, who may lead, how dividends are set and how disputes are resolved.
4. Drafting (two to three months). A plain-language constitution in Chinese and, where family members live abroad, English, followed by term sheets for the binding instruments.
5. Implementation (two to four months). Amending articles and registering changes, executing partnership and shareholder agreements, establishing or amending trusts, and signing wills and marital property agreements with the formalities each jurisdiction requires.
6. Operation and review. The first assembly and council meetings, a calendar of reporting, and a review clause that brings the family back to the document every few years.

Families often ask whether to start with the constitution or the structure. In our experience, agreeing the principles first saves cost, because the holding and trust structure can then be built once rather than rebuilt after the family discovers it disagrees.

Common family governance mistakes

• Treating the constitution as a finished product rather than a living process, so that it becomes outdated within a few years.
• Drafting aspirational ownership rules that the articles of association contradict, leaving the statutory defaults to apply.
• Ignoring in-laws. Spouses are often excluded from the process and then become the source of divorce or succession claims.
• Relying on nominee shareholdings between relatives, which can be exposed to the nominee's divorce, debts or death.
• Failing to plan for incapacity. The Civil Code allows adults to appoint a guardian in advance by written agreement, which can be valuable for an ageing founder.
• Assuming that a Hong Kong or offshore structure insulates the family from mainland law, when the operating assets, the people and often the disputes remain in the mainland.

Each of these mistakes can be avoided by testing the draft constitution against realistic scenarios: the founder's sudden death, a child's divorce, a branch that wants to sell, and a guarantee default. Scenario testing is often the most useful part of the project.

Cross-border family governance: Hong Kong, Singapore and beyond

Chinese families increasingly have members resident in Hong Kong, Singapore, North America, Europe and Australia, and assets in several of those places. Cross-border family governance needs to account for at least four issues.

Governing law and forum. Binding instruments are governed by different laws: the PRC operating company by PRC law, a BVI or Cayman holding company by its place of incorporation, a trust by its proper law. The family constitution should not pretend to override these. It can, however, choose a governing law for its own contractual elements and a forum such as mediation followed by arbitration in Hong Kong or Singapore for commercial disputes between family members. Under China's revised Arbitration Law, effective 1 March 2026, disputes over marriage, adoption, guardianship, maintenance and succession remain outside arbitration, so the arbitration clause should be confined to commercial and corporate matters.

Matrimonial regimes. A family member who marries in a community-of-property jurisdiction, or who lives in a jurisdiction where courts have broad discretion on divorce, may face very different outcomes from those the constitution assumes. Prenuptial agreements should be drafted with local advice in each relevant jurisdiction.

Tax residence. A move abroad by a family member can change the tax treatment of distributions and trust income in both countries. See private client tax.

Regulatory reporting. Offshore holdings by PRC residents are subject to foreign exchange registration and, for listed groups, disclosure of the de facto controller. Governance changes that alter control, for example moving shares into a trust, may trigger filings in more than one place.

How TRW & Co helps

We work with founders and next-generation family members to design family governance that holds up in practice. From our Shenzhen representative office we lead the process: diagnostic interviews, facilitated workshops, drafting of the family constitution in English and Chinese, and the design of holding, partnership and trust structures. We advise on Hong Kong, offshore and international aspects and coordinate trustees, tax advisers and private banks. Where PRC legal advice, corporate registrations or PRC-law documents such as articles of association, wills or marital agreements are required, we work alongside licensed PRC law firms and project-manage the full implementation. We also link governance to family enterprise control structures and dispute planning. To discuss your family's position, please contact us.