One of the topics that generates much discussion and conflict in all types of companies, including family businesses, is understanding the difference between being an owner and being a partner; comprehending these differences is crucial for effective governance and for avoiding future conflicts.

For the purposes of this article, an owner is defined as a physical person who, personally or through a legal entity, holds a majority of the shares in a company, thereby exercising control over the company’s shares and management. On the other hand, a partner is a physical person who, personally or through a legal entity, holds a share in a company, but this share is not sufficient to exercise control alone.

What does it mean to be an owner?

Being the owner means being the one in charge, the leader, and the person who has the final say in the decision-making process within a company. In the specific case of a family business, the owner is the founder, the father or mother who started the business and owns all the shares. Under their management, the business grows, and they make decisions, whether operational or strategic. And even though the company evolves under their leadership and defines an effective organizational structure responsible for day-to-day operations and decision-making, the final approval will always come from this person.

When this figure exists in a company, decision-making is usually quick and unilateral, and everyone must align with it. In some cases, they may consult with their children or minority shareholders on decisions. But ultimately, the final word belongs to the owner.

Many business founders, aware of the conflicts that can arise during generational transitions, choose to implement effective governance, which involves establishing a Board of Directors under modern best practices and appointing a General Manager to handle 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 for the company, ensuring it operates in the best interest of the business rather than individual interests. Establishing governance and executing the management succession plan while the founder is still alive will help ensure a more orderly transition to the second generation and 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 no one holds a majority, control is shared, and sometimes collusion among some shareholders can occur to favor personal interests.

In the context of a family business, partners emerge when share ownership is transferred, meaning when the founder is no longer around, and their children take over the business. In many cases, the children are left with equal shares, and none hold a majority. Although there may be a clear leader of the company, who previously only consulted with the father or mother, now must consult with all their siblings to make decisions, as all will want to exercise their power as owners. It is precisely at this stage that conflicts arise over common practices that were previously resolved by the founder.

As recommended during the owner’s lifetime, and to avoid being left adrift due to conflicts among partners, it is important to establish:

• A decision-making structure, i.e., Governance under modern best practices.
• A voting mechanism, if necessary, and clear rules to ensure compliance with the majority decision (democratization of decisions).
• Clearly defined roles, with clear leadership and established command hierarchy to avoid confusion within the organization.

Although there are common factors, each case is different, and creative solutions must be defined to address specific 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 over 150 families advised in Latin America helps us provide solutions to anticipate the conflicts that are often part of a family business.