Family businesses are among the most important economic pillars in the Kingdom of Saudi Arabia, contributing significantly to the national economy and providing employment and investment opportunities. However, their greatest challenge lies in ensuring continuity and stability across generations—especially amid potential differences in vision or conflicts of interest among family members. In this context, the Family Charter emerges as a legal and organizational tool that frames the relationship between the family and its business entity and establishes regulations that safeguard the interests of all parties involved.

First: Definition of the Family Charter
The Family Charter is a consensual organizational document created by the family that owns the company. It defines the principles and core values that govern relationships among family members, outlines mechanisms for ownership and management participation, policies for profit distribution, and plans for leadership and ownership succession to the next generation.

Although it is not a legally binding contract in the traditional sense, it serves as a moral and regulatory reference that derives its strength from the family’s commitment to its contents. It can, however, be supplemented by legally binding documents such as the company’s articles of association or shareholder agreements.

Second: The Importance of the Family Charter

1. Enhancing Family Governance
The Family Charter is one of the most vital tools for corporate governance within family businesses. It ensures clear boundaries between “the family” and “the company,” thereby preventing conflicts of interest. It also establishes mechanisms such as a Family Council, Values Committee, and Partners Council, achieving a balance between family unity and the independence of the business entity.

2. Ensuring Business Continuity Across Generations
Studies indicate that a large proportion of family businesses fail to survive beyond the third generation—often due to the absence of a clear vision for leadership succession or conflict management. The Family Charter provides an agreed-upon framework for succession planning, clarifying leadership transition and role distribution among children and grandchildren, ensuring that the family entity remains cohesive and sustainable.

3. Reducing Family Conflicts
One of the main functions of the Family Charter is to act as a safety valve in times of dispute, by defining internal mechanisms for conflict resolution—whether through mediation or arbitration. This helps prevent disputes from escalating to the courts or media, thereby protecting the reputation of the family and its business.

4. Instilling a Culture of Belonging and Responsibility
The Family Charter serves as a reminder to future generations of the family’s history, values, and vision—strengthening the sense of belonging and social responsibility. It also builds a family corporate culture rooted in transparency, fairness, and sustainability.

Third: The Legal Framework of the Family Charter in Saudi Arabia
The Saudi Ministry of Commerce and the Family Business Governance Center have recognized the strategic importance of the Family Charter and encouraged its inclusion as part of the internal governance framework of family businesses.

Additionally, the Capital Market Authority and the Family Business Sustainability Program have issued guidelines on how to draft Family Charters in alignment with the New Companies Law of 1444H (2022), which introduced flexible tools for managing relationships among partners and heirs.

The Family Charter is not merely an organizational document—it is a tool for survival and sustainability. Family businesses that adopt a clear charter and commit to its principles succeed in preserving both their financial and moral legacy, ensuring the smooth and fair transfer of wealth and responsibility across generations.

Adopting a Family Charter is therefore a strategic and conscious step toward balancing family sentiment with institutional discipline, reinforcing the family’s position within the economy and society for decades to come.