Passing on of family control

The majority of private enterprises in China are family controlled. The family and the family business affect one another and depend on one another for their existence. Family control is the heart of the family governance mechanism. The passing on of Chinese family control is subject to its profound background effect and has its own particular features consisting broadly of the following three aspects: reestablishment or improvement of the family governance mechanism, creation of the core family spirit and values, and formulation and implementation of a successor grooming plan.

The background. In addition to the nexus of blood relationships, the formation and development of the majority of Chinese families follow closely the growth of the family business. Most family businesses are started by the first generation founder or family members, and as the size of the business continually increases, the members who enter the business continually increase from the original nuclear family to encompass such family members as uncles, nephews, etc. Thus the family gradually takes shape and develops. In the course of the development, most families are busily focusing their efforts on the domain of the enterprise, overlooking the grooming and succession of the family successors. On the other hand, the family spirit and culture have yet to take shape and there is a major difference in the intergenerational thinking of the family members, resulting in its being pulled and roiled by various lines of thinking and competing ideas.

The crystallization of Chinese family control generally follows the successful founding of the family business by the founder and the accumulation of wealth by the core family members. Family wealth is usually inseparable from the property of the family business, material family matters are decided by the core family members that created the wealth and family control strictly relies on the personal attributes of the core family members, such as their authority, experience, etc., which are not reproducible and are difficult to transmit. When the first generation family leader, namely the founder of the family business, gets on in years, the question of succession becomes urgent.

Yun Dahui is a senior partner at Hylands Law Firm. She can be contacted on +86 10 6502 8868 or by email at yundahui@hylandslaw.com