How do we define family business?

The term family business has many definitions and it is difficult to pinpoint one which is appropriate for all family run companies.

 But here are a few definitions for you to think about:

  •  A simple Google search returns the Wikipedia definition that “a family business is a commercial organisation in which decision-making is influenced by multiple generations of a family – related by blood or marriage – who are closely identified with the firm through leadership or ownership”.
  • According to the Australian Small Business Commissioner, a family business is defined as a business where:
    • The majority of votes are hold by the person who established or acquired the firm (or their spouses, parents, child or child’s direct heirs); and
    • At least one representative of the family is involved in the management or administration of the firm.[1]
  • The International Finance Corporation take a broad view on what is a family business and consider that if the controlling family have the voting majority the company is a family business.[2]

Despite the varying definitions, every family business will have three features: family, ownership and management. How these features overlap is unique from one business to the next. On one end of the spectrum a company may be solely managed and owned by the family, whereas at the other end, a company may have only limited family involvement with management staff and some ownership being external to the family.

At Harwood Andrews we think that there is no one phrase which can encompass all family businesses as every company varies in its purpose and family involvement. We don’t believe in a one size fits all approach when advising our family business clients. Instead, we tailor our advice to the needs of the individual company having consideration to a wide number of factors and the importance of family, ownership and management.

[1]  http://www.asbc.gov.au/family-business/what-is-family-business

[2] The International Finance Corporation’s (IFS) Family Business Governance Handbook Pg 12