Key Differences between Family Businesses and Corporations

 

The term family-owned business refers to a commercial entity that is run and managed through individuals who are either related by blood or marriage. In a family business, the decision making power majorly lies in the hands of the members of one family, who exercise increased control and influence over business operations and culture. A corporation on the other has a markedly distinct legal existence from its owners. A corporation is usually owned by a particular number of shareholders who have invested in the business’ stock. Shareholders owning a corporation share the losses and profits generated by the business operations. However, shareholders at a corporation may benefit from limited liability, not always having to be held liable for corporation’s debts.

Family businesses and corporations differ mainly in terms of four aspects, namely company culture, capabilities, business strategy and business models.

Culture

In a family business, the culture is determined by the values, ethics, experiences and education of the family members who own and manage the business. The influential members of the family, running a business together, set an example for other employees to follow and set the basis for the business’ culture. Culture in a family business has a more informal approach and employees may have a stronger link with the owners. Overall, a family business has patriarchal work culture.

Corporations on the other hand adopt a more formal cultural approach and organisational structure is usually de-centralised. The decision making power lies in the hands of board of directors and work culture in corporations lack the personal touch that is evident in family business culture.

Capabilities

In family businesses, capabilities and skills of the employees may not be completely appreciated. As the business is owned and managed by the members of one family, merit may not be given much consideration in case of promotions and hiring. The owner family will be more inclined towards keeping the control in its hands and one of the family members might be preferred for a promotion or a job position in the business over an ordinary employee.

Contrarily, capabilities of the employees within a corporation are solely assessed and judged on merit. Hiring and promotional decisions are made objectively by the managers and concerned authorities and hiring prospects and employees are solely judged on the basis of their worth and value for the corporations.

Strategy

Strategies in a family business are conceived and devised by the members of the owning family and it is less likely that employees or managers will be taken into the loop when making important decisions. The final decision making power lies in the hands of few family members who run and manage the business.

In corporations, strategy planning and decision making is a more decentralised process, where all the concerned employees, managers and concerned authorities are provided with the liberty to voice their opinions. Strategies and decisions are collectively formed by the board of members and the ultimate decision making power is not limited to a few individuals.

Business Model

Family organisations have a more centralised business model and structure and it employs only top-bottom approach for the formation and implementation of decisions. Corporations on the other hand have a more decentralised organisational structural and these may employ both top-bottom and bottom-up approach.

 

 

Tariq Linjawi
UCG Founder