Professional Documents
Culture Documents
A successful family business is one that works harmoniously through the four
stages of its evolution: entrepreneurship, growth, governance, and maturity.
The first stage, entrepreneurship, is when the family aspect first provides an
advantage over non-family companies. In getting established the family is
often the chief provider of labour and therefore more devoted to the
company’s success. During this stage some firms may also finance through
the family, better aligning costs and benefits.
In the growth stage the company focuses on increasing its market share,
bringing new and innovative products to market, expanding into other regions
or geographies, increasing capacity, and attracting additional financing.
Family businesses are commonly viewed as being risk averse but the Credit
Suisse data indicate otherwise. All survey respondents have expansion plans,
with small family businesses focusing on increasing capacity while larger ones
are expanding into new countries and industries.
Family dynamics can play a large role in governance. Public firms may face
agency costs if the interests of owners and managers are not properly aligned
but the costs can be avoided in family firms where the owner-manager has
more at stake.
DEFINITIONS
Family business is a corporation that is entirely owned and managed by members of a single
family. Family firm is a corporation that is entirely owned by members of single family. It is also
known as company owned, controlled and operated by members of one or several families.
Family business are ideal in nature as they are loyal to the principles of the founder and thus ensure
uniformity in their operations.
Succession is one important decision which determines future effectiveness in terms of company
operation.
family business comprises of family members in business operations ensuring effective utilization
of in house talent in family.
Single minded dedication of family members ensures survival of family business through toughest
times.
Family business may be comprised of one or more than one family in business operations.
Family members who are not contributing or not involved in business are part of business.
Family business values are reflection of values possessed and followed by family members.
Family owned business : is a profit organization were number of voting shares, but not necessarily
majority of shares are owned by members of single extended family but significantly influenced by
other members of family.
Family owned and managed business : is a profit organization were number of voting shares, but not
necessarily majority of shares are owned by members of single extended family but significantly
influenced by other members of family. In this business has active participation by one family
member in the top management of company so that one or more family members have ultimate
management control.
Family owned and led company : is a profit organization were number of voting shares, but not
necessarily majority of shares are owned by members of single extended family but significantly
influenced by other members of family. In this business has active participation by one family
member in the top management of company so that one or more family members have ultimate
management control. But in this method one member has major influence on business activities
who in charge of regulating activities of business and members of family business.
2. Family council meeting : if the size of the family is small in size than members of family can meet
on frequent basis, when the operation of the family business expands geographically each team has
to choose in representative for every unit who on behalf of every area can meet on regular basis to
decode on plans, create policies, and strengthen family business communication.
Family constitution : family policies and guiding vision and values that regulate members
relationship in business. Developed plan may be detailed or simple in nature but every family is
benefited by the same.
Develop clarity on roles, rights and responsibilities of family members. Encourage members of
family, family employees and owners family to act responsibly towards the family and business.
Regulate appropriate family and owner inclusion in business discussion.
DUTIES PERFORMED BY FAMILY COUNCIL MEETING Plan assembly meetings, which otherwise has to
be arranged by CEO in company. discuss current business, ownership, family issues and keep
family informed about the issues. help family reach decisions and collectively focus on attainment
of single goal. Keep the board of directors informed about family views on company and keep in
touch with the board about key business policies and plans. Develop plans and policies in line with
the board, that regulate family activity with business.
REASONS FOR CONDUCTING FAMILY BUSINESS planning employment standards for next
generation Career development policies for family employees Family employee compensation
Succession process, including retirement ages Ownership agreements which comprises of buy
and sell agreements dividends
1. First family succession plan, then business succession plan : family business plan must
recognize and accommodate the needs, goals and objectives of each member of family.
Family succession plan has to be developed first as if business plan is designed in advance it
proves to be difficult for owner to coordinates goals of family members towards business
2. Family first business or business first family : important issue to be determined before
beginning family succession plan is whether yours is family first business or business first
family. It is often seen that most of the business fail to succeed when managed by second
and third generation of business.
3. Succession management : business families take advice of business advisory board who
suggest on eligible person for transition. Advisory board are not experts in managing
business but are consultants who suggest strategies for effective succession management.
4. .Business valuation : may not be formal written report but is required as part of annual
strategic planning process. Reasons for valuing family business are as follows : Buying or
selling shares to employees Retiring or selling to other family members Planning gifts
for hires Anticipating estate tax problems Providing adequate key man insurance
coverage Tracking of business plan towards achievement of results
5. Buy or sell agreement : is used to transfer share ownership for buy and sell agreement. This
agreement is established between related parties and shareholders in family. It is an
agreement to transfer a business interest to hires for less than fair market value The
agreement is real ; it is part of bonafied business arrangements
Quick decision on business plan process will provide more alternatives to the process. A child
than having right to inherit business should have ability to manage family business. Children's must
be encouraged to out of family business so that they have better insight about competition
persisting in market and accordingly develop strategies for development of own business.
