Types of shareholders in family-owned firms

Family-owned businesses, especially later-generation firms, are supported by different types of stakeholders: shareholders, investors and owners. There’s a fourth category – speculator – that I’m omitting since it’s not worth mentioning. In my view, there is no wealth creation derived from speculation, which moreover, rarely occurs in family firms.

So what are the differences between shareholders, investors and owners?

According to legal experts, a shareholder is an agent who owns shares (aliquots of capital) in a company or business venture. One could define shareholdings as a natural consequence of the company’s decision to organize its capital into shares.

An investor is a person – either an individual or a legal entity – who invests their money in a venture and expects a certain payback in return. They understand the project’s scope, appreciate its possibilities and risk their capital by investing.

Owners are both shareholders and investors who approach the project as their own. This is the most common type of shareholder among family-owned firms. They are deeply connected and committed to the project, albeit to varying degrees.

Owners with pride of ownership are typical in family businesses. They approach the project as their own, even if they don’t own shares.

Based on the unique characteristics of family businesses and my own personal experience, I would classify the owners of family-controlled firms as follows:

  • Passive owners: They are content with their project and, like all shareholders, expect profitability, liquidity and growth in their shareholder value.
  • Committed owners: They approach the project as their own, yet respect the limits of their role as shareholders.
  • Active owners: They continually offer ideas to help the company grow and develop. In the absence of robust governance bodies, this type of shareholder can sometimes become burdensome for the leaders of family-owned firms.
  • Owners with a corporate governance role: They understand the project and support the venture in the concrete role entrusted to them.
  • Owners with managerial roles: As in the previous case, these are owners who support the company in a managerial role. On the front lines of the company’s day-to-day operations, they run the risk of thinking they’re more important than other types of shareholders and in turn, clashing with other owners and even the law.
  • Psychological owners (pride of ownership): This type of owner is common among family-controlled firms and, if I might add, soccer clubs and other sports teams are prime examples. Psychological owners feel personally invested in the project even if they don’t own a single share.

It’s impossible to deem one class of shareholder as better than another since every situation is unique. With a clearer understanding of these different profiles, however, family firms will be able to analyze their needs and build a governance body that reflects them.

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