What Is Considered a Family Business

Handler, W. C. (1992). “The next generation succession experience.” Family Business Review 5:283-307. The challenge for family businesses and their stakeholders is to identify the problems they face, understand how to develop strategies to solve them and, most importantly, create family narratives or stories that explain the emotional dimension of the problems to the family. [12] A family business is a business organization in which decision-making is influenced by several generations of a family related by blood, marriage or adoption, which has both the ability to influence the vision of the business and the willingness to use this ability to pursue different goals. [1] [2] They are closely identified with the company through leadership or personal responsibility. Owner-operator businesses are not considered family businesses because they lack the multigenerational dimension and family influence created by the unique dynamics and relationships of family businesses. In modern corporate finance, a reasonable level of debt is considered a good thing because financial leverage maximizes value creation. However, family businesses associate debt with fragility and risk. Debt means having less leeway when a setback occurs – and that means being beholden to a non-family investor. The companies we examined were much less indebted than the peer group; From 2001 to 2009, debt represented on average 37% of their capital, but 47% of the capital of non-family businesses.

As a result, family businesses did not have to make great sacrifices to meet financing needs during the recession. “People think we`re rich and brave,” a director of a family business told us, “but in reality we`re cowards — we leave most of the money in the business so we don`t give our banks too much power.” In family planning, all interested family members come together to develop a mission statement that describes why they are involved in the business. By allowing family members to share their goals, needs, priorities, strengths, weaknesses, and ability to contribute, family planning helps create a unified vision of business that will guide future ventures. “Family businesses are those in which policy and decision-making are subject to significant influence from one or more family units. This influence is exercised through ownership and sometimes through the participation of family members in the administration. It is the interaction between two groups of organizations, the family and the company, that determines the fundamental character of the family business and defines its uniqueness. ” – P. Davis b. The position in the family business is influenced by the relationship between family members.

Neubauer, F., & Lenk, A. G. (1998). The family business: its governance for sustainability. New York: Routledge. Family businesses are just as common in the Indian economy as elsewhere in the world, they are perceived in a healthy sense. Various terms such as “family property”, “family business”, “commercial buildings” and “industrial houses” are used to refer to family businesses. Gersick, K. E.; Davis, J.A.; Hampton, M. M.; and Lansberg, I. (1997). From generation to generation: life cycles of the family business.

Boston: Harvard Business School Press. Estate planning includes the financial and tax aspects of transferring ownership of the family business to the next generation. Families should plan to minimize their tax burden at the time of the owner`s death so that resources can remain in the business and family. Unfortunately, today`s tax laws deter families from suing the business. Heirs are taxed at a high rate on the value of the business upon transfer of ownership. Because of its complexity, estate planning is typically done by a team of professional advisors that includes a lawyer, accountant, financial planner, insurance agent, and possibly a family business consultant. An estate plan should be established once the business is successful and then updated as the circumstances of the business or family change. Employee-owned businesses differ in size and nature.

Sole proprietorships represent more than 17 million organizations in the United States, 10% of which are family businesses (Shanker and Astrakhan, 1996). A sole proprietorship is owned by a single person with other family members who are likely to help. Partnerships owned by two or more individuals represent 1.5 million organizations in the United States (Neubauer and Lank, 1998). Private businesses owned by three or more people in the family represent 3.8 million organizations in the United States and employ many family members with multiple generations (Shanker and Astrakhan 1996). Out of more than 21 million family businesses, more than 11,300 have listed shares (Shanker and Astrakhan, 1996). Examples of international family businesses abound: Tetra Laval, Wallenberg Group and H&M (Sweden), Hermès, Michelin, Bic, Marie Brizard and L`Oréal (France), Tata (India), Kuok Group (Hong Kong), Seagram and Bata (Canada), Fiat, Ferrero, Barillo, Beretta and Benetton (Italy), Lego (Denmark), Caran d`Ache, SGS and André (Switzerland), C&A (Netherlands), Bahlesen (Germany), Kikkoman (Japan), Claroen Pokphmd (Thailand), and the Rothschild banking family. The contribution of international family businesses to global gross domestic product (GDP) is estimated at 70 per cent in the non-communist world as a whole (Neubauer and Lank, 1998). Family businesses can range from a “family business” with fewer than twenty employees to a much larger company like Coors Brewing Company and even larger multinationals. Perhaps more importantly, these companies also have a significant impact on the global economy.

Two main factors seem to influence the development of family businesses and the succession process: the size of the family, relatively speaking, the volume of business, and the ability to lead the organization in terms of management capacity, technology and commitment (Arieu, 2010). [full citation needed] Arieu proposed a model for classifying family businesses into four scenarios: politics, openness, foreign management, and natural succession. While there are exceptions, it is not uncommon for family business owners to be involved in the day-to-day running of the business. The degree of participation depends on the actual role played by family members in the operation, as well as on the overall interest of each member in the operation. Typically, family members take on key roles in relation to decision-makers and expand their skills and talents by hiring employees who can handle other essential tasks. Le Van, G. (1999). The survival guide for entrepreneurial families.

London: Routledge. Rutigliano, A.J. (1986). “Family businesses need outside help.” Management Review, February 26 and 27. There are several major tax advantages for a family business. Families can hire their minor children and pay deductible wages. Neither the company nor minor children are required to pay Social Security and Health Insurance (FICA) or federal (FUTA) taxes and state unemployment taxes if the child is under 18. [IRC §3121(B)(3)] The child would not have to pay payroll tax up to the standard deduction for the child. However, the wage rate should be close to what a company would pay to a foreigner, although the pay may be slightly higher, as the pay for the same work varies widely. A traditional IRA can also be set up for the child, allowing for an additional $5,500 of income that can be deferred for tax purposes, although a Roth IRA would be more advantageous for a minor as the tax savings of a traditional IRA would be insignificant for a low-income worker. In addition, the income of a Roth IRA could grow tax-free and any eligible withdrawals from the Roth IRA when the child reaches retirement age would also be tax-free.

The Global Family Business Index[6] includes the 500 largest family businesses in the world. In this index, which was first compiled in 2015 by the Center for Family Business at the University of St. Gallen and EY, a company is classified as a family business for a private company if a family controls more than 50% of the voting rights. For a listed company, a company is considered a family business if the family holds at least 32% of the voting rights. It makes sense for family businesses to focus on resilience rather than performance, but why can`t other businesses emulate this strategy? The economic prevalence and importance of this type of business is often underestimated. For most of the 20th century, academics and economists were fascinated by a newer and “improved” model: large, publicly traded companies seemingly run rationally and bureaucratically by well-trained “organizational men.” In comparison, entrepreneurial and family-owned businesses, with their specific leadership models and complicated psychological processes, have often fallen short of expectations. [3] The most persistent problems facing family businesses are not the business problems the organization faces, but the emotional issues that exacerbate them. Many years of success over generations can be destroyed by the family if the family does not address the psychological problems it faces. The application of psychodynamic concepts will help explain the behaviour and allow the family to prepare for life cycle transitions and other problems that may arise.

Family businesses need a new understanding and a broader perspective on the human dynamics of family businesses with two complementary frameworks, psychodynamic and family-systematic. Family Enterprising achieves its goals through three main services. “Birth of a Family” provides pregnancy counselling to teenage mothers and other single parents and attempts to integrate them into a functional two-parent household. The Premeditated Marriage Course is a 14-hour counseling program designed to prepare young couples for marriage.