Final answer:
A family constitution outlines internal guidelines for family businesses, promoting stability and longevity, and is not legally binding but serves as an important governance tool.
Step-by-step explanation:
A family constitution is a document that outlines the policies and guidelines used between family members and family/nonfamily shareholders in a family business. It is not a legally binding document but serves as a framework to manage relationships and expectations within family businesses. While it is designed to be seen by family members and potentially the board of directors, it is a tool that can help guide the business through generations, ensuring stability and continuity.
Unlike national constitutions which define the relationship between people and their government, a family constitution deals with the internal governance of the family business. It may cover aspects such as succession planning, conflict resolution, ownership rights, and roles and responsibilities of family members within the business. Therefore, contrary to one potential belief, it is not 'unnecessary' in well-established family businesses; it can be a critical tool for longevity and success.