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🏢 What is a Family Business and its Characteristics

From experience, I can mention that to define what a family business is, it is complex. Especially because one of the many problems that exist in family businesses is the lack of an understanding of what they are. Some other problems are the proper assignation of roles, or see where every member of the family stand within the company environment.

What is a Family Business?

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It is known by those involved that the characteristics of a family business are in a somewhat different magnitude to another company.

Knowing what belongs to whom, and what activities should make such a person is important for harmony remains within the company and the family. If the company is in the stage of the founder, it is easy for him to have control over and decide how they will be allocated the resources generated by the company. But once the second generation begins to grow, and have a desire to continue with the company, it is important that the roles of each of those involved are defined.

To learn a little more to this complex world I have added the following.

Definitions of a Family Business

Here I will mention some important concepts surrounding a family business.

“It is one in which the property and decisions are dominated by members of a group of emotional affinity.” (Carsud, 1996)

“The property control is allocated to a member or members of a single family.” (Barnes and Hershon, 1989)

“A company in which one family owns most of the capital and has total control. The family members are also part of the management and make important decisions.” (Gallo and Veen, 1991)

“The company that will be transferred to the next generation of the family to the command or control”. (Ward, 1995)

“Family business is one in which a family group is able to appoint the chief executive of the company, setting the business strategy of it all with the aim of generational continuity, based on the joint desire of founders and successors to maintain control of ownership and family management.”(Crown, 2004)

“A family business is any business in which several family members assume management or active responsibility as owners. One has a family business if you work with someone from your family in a business belonging to the two or belong to them someday . the essence of a family business is that blood is shared, work and ownership of the company. ” (Jaffe, 1991)

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The concept of family business is used when the aspect to be emphasized is linked more to the family institution, the group of people who also share a family relationship, owns, controls and / or directs a particular business, assets or business organization.

Given what is a family business, you need to understand what they control.  The family business maintains relationships at various levels to professional and personal. The complexity of family businesses lies especially those relationships. 

The main characteristics of a family business

Family

Families are a group of people belonging to the same hereditary structure, assembled by genetic inheritance, biological ties and affinities. Its components include, in general, the direct descendants, spouses and cohabitants.

 

Ownership

“We define as a family company in which the majority of the ownership or control lies in a single family and two or more family members involved or participated in its time.” (Rosenblat, De Mik, Anderson and Johnson, 1985)

Business

The company is guided by economic objectives organization formed by people who play very different roles (shareholders, managers, workers) interacting with other social organizations in their environment (customers, suppliers, financial intermediaries, and public administrations) and also has with objectives and specific challenges and is imbued with a particular set of values.

Such compounds elements generate the special bond that formed the family business.

Family Business Three Circles Model

family business circles model
Family Business Circles Model - Source: Shiftyourfamilybusiness.com

To understand more about what is a family business a model of three circles was generated. Each of these circles represents the family, property and business. The three circles model was developed by Tagiuri and Davis (1982) for the purpose of describing the various situations that arise in all family businesses. This system is based on the company, property and the family, where each circle represents a group of people with particular characteristics in their relationship with the family business. At intersections of the circles it can be found people who own both or all features.

Groups 1,2, or 3 are people who only have a connection with family, property or business. 4, 5 and 6, with the mix of family-owned, company-owned and company-family. Finally, those who are at the intersection 7 are those with the three characteristics. Normally the founder is a person who has all three.

1. Family

It is the group of people is made up of family members who do not have any property or participating in the company.

2. Family & Ownership

Are the family members who have shares in the family business without work within it.

3. Ownership

Are the people who have shares in the family business without being family or work within it.

4. Ownership & Business

Non family members holding shares and do work within the company.

5. Business

Employees working within the organization who are not family members, or owns stock.

6. Business and Family

Those who work in the company with any position and are members of the family, but have no stocks.

7. Family, Ownership and Business

At the intersection of the three circles those who have shares, some position at the company and family ties are present.

Example of the Three Circles Model

Generate list of people involved with the company. They should include shareholders, employees of trust, family and children, siblings or parents.

Assign the number corresponding to the person. Example: If Antonio is a shareholder and member of the family but does not work in the company is assigned 4 (Family-Owned). Or if Martin works at the company, but not family and nor is shareholder is assigned 3. (Company) so on.

The question to answer, now what do I do with this list? Define the roles is only the first step of many to organize a family business. Get the roles within the diagram to identify where people are standing in the company. The dialogue and constant communication are important to not forget what position they are.

The development of these companies is much more complex than a simple list, so in the following items hope to continue complementing what is the world of the family business.

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