The difference between being an owner and being a partner in a family business is a topic that generates much discussion and conflict in all types of companies, including family ones; understanding them is crucial for effective governance and to avoid future conflicts.

For the purposes of this article, an owner is defined as a natural person who, either personally or through a legal entity, holds a majority of the shares[1] in a company, thus exercising share and administrative control over it. On the other hand, a partner is a natural person who, either personally or through a legal entity, holds a share in a company, but this is not sufficient to exert control on their own.

What does it mean to be an owner?

Being the owner means being in charge, being the leader, and having the final say in decision-making in a company. In the specific case of a family business, the owner is the founder, it’s mom or dad who starts a business and holds all the shares. Under their administration, they grow the business and make decisions, whether operational or strategic. And although the company evolves under their leadership and defines an effective organizational structure that takes care of day-to-day operations and decisions, in the end, it will always have the final approval of this person.

When this figure exists in a company, decision-making tends to be quick and unilateral, and everyone must align with it. In some cases, decisions are usually consulted with their children or minority shareholders. But in the end, it’s the owner who has the final say.

Many founders of companies, aware of the conflicts that can arise in generational succession, decide to implement effective governance that involves establishing a Board of Directors[2] under the best modern practices and appointing a General Manager to take charge of day-to-day decision-making. An effective and modern Board of Directors involves having a team of high-level professionals, composed of family members and external or independent directors, to make strategic decisions in a company, ensuring its well-being and not individual interests. Establishing Governance and executing the managerial succession plan during the founder’s lifetime will help make the transition to the second generation more orderly and ensure that the company is not affected in decision-making.

What does it mean to be a partner?

When there are several shareholders in a company and when there is no majority owner, control is shared, and there are sometimes collusion between some shareholders to favor personal interests.

In the context of a family business, partners appear when the share transfer occurs, that is when the founder is no longer there and their children take over the company. In a significant majority of companies, they leave the children in equal conditions in terms of shareholding and none has a majority. Although there is a clear figure at the head of the company, who used to only consult with dad or mom, now they must consult with all their siblings to make decisions; everyone will want to exercise their power as owners. It is precisely at this stage where conflicts begin to arise due to common practices that used to be resolved by the founder.

Just as it is recommended during the owner’s lifetime and to avoid being adrift due to conflicts between partners, it is important to establish:

• A structure for decision-making, i.e., Governance under the best modern practices.
• A voting mechanism if necessary and clear rules to ensure that the majority decision is followed (democratization of decisions).
• Roles must be well-defined, with clear leadership and established command hierarchy to avoid confusion in the organization.

Although there are common factors, all cases are different, and creative solutions must be defined to resolve particular situations. For this reason, it is important to “tropicalize” and personalize best practices depending on the needs and stage of the family business. Our experience with more than 150 families advised in Latin America helps us provide solutions to anticipate the conflicts that are usually part of a family business.