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FAMILY BUSINESS

MODULE 5

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DEFINITIONS

y In general family business is one in which two ormore extended family members influence the

business through the exercise of kinship,

management roles and ownership rights which theowner intends to pass to a family heir.

Various of definitions:

y Structures definition: Ownership controlled by the

members of a single family. E.g.: 51% or moreownership by family members.

y Process definition: interaction between family andbusiness organization that determines the nature

and uniqueness of the business.

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IMPORTANCE OF FAMILY BUSINESS

y 75% of all registered companies in the industrializedworld are family businesses.

y One third of fortune 500 families at their helm.

y It play a crucial role in the economy of mostcountries.

y It employ half the worlds workforce and generatehalf the world GDP.

y In India, 95% of the registered firms are familybusinesses.

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THREE CIRCLE MODEL OF FAMILYBUSINESS

THREE CIRCLE

FAMILY BUSINESS

OWNERSHIP

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HISTORY OF FAMILY BUSINESS

y FOUNDERS VISION AND MISSION

y HISTORICAL ACCURACY

y HONORING LONHTIME EMPLOYEES

y THANKING CUSTOMERS AND VENDORS

y BACKGROUND FOR THE BUSINESS

y FAMILY CIVIC, POLITICAL AND PHILANTHROPIC

ROLESy FAMILY FUN

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Responsibilities and rights of shareholders of afamily business

y The rights to influence and affect control thecorporation through shareholder participation ingeneral meetings and shareholder votes.

y The right to information about the corporation.

y The right to participate in the profits and positivecash flow of the corporation.

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SUCCESSION IN FAMILY BUSINESS

yThe passing of the leadership from the

founder-owner or incumbent owner toa successor, who will either be a familymember or a non- family member.

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SUCCESSION BARRIERS

y Internal succession barriers1. Incumbent

2. Successor

3. Business: strategy and culture

4. Communication5. Balancing business and family interest

6. Ownership issues

y External succession barriers1. Forces outside the family business

2. Government regulations

3. Taxation issues, Market development, competitors, financialinstitutions, labor market, envt forces, dealer network, culturalviews.

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STAGES IN SUCCESSION

STAGE 1: PRE-BUSINESS IMPLEMENT

STAGE 2: EDUCATION AND PERSONALDEVELOPMENT

STAGE 3: PROOF OF COMPETENCE

STAGE 4: FORMAT START IN THEBUSINESS

STAGE 5: DECLARATION OFSUCCESSOR

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PITFALLS OF THE FAMILY BUSINESS

y PITFALL 1: Failing to document the terms of theagreement in writing.

y PITFALL 2: Ignoring fiduciary responsibilities in the

event of a dispute.y PITFALL 3: Failing to plan for the future.

y PITFALL 4: Favoritism.

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Strategies for improving the capability of familybusiness

Strategies for improving the capability of family

business are:

1. Need for professionalism in family business

2. Demise of the joint family

3. Replenishing entrepreneurship

4. Good management

5. Ability to change

6. Have a strategic plan

7. Have an active board of directors

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Improving family business performance

y Training

y Future outlook

y Accountabilityy Finances

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Advantages of Family business

y Commitment

y Knowledge

y Flexibility in work, time and money

y long-range thinking

y Stable culture

y Speedy decisions

y Reliability

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Disadvantages

y Modernizing outdated skills

y Managing transition

y Raising capital

y Rigidity

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Thank you