SAUDI GAZETTE

JEDDAH — The main reasons for the collapse of family businesses are due to favoring one’s own interests, the absence of internal laws that protects minorities, competition between family members, connecting management to ownership and feeling shy to demand one’s rights, said Tariq Al-Ibrahim owner of THI Law Firms.

Al-Ibrahim was speaking at Jeddah Chamber of Commerce and Industry to highlight the challenges and potentials of these companies. It is crucial, he explained, to indicate if the family members in the company are owners of just employees in the company and “being vague about this point has drastic consequences. If some family members work in the company and they are not owners they should have work contracts based on the market price.”

According to him, the market pays special attention to family businesses because they are the core of the financial life of many families and employees working in these companies. But the business can be ruined because of competition between owners. “If we managed to find a way to legally balance the relationship between all family members then we will allow these businesses to stand and grow,” he added.

If the owners of these businesses deal honestly with the company, then it will be much stronger as they will ensure to protect its reputation, said Al-Ibrahim. So far there is no special law that deals with such businesses separately in the Kingdom. However, such businesses can no longer be named family business if non-family members start to dominate the majority of the business and become decision makers in the company, he added.

The basic type of family businesses, explained Al-Ibrahim, is the one in which the children support their parents in a business based on the strong social relationships among them. A second type is one in which the father collaborates with his children to start commercial entity where they have non-family members working with them. The third type is the one that has been managed to last for three generations. Such family businesses are at risk due to increasing disputes between family members.

The most successful type of family businesses, explained Al-Ibrahim, is the joint stock companies which put limitations on how to transfer stocks, take into consideration the rights of minorities, put limitations to board members’ authorities, implement governance measures, and give more authority to audit and control committees.