Family held and run businesses are the oldest and most prevalent form of business ownership anywhere in the world. Family businesses form the backbone of any country’s prosperity and economy. In India, keeping business ownership within a family is a deeply-rooted practice since ages. India enjoys a rich and glorious history of family-owned businesses. Initially, family business in India started in the form of trading and money lending involving the hustle and bustle of the bazaar. It was also confined to certain communities, notably the Gujarati and Marwari’s especially in the western and northern India. Today, family business almost contributes around 80 percent of national GDP annually. According to various estimates, more than 80% of the companies in India are family owned.

In India, there are many highly successful family businesses which are operating for more than 100 years and not only in India but all over the world. The list includes:

1. Tata Group – Founded in 1868 by Jamsetji Tata

2. TVS Group – Founded in 1911 by T V Sundaram Iyengar

3. Aditya Birla Group – Founded in 1857 by Shiv Narayan Birla

4. Kiroloskar Group – Founded in 1911 by Laxmanrao Kirloskar

5. Godrej Group – Founded in 1897 by Ardeshir Godrej and Pirojsha Burjorji Godrej

6. Shapoorji Pallonji – Founded in 1865 by Pallonji Mistry

7. Reliance Group – Founded in 1966 by Dhirubhai Ambani

Advantages of family run businesses

Family businesses are still thriving in today’s competitive economy. The following are some of the advantages of family run business:

Stability

Family business are ideal in nature as they are loyal to the principles of the founder and top leadership, which results in overall stability within the organization. Leaders usually stay in the position for many years, until a life event such as illness, retirement, or death results in change.

Commitment

There is a greater sense of commitment and accountability by all family members due to involvement of reputation stake of the entire family. These level of commitment is almost impossible in non-family businesses. It is natural that all family members demonstrate and share a level of commitment to the firm since the core of any family business is a shared business vision and identity.

Leadership

In family run business, most of the time leadership is centred to the senior most people in the family. So each family members show faith and loyalty in the top leadership.

Trust

Since all family members know each other and related by blood relations, there is feeling of trust in each other.

Flexibility

In family run business, all family members can take any role which the business needs. You won’t hear, “Sorry, this is not my job” in a family business. They can take several different tasks outside of their formal role in order to ensure the success of the company.

Decreased Cost

All family members contributing land, labour, capital and entrepreneurship means there will less cost of running and managing business. In hard times just like COVID-19, family members even can take a pay cut or work without any pay.

Family Owned Business

Disadvantages of family owned business

Every coin has two sides. Same as with family businesses. In spite of its several advantages, it has following disadvantages:

Family Conflict

As and when new generations come into the family business, conflict is bound to happen due to generation gap. There are many cases of conflict in family business in India like famous case of Reliance when two brothers Mukesh and Anil divided the India’s biggest corporate group in 2005.

Unstructured Governance

There are no formal governance structure in many small family run businesses because of the level of trust inherent at family firms. Unfortunately, this can be gravely detrimental.

Nepotism

Some family businesses are reluctant to let outsiders come and seat in the top management and as a result good talent may find it uncomfortable to work in lower levels. This, obviously, has a far-reaching effect on the success of the company.

Succession Planning 

If there is no proper succession planning for the family businesses, there are chances of family disputes and sometimes it leads to collapse of entire business. The succession planning and execution is one of the biggest challenges in family run and managed firms. Most of the family businesses fails to remain family business after first one or two generations because of lack of effective succession plans.

Succession Planning is a key to success for family owned business

Succession planning is a strategy for passing on an ownership and management of a company—to the next generation in case of family business or to an employee or group of employees in case of non-family business. The main object of succession planning is to ensure that businesses continue to run smoothly after a company’s most important people move on to new opportunities, retire, or pass away.

Need of Succession Planning

Succession Planning in an ongoing process, which needs careful planning and preparation for smooth transition of ownership, leadership and management of the family business and family assets to the future successive generations. A strong succession planning is required due to following reasons:

  • to achieve the objects of businesses
  • to ensure the continuity of business in long run
  • to create a wealth for future generations’
  • to avoid the conflicts in business
  • to give stability to the business
  • to hand over the business from one generation to another

Every family business must have a solid succession planning for smooth transition of management and ownership of family business so that the fruits of the business can be enjoyed by the upcoming generations of the family.

Author Bio

Qualification: CS
Company: DVG & Associates
Location: Mumbai, Maharashtra, IN
Member Since: 02 Feb 2018 | Total Posts: 68
CS Dhaval Gusani is a founder of DVG & Associates, Company Secretaries and Corporate Law Professionals. He is a Commerce Graduate and an Associate Member of the Institute of Company Secretaries of India (ICSI). He has cumulative experience of more than 3 years with Listed Company, Chartered Acco View Full Profile

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