Three Circle Model

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Table of Content

No.DetailsPage
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1.0Introduction
1.1Definition of Family Business…………………….………. 2
1.2Three Circles Model……………………………….………. 2

2.0Key players in the family business……………….……….. 3

3.0Potential conflicts (current and future)……………………. 4

4.0Suggestions and solutions…………………………………. 5

5.0Conclusion………………………………………………...…. 6

6.0References……………………...……………………………. 7

1.0 Introduction

1.1Definition of Family Business

There are various definitions of family business and different authors would construct different elements in their chosen definition. Family business should be a business in which one or more members of a family to have significant ownership interest. Out of the numerous definitions I have read, I found the one stated by Poza to be relatively appropriate. It says,

“A company is considered a family business when the dominant decisions in the business are controlled by members of the same family or a small number of families in a manner that is potentially sustainable across generations of the family.” (Poza, 2007)

1.2Three Circles Model

The three circles model was originated by John Davis and Morris Tagiuri in 1980s (Hoover & Hoover, 1999). The model is made up of three interlocking and intermingling domains, namely family, business and ownership. It depicts how these three domains overlap. The diagramme below shows the three circles model.

FAMILY
BUSINESS
OWNERSHIP
1
2
3
4
5
6
7

There are several multiple and overlapping relationships in this model. Everyone involved in a family business falls within one of the seven sectors created by the three circles. For category 1 to 3, these are individuals who have only one connection with the business – they are family members, owners or they are employees of the business. Category 4 comprises family members who work in the business but who do not own shares. As for category 5, these are family members who own shares but who are not employees. Category 6 depicts owners who work in the business but who are not family members. Lastly, category 7 are individuals who inhabit all three circles being owners, family members and employees of the business.

2.0 Key players in the family business

The family business that will be discussed here is the machinery business that my father started 23 years ago shortly after getting married with my mother. The business is about selling and leasing machineries which are used for construction purposes. When the business started, my parents and my uncle were the only family members in it and they employed other non-family members to work for the company. Soon after the company started making profits, my aunt decided to join the company as an accountant. My father and my uncle possess 45 percent of the shares in the company respectively while the remaining 10 percent is owned by my mother.

Applying to the model, my father and my uncle would be positioned in category number 7 as they are owners who are also family members and employees of the business. My mother would be positioned in category number 5 as she does not work for the company but she has shares in the company. As for my aunt, she is positioned under category number 4 because she works for the company as an employee but does not own any share.

3.0 Potential conflicts (current and future)

One of the potential conflicts that might occur is siblings rivalry between my father and my uncle. If there is any argument between them on decisions for the business, my mother would be the person who finalises the decision as she possesses 10 percent of the business while my dad and uncle both has equal shares. In such a circumstances, logically, my mother would tend to side her husband (my father) instead of my uncle. Nuclear family ties are natural and emotional. Therefore, my uncle would be at a disadvantage. However, as my mother...
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