Establishing an outsider as advisor for family business may prove to be risky for which experts in
succession planning should be chosen from management team with in the family business
Conducting family meeting on regular basis will help establish and keep the family focused on rules,
goals and objective Develop non business interest Develop financial resources that are
independent of business Evaluate component successor : which requires to assess whether
person to be chosen as successor has potential to lead the business, will he be accepted by all
members in family, check his willingness to control the business. Person who will be chosen as
successor should be give an appropriate standard to be achieved which will help him deign
effective strategy and have yardstick to compare his actual performance with expected one.
lack of focus and strategy : family business initially perform in effective manner but at later point
of time when aspect of transition comes into picture family business tends to lose its track from its
actual vision .
Lack of professionalism : data maintenance practice in family business usually will not be in par
with that of private companies which proves to be major hurdle during decision making process.
Difference in educational levels of family members which drives some people to follow obsolete
method while others may focus on implementing latest technology and practices in business
Rivalries between sibling in company which may end up in separation of family business.
Difference of attitude towards employees in company Inability to separate family interest from
the interest of business
Short term approach towards business , leading to an absence of investment in employees and
product development.
Insensitivity towards customers due to uncompetitive market resulting in weaker market skills
KARTA OF HUF
The Karta is the manager of HUF and have wide powers by way of controlling the
affairs of the HUF. The Karta enjoys his position in the HUF by operation of law
without any agreement and consent of other members of HUF. He stands in a
fiduciary relationship with other members, but he is not accountable to anyone.
Article 236 of the Mulla Hindu Law defines “Karta” as follows:
“Manager – Property belonging to a joint family is ordinarily managed by the father
or other senior member for the time being of the family: The Manager of a joint family
is called Karta.”
The Karta is entrusted not only with the management of properties of the family but
is also entrusted with the general welfare of the family. Karta is the head of the family
and acts on the behalf of all members of the family but an agent of members of the
family.
Who can be ‘KARTA’?
1. The Karta is the senior most male coparcener of the HUF.
Even if the Karta becomes aged, infirm, ailing, or even a leper, he may continue to
be Karta. Where the senior most member is not Karta, the next senior male member
takes over as Karta. [Man vs. Gaini ILR (1918) 40 All 77].
2. A junior coparcener can be Karta
Only if the senior most member gives up his right, a junior coparcener can become
Karta of the HUF, with the consent of all other members as held by Supreme Court
in Narendra Kumar J. Modi Vs CIT (1976) 105 ITR 109 (SC).
3. There can be more than one KARTA of a HUF
Darshan Vs Prabhu ILR (1946) All 692
4. Only Coparcener can become Karta
The Supreme Court in CIT vs. Seth Govindram Sugar Mills [1965] 57 ITR 510
(SC) held that coparcenership is a necessary qualification for the managership of a
joint Hindu family.
5. Minor as Karta
In absence of the father, the elder minor son could act as the Karta of the family.
Therefore, a minor can be the managing member of a Hindu undivided
family.[BudhiJena v. DhobaiNaik (AIR 1958 Orisss 7)]
POWERS OF KARTA
1. Managing the affairs of HUF
2. Control & become custodian of the finances
3. Can borrow money for & on behalf of HUF
4. Spend money for the family & not accountable for it.
5. NOT liable to submit account to anybody.
6. Can make partition of the family suo moto.
7. Quantum of partition shall be with KARTA’s liking.
8. HUF cannot enter in to contracts, or form partnership firm, or represent except
through Karta, however Karta may allow others to represent HUF.
9. Can Gift away the movable properties of HUF for natural love & affection but
within reasonable limit.
10. May transfer immovable properties for pious purposes or for the benefit of the
family.
thorough market and customer research for the new product or service
a clear development strategy - including trying a new line or service for a short test period with prototypes and
test marketing before totally committing to the new project
sales, marketing and supply chain operations that can cope with the added demands
You can also expand your business by joining forces with another business. While this can create
more shared decision-making and possible management and staff issues to resolve, there can be
clear advantages.
more resources
sharing of the managerial load
larger skills and talent base
bigger pool of contacts
increase in markets
diversification and organic growth using increased resources
reduced commercial risk
To choose the best strategy for growth, you'll need to undertake an analysis of your business' current
performance.
