What are the advantages and disadvantages of keeping a business enterprise under family control

rather than selling stock to the public?

Focus on Disadvantages of family owned businesses.

Answer:

There are several disadvantages to family owned businesses - difficulties in raising

money, preserving continuity and nepotism.

A family owned business enterprise will have difficulties in raising money for
business/investments as compared to a public listed business enterprise (can get
money from stockholders).

Family owned businesses have difficulty in transferring ownership as well as

preserving continuity. Family owned businesses are run by a few family members,
and in the event they are no longer in the company, for example, due to them passing
away; there are risks of ownership. As business management changes, policies
change, in-laws are involved, and seldom are there funds available for non-active
owners (Siblings). Non-active shareholders become angry and demand to see the
financial statements in an effort to receive their “fair” share of the income. Family
members will attempt to seize control of the business as well. Conflict increases
within the family, causing family unity and commitment to the business to be
weakened. This results in poor and undisciplined management which eventually
forces company into bankruptcy.

In a family owned business, those at the top of the business enterprise may favour
their own family members and hire, promote, and pay them based on a familial
relationship rather than on their actual merits and abilities. This causes non-family
employees to lose the motivation and desire to work. It may even cause the non-
family employee to leave the company. This causes the company’s productivity to
decline.