What is ownership?

Ownership seems simple and straightforward. And, in many everyday situations, it can be. 

For example, imagine that you want to get a new couch for your living room. You determine which couch to purchase based on your preference on things like style, comfort, size, price, etc. Once you buy it, it’s yours, you own it. 

You get a piece of paper (a receipt) showing that it's yours, you get the benefit of using it however you want, you are responsible for cleaning/maintaining it, you decide if you want to add decorative throw pillows or recover it, and ultimately, you decide if and when you want to sell it or give it away. If you sell it, you keep the profits.

But ownership (an equity stake) in your family's company is more complex…

There are some similarities between what it means to own a piece of furniture and what it means to own a stake in your family’s company. In each case, ownership means:

• You will get benefits and enjoyment from your asset.

• You will be responsible for taking care of your asset.

• You will invest money in maintaining your asset.

• You have the right to decide what to do with your stake in the asset and how long to keep it.

• You will keep the profits if you sell your asset.

But, there are some key differences.

• Your responsibilities to your asset are greater. A lot of people rely on this asset – including employees, your community and future generations. 

• You’re part of an ownership group that co-owns the asset together and is known in the community for owning and stewarding this asset. Your opinion matters but the group makes decisions together. 

• Your ability to change or sell your asset may be limited in some ways.

• Your decision-making may be influenced by some degree of psychological attachment to the asset.

When you own a couch, you have the freedom to decide the level of care you will use to maintain it. Will you try to keep it nice? Or, will you allow kids to jump on it, pets to sleep on it, your friends to eat and drink on it? After all, it’s yours to use as you please.

Not so as the owner of a company, where there is a larger vision of what you are trying to achieve with your asset, and more stakeholders to consider besides yourself. 

You owe a responsibility to safeguard this asset, make sure it is well cared for, help it maintain stability and grow in value. 

You want it to last generations––in its current form, a transformed version, or its proceeds. Others depend on this asset for their livelihood or the economic or social benefits it brings to the place(s) it operates.

When you purchase a couch, you get to choose what kind, based on your preferences. And, once you own it, you have the freedom to reconfigure it, move it to a different room, or reupholster it if it no longer suits your design.

Not so in the family business context. 

You don’t really have a choice about the asset you inherit. And, once it’s yours, you are part of an ownership team. You will have your own individual preferences and interests. 

But ownership in a family business involves a delicate balance between those individual interests and the collective well-being of the business. 

It’s not just about what you want; it’s about what the owners as a group want, their shared collective vision, and how they want to support other stakeholders. 

It’s also about upholding a common set of values and continuing to live up to the reputation you want to have as owners and stewards of this asset. This requires effective communication, collaboration, and sometimes compromise among family owners. It will require your engagement and participation and effort.

When you own a couch, you have the freedom to decide if, when, and how you want to dispose of it. Will you list it for sale at a fair market price? Sell it for cheap? Donate it? It’s entirely up to you.

Not so as one of many owners of your family business. 

It is possible that you might not have a voice in this decision at all. For example, if your shares are in a trust, and you are the beneficiary of that trust, it is the trustees who have the authority rights to make decisions about the asset. 

You, as beneficiary, retain the economic right to receive financial benefits from your asset (meaning dividends when declared by the board, or proceeds if the business is sold). But, it is the trustees who have the power to decide when and how to sell it or when to make fundamental changes to it. (Trustees are required to make decisions that do not harm your economic rights or benefits.) 

In this scenario, you own your shares indirectly, meaning through a trust or holding company structure. In this case, you may not even have legal title of your equity stake (i.e. the deed or stock certificate) as that would be held by the trust or holding company.

Even if you own your shares directly, giving you both economic and decision-making rights, you might be beholden to a Shareholders Agreement or other similar, legally binding, ownership agreement. These agreements can restrict owners from being able to sell or transfer shares. For example, you may be unable to sell your shares to a non-family member without the approval of the majority owners or the board.

These kinds of restrictions are common in family businesses. They are designed to: 

• protect the integrity and continuity of the business according to family goals and values

• streamline informed decision-making 

• maintain family control of the company, particularly over time as the ownership group grows and becomes more diverse.

Truly, we hope you love whatever couch you own. But, at the end of the day, it probably doesn’t matter whether you care deeply about your couch or whether it merely serves a functional purpose.

Not so when it comes to ownership of your family business.

Hopefully, whether you are a current owner or anticipate becoming an owner one day, you already feel a strong emotional connection to your family’s company — a sense of caring, responsibility, and pride in maintaining and building upon your family legacy. 

If you don’t, or if you notice that other owners/future owners in your family don’t, your family should take action to cultivate this connection.

The psychological component of ownership—ownership as a state of mind¹—is important on two levels : 

1. It can bring you more personal meaning and fulfilment. You will need to dedicate some amount of time and effort to satisfy your responsibilities as a supportive owner. This is easier, and more enjoyable, when you have a strong commitment and take an active interest in the success and long-term sustainability of your family company.

2. It can potentially enhance company performance. Enterprising families that thrive over multiple generations tend to have a sense of duty to their business and work hard to cultivate a deep sense of emotional connection between the owners and the business.