Once you've carried out the review, focus on the option that looks the most logical. The pages in this
guide outline some of the most common choices.
Next, make sure this option is also the most practical. Check that the strategy reflects the things your
business does well.
Advantages
Economies of Scale - larger firms can produce at lower average cost and they pass on
these economies of scale to consumers at lower prices helping them increase sales,
market share and profit.
Diversification - can produce more products and can sell into different markets. Reduces
risks that declines in sales of one product will harm the business leading to less threat in
profits.
Access to finance - larger firms are less likely to go bust due to easier access of money
from banks/Government to survive cash flow problems.
Personal Vanity - some owners enjoy the power and status from owning large
businesses.
Domination of the market - the larger the market share a firm has, the more it can control
the price of its products.
To remain competitive - It faces fewer threats from competitors and can even eliminate
some as they cannot compete with the businesses new competitive pricing it has gained
form growth.
Not much change - the firm is still making its existing products so it is doing what it is
already good (exception of diversing into making new products) so less likely to go
wrong.
Very inexpensive.
Disadvantages
Time - it can take a long time to achieve growth, some owners arent prepared to wait
long.
Potential financial input - capital investment can be lost, this affects the outflows on the
businesses cash flow, consider short term cash flow vs long term potential benefits.
Impacct of failure - this cost cost the business financially, damage their reputation and
affect thier oppurtunity cost (the cost of the choice you dont make).
Will expansion make you more competitive? - depending on the circumstances of the
business, the situation that the business is in and the competition will the expansion to
the business be worth the benefits to the business over their competition?
External growth options
Advantages
Less disruptive changes mean workers' efficiency, productivity & morale remain high
Disadvantages
Can take a while for the business to adapt to big changes in the market
If market not growing, business is restricted to increasing its market share or finding a
new market to sell products to
Businesses might miss out on opportunities for more ambitious growth by only growing
internally
Salaries and Compensation
3. Be flexible. In a perfect world, we’d each have one job to do. But being an
entrepreneur is another story. You need to be willing to offer help when
needed, even if it’s outside your comfort zone. You will make mistakes, but
staying flexible and being unafraid to try new things will make you more
resilient and ultimately benefit your business.
4. Use every excuse to keep learning. Five years from now, your job won’t
look like it does today. If it does, you probably didn’t take enough risks. To
manage the change inherent to startups, learn the next thing, the necessary
thing, the trendy thing and, of course, the harder thing.
5 Never take work home. I’m a strong believer that lunch is for work and
dinner is for family. When your family gathers for celebrations, make them
about family, not business. Other members of your family don’t necessarily
want to hear what happened at your last meeting, so don’t subject them to
business talk.
Starting with clearly defined roles and the readiness to do what needs to be
done to succeed, you can build a healthy family business without messing up
your family dynamic. As long as everyone knows what he or she is
responsible for, there should be no hard feelings outside the office when
someone is asked to step up their game.
1. Family entry and exit. Establish a participation policy, specifying who can
work in the business, what qualifications are necessary for positions, and
clarifying that it is okay for a family member to leave the business.
2. Salaries, promotions, and positions. Establish a compensation policy
identifying the basis for pay, perks, promotions, as well as the consequences
of non-performance.
3. Equality and merit. Clarify the hierarchy in the business. Clearly articulate a
basis for gaining a voice and management responsibility. Everyone in the
family has wisdom and should be heard, but this must be balanced by the
business’ need to have decisions made.
4. Sibling relationships. Create a “sibling code of conduct,” which is a jointly
crafted policy on commitment, values, expectations and communication.
5. Communication process. Hold regular business meetings, and commit to
spending family time away from the business where communication does
not focus on the business. Ensure that key areas of potential dissension have
been discussed, such as terms for transferring stock (buy/sell or shareholder
agreement). Create a conflict resolution policy to ensure communication
through tough issues.
6. Leadership of business and family. Create policies and processes that ensure
successors must earn the right to be the business leader. At the same time,
reinforce that senior leaders must also prepare to let go.
In successful family companies it is family assets (the unique contributions that only families can bring to the
firms), which form the foundation for key business strategies, whether focused on long-term growth, a well-
defined niche sector, or implementing a flexible and fast-reacting management philosophy. These contributions
provide clear reasons for keeping families involved in future. When family assets vanish it is time to think about
restructuring the role of the family in the business.
Based on the identification of family assets and roadblocks, you need to map the right path for the next 20 years.
You have to choose the right ownership structure, the right family involvement and the right management
structure.
