Types of Ownership

“Plans that are about us, but don’t include us, are not for us.” 

This was a powerful quote I came across when going through the FEA designation.  How often are structures put in place implicating individuals without even including them in the planning?  Only in the absence of the planner, after their death, do siblings and cousins realize they are in partnerships together, shared owners without ever being made part of the planning.  This is not a position you want you or your family to be in.

The focus of this article is to bring light to ownership and to bring awareness that every layer brings with it a level of complexity. 

First let’s note the stages of ownership:

1. Controlling owner: The advantage is there is one owner.  Decisions are made quick. There is no one else to be accountable to. On the other hand there can be great issues passing the baton, letting go and passing ownership on.
2. Sibling partnership: The challenge is different perspectives.  There must be an understanding of the different way to make decisions. Siblings must also understand where they are in the 3-Circle Model. A good practice is to give opportunity to siblings to make little decisions together to build confidence for when big decisions need to be made.
3. Cousin consortium: At this stage the family is bigger than any one individual. And sometimes less close and in need of a formal mechanism to make decisions.  This stage of ownership works most effectively when there is a focus on the collective “we” and there is a level of humbleness amongst the individual “me.”

When planning for ownership there are may things to consider.  Does an owner get voting or non-voting shares?  Do they receive preferred or common shares by gift or have to pay for them?  Do they own shares outright, or are they held for them in a family trust by a trustee?  What if they don’t want to participate in shares?  

There are also types of ownership. Such as:

1. Operating Owner: involved in the day-to-day operations
2. Governing Owner: an active overseer but not involved
3. Active Owner: not employed, but takes a genuine interest
4. Passive Owner: collect dividends and makes no conscious decision to stay an owner
5. Investor Owner: like a passive owner, but if satisfied with the returns then makes a conscious decision to retain ownership
6. Proud Owner: not knowledgeable about the business or engaged in it, but still proud to be an owner
7. Good Owner: works on the business, not in the business.

Whatever form of ownership your family enterprise takes, you should note there are responsibilities of ownership.  Some of these responsibilities are: preparing for it and being educated. Receiving it and showing gratitude. Growing it and leaving it better than it was. Transmitting it and letting it go to the next generation. And in my opinion, the most important responsibility is stewardship.  That you keep a mindset of longevity and that the family enterprise is there for the long term.

The mindset a family enterprise owner takes is very important, and I agree with Smith Lanier saying: “When owners start talking about their rights rather than their responsibilities, a family business is in trouble.”

In addition to understanding the responsibilities of ownership, it is also important to note that there is a continuum of mindset for owners. 

In early stages of a business start-up, the founder/owner is focused on operational decisions to generate profitability and prove the business model.  As the business matures, owners need to shift their mindset to become strategic thinkers, rather than just the number one ” task doers”.  This means, accepting the need to recruit talent, formalize job functions, and delegate decision making.  For that to happen successfully, governance systems are needed including a formal Board of Directors, business plans, job descriptions, performance appraisals, budget vs actual variance analysis, meetings with agendas and expected deliverables, and common vision and values.   In order to become a successful, trans-generational family enterprise, the founder/owner must ultimately become redundant so that the family enterprise is capable of carrying on along the multi-generational continuity pathway. 

The process must start with the existing owners feeling this is a worthwhile initiative to invest in, and the next Gen wanting to take the baton and run with it for the benefit of their future generations.

Ownership is a great responsibility and in the words of Uncle Ben in Spiderman “With great power comes great responsibility.“

Congratulations! Continue as a Family Enterprise

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