Family companies

The family business is a concept which describes the inclusion of member(s) of a family in the management and/or leadership of a company which, through certain commercial activities, makes a profit. The success of a family business depends on a successful handover to the next generation.

All private companies are family businesses whether or not their founders launched them on their own or with a partner, and regardless of whether those partners are spouses, relatives, friends, or partnerships of interest. So it is possible – to reemphasize the point – that the founder launched the company on his or her own. Knowingly or unknowingly, at that time they founded a family business in its earliest phase. It will become a family business formally, too, the moment they or their children decide or express the wish for the next generation to join the company.

It is important to understand the difference between managing a company’s capital and managing a company. Owners manage capital while managers manage the company. Founders are owners and managers. Therefore, when we talk about succession, we distinguish between inheriting ownership, i.e. managing the company’s capital, and taking over the management of the company. Practically speaking, this means that we have four possible situations. The first is that the children inherit both the ownership and become managers. The second is that they inherit ownership, however their lives are focused on something completely different. The third (which is, admittedly, more theoretical than practical) is that they do not become owners, yet serve as managers. And the fourth (slightly less theoretical and more practical than the last) they neither inherit ownership of the company (they inherit something else) nor manage the company. These four possibilities have, in this case, been simplified – there are not really only four options. For instance, in countries which have a longer history of family businesses it is not unusual for ownership to be inherited yet for the successor to not manage the company, but rather he is an employee (this is so far from our reality here that I almost wrote “he is only an employee“ instead of “he is an employee“).

In this introduction I’d also like to explain the last part of the definition of “successful transfer to the next generation.”
In order for a “successful transfer to the next generation“ to take place, one has to set aside time to sit, think, and make a decision on how to carry out the transition from one generation of a family business to the next. This transition requires the preparation of all four interested parties. It is important to prepare the company, prepare the founders, prepare the successors, and prepare the families.