How to Control a Private Business

The basic (although not necessarily essential) element of control is the legal basis of authority. A business should be operated through a legal entity which provides its owners limited liability. The legal documents that set up the entity and the statutes of the state in which the entity is formed will provide certain procedures and define certain authority for owners and managers of the business. As with all legal authority, these charter documents and statutory provisions will be effective to the extent they are known, respected, and observed. If they are ignored, the effort and cost of enforcing the provisions will inhibit the effectiveness of the provisions.

The practical aspect of control generally has to do with a change of status or other results that can be imposed upon a person. If you have the ability to change someone’s status, regardless of how that is done, then you have a degree of control over that person. This might occur whether or not you have the legal authority to act. For example, you may not be an owner, but if you have unfettered authority to terminate the employment of a person, you will be able to control that person. Also, control can come from the act or failure to act of other owners. If an owner agreement gives you the right to purchase the interest of another owner in certain situations, that right to purchase might provide you with control over that owner in those situations. If you are the holder of the majority ownership interest, but the holders of the minority ownership have certain rights in certain situations (such as the sale of the business), to that extent control for the majority interest holder is lessened. It is also true that if you can influence someone who has control, then you also have control.

The primary way to control a private business is by providing leadership through policymaking. Leadership is provided when owners articulate their values, engage in group decision-making, and document their decisions with a written strategic plan, which provides a shared vision of what the business should accomplish. The managers define goals from the strategic plan and establish mileposts to monitor the progress of the action plan. Where there is a failure to meet a milepost, the action plan and possibly the goal must be reconsidered and the plan revised. It is this procedure of monitoring and revising that establishes and maintains the control of the policymaking owner. This control can be lost if leadership falters through unwise practices, poor decision-making, or inattention.

Policymaking-owners who exercise effective leadership will control their private businesses because good decisions representing quality strategic thinking will yield better financial results. Better financial results will affirm control and increase the value of the business.