Leading a Family Business: Keeping Family and Company Apart

Why is it so hard to keep family and business apart?

Most businesses in Germany are family businesses. In their study, Kern, Mohnen, and Toporova (2025) cite a share of 90 percent of all companies, employing more than half of the workforce. In many of them, spouses, children, or siblings work alongside. That brings trust, short paths, and a commitment to the business that cannot be bought.

But it also brings questions that do not arise in other businesses. May the daughter take over sales management without experience? Does the son who works in the business get more than the sister who only holds shares? Who decides when the parents disagree? This analysis pursues the question: How does a family business separate family and company so that the family's strengths are preserved and its conflicts do not paralyze the business?

To answer it, I first introduce the best-known model of family business research. Then I show what studies say about the value of family ties and family rules and weigh two readings. At the end there are family rules that fit on one page. This article is not legal or tax advice.

The thinking model: three circles, seven roles

The researchers Renato Tagiuri and John Davis developed a model that still forms the basis of much work today (Tagiuri and Davis 1996). In a review of research on the goals of family businesses, Raghavan (2024) calls it their base theory. The three-circle model describes a family business as three overlapping circles: the family, the ownership, and the business.

The overlaps yield seven positions. A family member can be family only, family and owner, family and employee, or all at once. A salaried managing director without shares is only in the business circle. Each position brings its own legitimate interests.

The model's benefit lies in a simple insight. Many conflicts are not questions of character but questions of position. The sister who wants a distribution is not greedy but an owner without a salary. The brother who wants to invest is not wasteful but a managing director looking at the next ten years. Whoever knows the positions can talk about interests instead of persons.

An everyday analogy: whoever is both the coach and the father of a player has to speak differently on the field than at the kitchen table. He remains the same person, but he wears two hats. Problems arise when he discusses the lineup at the kitchen table or plays the father on the field.

What studies show about family and success

The obvious question is: is strong family influence good or bad for the business? Åberg, Calabrò, Valentino, and colleagues (2024) analyzed data from 1,833 family businesses from 33 countries on this. Their finding distinguishes two things that are often mixed up. Family control and influence were not associated with performance. Family members' identification with the company, by contrast, went along with better performance. This effect was weaker when a family member had already been at the top for a very long time.

A second finding concerns how decisions are made. In 124 small and mid-sized enterprises, Martin, McKelvie, and Lumpkin (2016) found that family-run businesses kept decisions more centralized with the owner overall and retained operational questions in particular. The article the owner's role in a growing business describes why this can become a bottleneck with growth.

For Germany, Kern, Mohnen, and Toporova (2025) show a strength using large establishment and employee data: when the family was represented in top management, businesses invested more in the training and development of their employees. For selection procedures such as hiring tests, however, there was no difference.

First reading: keep family and business strictly apart

One reading recommends a clear separation. Family members are treated in the business like everyone else: same selection, same pay, same standards. Family questions are discussed outside the business. Fixed requirements apply for joining the business.

A case study by Rodriguez-Garcia and Menéndez-Requejo (2023) supports this. They conducted 24 interviews in eight Spanish family businesses that had had a written family constitution for at least two years, meaning an agreement of the family on its relationship to the company. In all eight, at least the second generation was involved. The most common occasion for such a constitution was succession.

The authors found that the constitution reduced three of four typical conflicts of interest: between family owners and management, among family shareholders, and with the wider family. As important agreements they name requirements for training and work experience for family members who want to join the business, rules for transferring shares, and dedicated bodies for family matters. Creditors such as banks, however, were mostly unaware of these agreements.

Second reading: involve the family deliberately as a strength

The opposing position warns against turning a family business into an ordinary business that happens to be family-owned. The finding by Åberg and colleagues suggests that it is precisely the family's identification that is an advantage. Whoever treats the family only as shareholders risks this bond.

A study by Voordeckers, Martinez-Romero, and Rojo-Ramirez (2024) of Spanish family businesses adds a warning. They distinguished three stages of family rules: informal, with a family council, and with a written family constitution. Businesses with a family constitution had the lowest required rate of return among shareholders, which points to more patience and trust. Surprisingly, however, businesses with a family council came out above the informally run ones. The authors interpret this as a sign of bodies set up merely for form that did not match the actual need.

I consider a combination of both readings right, but with a clear division of tasks. Roles and rules must be separated: who wears which hat, who is paid for what, who decides what. Identification and values may remain connected. The family should feel part of the company, but not every family member should have a say in the business. How values work in daily life without ending up on posters is described in the article company values that hold in daily work.

Separating family and business does not mean pushing the family out of the business. It means that everyone knows which role they are speaking in.

Family Rules on One Page: five questions

A complete family constitution is often too much for a business with 15 employees and two generations. The findings on family councils also show that bodies without a need tend to do harm. A simple start is family rules that fit on one page and answer five questions.

1. Entry

   Under what conditions does a family member join the business? For example: completed training, several years of work experience elsewhere, a vacant position that would also be advertised.

2. Role

   Which position does the family member hold, whom do they report to, and who assesses their work? Preferably not their own parent alone.

3. Pay

   Family members in the business are paid at market rates for their work. Distributions to owners are separate and apply equally to all shareholders.

4. Decisions

   What does management decide, what the shareholders' meeting, what the family? Family questions do not belong in the business meeting.

5. Exit

   What happens if a family member wants to leave the business or sell their shares? Who has a right of first refusal, how is the value determined?

How family rules hold up in daily life

Rules on paper are of little value if they are set aside at the first conflict. Five habits help them hold. They are derived from the findings and adapted to the size of small businesses.

• Separate meetings: one family meeting a year for family questions, separate from the shareholders' meeting and business meetings.
• Announce the hat: in difficult conversations, everyone says which role they are speaking in: as owner, as managing director, or as family member.
• Outside view: at least one person without family ties, such as an advisory board member or a manager, helps assess the work of family members.
• Rules before the occasion: rules for entry and exit are written down before anyone concretely wants to join or leave.
• Regular review: every two to three years, check whether the rules still suit the family and the business.

For the outside view, an advisory board can make sense. When it pays off is described in the article an advisory board for mid-sized businesses. If there is already a dispute among shareholders, the article conflicts among shareholders helps. And because handing over to the next generation is the most common occasion for family rules, it is worth reading the article succession and sales, which shows how customer relationships pass from the owner to the successor.

Salaried employees without family ties also benefit from clear rules. Whoever sees that family members are assessed by the same standards is more likely to stay. More on this in the article employee retention in small businesses.

Conclusion: how do you keep family and business apart?

The guiding question was how a family business separates family and company so that the family's strengths are preserved and its conflicts do not paralyze the business. The answer: roles, pay, and decision paths are separated; identification and values remain connected. The three-circle model helps understand conflicts as questions of position rather than of person. The studies show that it is not family control but identification that is associated with performance, and that family rules only work when they are taken seriously and not introduced merely for form.

What you can do this week

1. Draw the three circles and place every family member and every manager in the right spot.
2. Note for the past two years which of the five questions led to disputes.
3. Write a proposed rule for the most urgent question on half a page.
4. Discuss it at the next family meeting, not in the business meeting.

A family business lasts for generations when the family sticks together. But it only lasts if the business does not depend on the family always doing so.