Definition of a family business

15 October 2023, Munich. Family businesses are not tied to a specific size in terms of employees or turnover. They can be found in almost all sectors of the economy and do not need to have a specific legal form. So what exactly is a family business? In scientific research and among the general public, there is no definitive answer in the form of a standardised definition.

When it was established, the Foundation for Family Businesses coined a sound and sustainable definition:

A company of any size is a family business if:

• the majority of the decision-making powers rest with the individual(s) who founded the company or with the individual(s) who acquired the company’s share capital, or the share capital is owned by a spouse, parents, child or a direct heir of a child, and

• the majority of the decision-making powers are exercised either directly or indirectly, and/or

• at least one representative of the family or relative of the family is officially involved in the management or control of the company.

Listed companies meet the definition of a family business if the individual(s) who founded the company or acquired its share capital, or their family/families or descendants, hold(s) at least 25 per cent of the decision-making powers due to their stake in the company.

This definition also includes family businesses where the first handover of control to the next generation has not yet taken place. It also includes sole traders and self-employed individuals, provided a legal entity exists that could be transferred to another person.