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The dynamics involved in family businesses can best be understood by this diagram. Which of the three circles one is a member of can, in large measure, determine how they respond to events and to changes. Person #1 is a member of all 3 systems and is often the founder or current leader of the business. Person #2 is an Inactive Owner and may or may not participate in decision making and share in financial benefits of ownership. Person #3 is active in the business, but does not currently have any ownership and receives compensation as an employee. Person #4 is a non-family owner involved in the business. And Person #5 is a family member and uninvolved in the business or ownership. Unless roles are clear, compensation and dividends are spelled out, and there are strong accountability measures, conflict is likely. Most importantly, when there is a transition, these 3 systems need to be working in concert for the business and the family to continue successfully.

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