Meaning and Definition of Family Business

Family business and small business are not the same. At the same time, large public firms are
often family firms. “Family business” can be regarded as the most popular “mom and pop”
businesses. Although many small and micro businesses are family- owned and operated, there
is evidence that family firms are also fast growth firms and very large successful firms.
Broadly, family business has been defined as a business that is owned and managed (i..,
controlled) by one or more family members. According to Davis and Tagiuri, family are
“organizations where two or more extended family members influence the direction of the
business through the exercise of kinship tis, management roles, or ownership rights”.

In the Words of Gallo, family businesses are essentially the same in every country in the
world relative to their problems, issues and interests.

There is no consensus of opinion as to what exactly is a family business. There have been
varying definitions and a review of the definitions will reveal the elements used by the
authors to construct their understanding of the term. The following list outlines the gist of
various definitions of family business used by various authors and academicians:
1) High percentage of share capital owned by a family either jointly or individually.
2) Family members of share capital owned by a family either jointly or individually.
3) Expression of intention to maintain family involved in management or ownership.
4) A number of generations of the same family involved in management or ownership.
5) Management or ownership control by direct descendants of the founders.

In a family enterprise, there is a unique source of competitive advantage derived from the
interaction of family, management and ownership. But, it is usually true only when the family
unity is high.

There are various definitions of a family business. In fact, there are as many definitions as
there are authors writing on family businesses. However, in general a family- owned business
is one:
1) In which two or more extended family members influence the business through the
exercise of kinship ties management roles and ownership rights, and/or,
2) Which the owner intends to pass to a family heir.

Family business writers have contributed scores of definitions in the family business
literature emphasizing different aspects of a family business, particularly the form and level
of family involvement or ownership control, the anticipation or occurrence of an inter-
generational transfer of ownership or management control. There are various definitions of
family- run business and these can be grouped into two:
1) Structural Definitions: These definitions focus on the firm’s ownership or management
arrangements, e.g., 51 per cent or more ownership by family members.
i) According to Barry, “Ownership control by the members of a single family”.
ii) According to Barns and Hershon, “Ownership control by a single family or individual”.
iii) According to Becker and Tillman, “A small or closely held business”.
iv) According to Rosenblatt, de Milk, Anderson and Johnson, “Majority ownership by a
single family and direct involvement by at least two members in its operation”.
v) According to Stern, “Ownership and operation by members of one or two families”.
vi) According to Lansberg Perrow and Rogalsky, “ Legal control over the business by family
members”.
vii) According to Leach et al., “Single family effectively controls firm through the ownership
of greater than 50 per cent of the voting shares: a significant portion of the firm’s senior
management is drawn from the same family”.

2) Process Definitions: These definitions stress on how the family is involved in the business
—its influence on company policy, its desire to perpetuate family control of the business and
so on:
i) According to Donnelly, “Closely identified with at least two generations of a family; link
has had a mutual influence on company policy and the interests and objectives of the family”.
ii) According to Miller and Rice, “Members of one family own enough voting equity to
control strategic policy and tactical implementation”.
iii) According to Tagiuri and Davis, “Two or more family members influence the direction of
the business through the exercise of management roles, kinship ties or ownership rights”.
iv) According to P. Davis, “Interaction between family and business organization that
determines the nature and uniqueness of the business”.
v) According to Beckhard and Dyer, “Business, family and founding sub- systems with a
focus on linkages among them”.
vi) According to Dyer, “Family influence over business decisions”.
vii) According to Churchill and Hatten, “Expectation or actually of succession by a family
member”.
viii) According to Ward, “Transfer of ownership across at least two generations”.
ix) According to Hollander and Elman, “Continuous relationship between family and
business”.

Basis of
Family Entrepreneur Non-family Entrepreneur
Difference
In most of the family entrepreneurships Non-family business has “federal
family authority structure is “corporate structure” referring to a structure
1) Authority structure” referring to a structure, containing several independent
Structure which is highly centralized and and autonomous centers of
delegation is consistently upwards in a authority, such as in the case of
pyramidal shape. divisionalized organizations.
The succession is normally given to Succession plan is managed in a
2) Succession
sons, daughters or family members of professional way, as per the
Plan
the enterprise. decision of the Board of Directors.
The interest of the family is supreme Interest of the organization is the
3) Interest and business actually becomes the only criterion for business
reflection of family culture. decisions.
The division of property or familial
Familial feud dos not come into
feud casts a dark shadow on the health
4) Familial Feud picture and familial interests do
of the business, at times lading to heavy
not hamper corporate interests.
losses.
Employees may a time consider
5) The family is the ultimate power center, themselves as the owner of
Power/Authority Employees do not feel empowered. organization and in normal cases
employee empowerment is better.