Definition of the family business

Family businesses are not bound to a certain size in terms of employees or turnover, they can be found in almost any industry and need not entertain a specific legal form. So what is a family business? In scientific research and in the general public there is no definitive single answer in the form of a uniform definition.

Prof. Dr. Rainer Kirchdörfer, Member of the Executive Board of the Foundation for Family Businesses, presented the many discussions about a generally accepted scientific definition in detail in the magazine "Family Businesses and Family Foundations” (1/2011). According to Kirchdörfer, currently popular definitions of the term "family business" differentiate according to research interests. On the other hand and most importantly, the boundary to non-family businesses is absolutely necessary in order to be able to carry out comparative studies on a scientific level.

 Download the article "Encyclopedia: Family Business" by Prof. Rainer Kirchdörfer in FuS 1/2011
(German PDF 1,6 mb)

Since 2007 a single definition of “family business” has been used EU-wide. Indeed, The Foundation for Family Businesses was the only representative of the Federal Republic of Germany in the Family Business Expert Group of the EU Commission that helped to develop this definition. The EU Commission has recommended the use of this definition in member states as well as in other countries, which are concerned about obtaining quantitative information about the market of family businesses.

 

Definition of the family business


A firm, of any size, is a family business, if:
 
(1) The majority of decision-making rights is in the possession of the natural person(s) who established the firm, or in the possession of the natural person(s) who has/have acquired the share capital of the firm, or in the possession of their spouses, parents, child or children’s direct heirs.
(2) The majority of decision-making rights are indirect or direct.
(3) At least one representative of the family or kin is formally involved in the governance of the firm.

Listed companies meet the definition of a family business, if the person who founded the company or has aquired the share capital of the company, or their family or descendants, due to their share capital, hold 25 percent of decision making rights.

This definition also includes family businesses that have not yet completed the first generation transfer. It also includes sole proprietors and self-employed (if a legal entity exists that can be transfered to the next generation).
 
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