Family Business – Concept, advantages, disadvantages and examples

We explain what a family business is, its characteristics and the advantages it has. Also, its possible disadvantages and examples.

Family business
Family businesses they are the oldest type of economic organization.

What is a family business?

A family business is a business or corporate organization whose decisions are controlled or influenced by a family group, whose successive generations tend to dedicate themselves to the company. Thus, among the expectations and strategic vision of this type of organization is that the successors take the reins, giving continuity to the organization.

This term does not apply to those companies that have a sole owner and administrator. In fact, family businesses they are the oldest type of economic organization, and many of the large companies that are listed on the respective stock exchanges of the countries are family-owned.

This is undoubtedly due to the fact that in ancient ages the trades were transmitted from father to son and the workshops were generally housed in the house. Kings and aristocracy, in the same way, inherited their possessions and their privileged position within the feudal order to their descendants, thus forming socioeconomic castes.

Later, the great bourgeois families of the Renaissance, whose economic power also gave them political influence, relied only on their family lineage as method of keeping business always in favor of private interests. This is precisely the criterion adopted by the Italian “cosa nostra” mafias, behind which there was always a family fiefdom.

Characteristics of a family business

Family business
In a family business, members must have at least 20% voting rights.

For a company to be considered family, the family or one of its members must have at least 20% voting rights and a higher percentage of shares than the rest of the investors. Thus, family decisions would have the greatest possible weight in the company, and the general tendency would be to incorporate family members in key positions of control and decision.

On the other hand, a family business bequeaths the leadership of the company to its descendants, through a succession mechanism that usually occurred in patriarchal terms, that is, from parents to male children. Fortunately, that pattern has been changing, with more and more women taking over family businesses.

Advantages of a family business

The advantages of any family business point to control you have over the company and the continuity that is given to it throughout the generations. A family business will rarely cease to be, except in cases of economic crisis that forces a sale or bankruptcy or similar situations.

Another virtue lies in generational accumulation of goods, throughout history, which allows subsequent generations to train more and better with respect to the trade and to have a niche in which to apply their expertise.

Disadvantages of a family business

The most common disadvantages of a family business have to do with conflicts of interest within the family in question. Given the emotional bond that necessarily exists between the members of a family, it is common for there to be quarrels, family myths or additional pressures (which relate business success to the affective place within the family) whose impact on business performance can be considerable .

Similarly, business and private circuits tend to overlap in these types of companies, which They point towards the fusion between family, company and property. It should be considered that although the business actions of the family will be in charge of one or more of its members, there will be many other family members who will never have anything to do with the company and who will have different agendas and interests.

Examples of a family business

Ford Family Business
Henry Ford’s auto business is still run by his descendants.

Here are some examples of successful family businesses:

  • Walmart. This colossal American discount store chain was founded in the 1960s by Sam Walton, and to this day the Walton family controls about 48% of the shares of the company.
  • Ford. The mythical automotive company of Henry Ford, the genius creator of the mass production model, is still managed by his descendants, who manage 40% of the total shares of the company.
  • Comcast. This cable television service provider is among the largest in the world. It was founded in 1963, by Ralph J. Roberts, and his son, Brian Roberts, is currently the leader of it.
  • BMW. Although this German car company was not founded by the family that runs it today, it is true that after the Second World War Gunther Quandt bought a strong stake in it and bequeathed it, since then, to his descendants, who they still own 48% of its shares.
  • Toyota. This Japanese automotive company belongs to the Toyoda family, and for decades it held all of its shares. This has not been the case since 1993, but its current president and CEO is Akio Toyoda, a descendant of the founder.