If you realise that there are many roadblocks to the current ownership structure, you have to plan the change in
ownership structure now. Similarly, if the family assets are waning, such that the family is going to have to
relinquish control on the management side, now is the time to determine how you will professionalise the
management team. This is step two in the Family Business Map.
3- For a “within-family succession” (namely “Closely Held” on our Family Business Map), the task is to cultivate a
family successor and enhance family governance to share and transfer family assets. This may sound simple,
but there are numerous considerations including how a country’s culture can affect succession planning,
choosing the right successor from the pool of younger family members and how to plan for changes to business
strategies that may occur as the new successor takes over the business.
For a firm that chooses to delegate business decisions to non-family managers (“Delegated” on the Family
Business Map), it is important for the family to cultivate good corporate governance structures which encourage
external management to make value-enhancing decisions in the best interests of the firm. The family needs to
do this in such a way that they maintain strategic decision-making influence at board level but allows the non-
family members to develop the day-to-day management of the firm
But adding non-family employees into the mix with family ownership and family
employees creates some difficulties..
The most important solution is for the family to understand that a family-owned
business does not have to be a family-run business.
Small business owners usually take a management role to save money, i.e. to avoid
paying someone else as well as themselves. This keeps the business solvent at the
outset, but it limits growth due to the limitations of the owner’s skills, experience, and
business contacts.
The best small firms eventually bring on key outsiders to enable growth. They
recognize that the extra long-term profits for the family owners will be worth far more
than the new person’s salary.
The Hindu Succession Act, 1956 is an Act of the Parliament of India enacted to amend and
codify the law relating to intestate or unwilled succession, among Hindus, Buddhists, Jains, and
Sikhs.[1] The Act lays down a uniform and comprehensive system of inheritance and succession
into one Act. The Hindu woman's limited estate is abolished by the Act. Any property possessed
by a Hindu female is to be held by her absolute property and she is given full power to deal with it
and dispose it of by will as she likes. Parts of this Act was amended in 2005 by the Hindu
Succession (Amendment) Act, 2005.[2]
Contents
[hide]
1Applicability
o 1.1As per religion
o 1.2As per tribe
2In the case of males
3In the case of females
4Certain exceptions
5Amendments
6References
7External links
Applicability[edit]
As per religion[edit]
This Act is applicable to the following:[1]
any person, namely- Arunim Dinkar, who is a Hindu by religion in any of its forms or
developments including a Virashaiva, a Lingayat or follower of
the Brahmo, Prarthana or Arya Samaj;
any person who is Buddhist, Jain or Sikh by religion; and
to any other person who is not a Muslim, Christian, Parsi or Jew by religion unless it is
proved that the concerned person would not have been governed by the Hindu Law or by
any custom or usage as part of that law in respect of any of the matters dealt with herein if
this Act had not been passed.
Explanation as to who shall be considered as Hindus, Buddhists, Jains or Sikhs by religion has
been provided in the section:
any child, legitimate or illegitimate, both of whose parents are Hindus, Buddhists, Jains or
Sikhs by religion;
any child, legitimate or illegitimate, one of whose parents is a Hindu, Buddhist, Jain or Sikh
by religion and who is brought up as a member of the tribe, community, group or family to
which such parent belongs or belonged;
any person who is convert or re-convert to the Hindu, Buddhist, Jain or Sikh religion.
A person shall be treated as a Hindu under the Act though he may not be a Hindu by religion but
is, nevertheless, a person to whom this Act applies by virtue of the provisions contained in this
section.
As per tribe[edit]
However it has been provided that not withstanding the religion of any person as mentioned
above, the Act shall not apply to the members of any Scheduled Tribe within the meaning of
clause (25) of article 366 of the Constitution of India unless the Central Government, by
notification in the Official Gazette, otherwise directs. Surajmani Stella Kujur Vs. Durga Charan
Hansdah-SC
1. Father
2. Son's / daughter's son
3. Son's / daughter's daughter
4. Brother
5. Sister
6. Daughter's / son's son
7. Daughter's / son's daughter
8. Daughter's / daughter's son
9. Daughter's /daughter's daughter
10. Brother's son
11. Sister's son
12. Brother's daughter
1. upon the sons and daughters (including the children of any pre-deceased son or
daughter) and the husband,
2. upon the heirs of the husband.
3. upon the father and mother
4. upon the heirs of the father, and
5. upon the heirs of the mother.
Certain exceptions[edit]
Any person who commits murder is disqualified from receiving any form of inheritance from the
victim.
If a relative converts from Hinduism, he or she is still eligible for inheritance. The descendants of
that converted relative, however, are disqualified from receiving inheritance from their Hindu
relatives, unless they have converted back to Hinduism before the death of the relative.