Found virtually in every sector of the world’s economies, family enterprises are the most common form of business entity in the world. Yet, their ownership, management, and family composition create a complexity that requires special knowledge and skills in order to understand them and to advise them effectively.
Indeed, perhaps one of the most discussed issues in the field today is how to define a family enterprise. There is no one definition for family enterprise, but there are a few working definitions that have evolved over the years.
Learn more about these definitions and much more in Family Enterprise: Understanding Families in Business and Families of Wealth, Wiley, 2013. Ebook with online assessments is available for immediate download.
Family Firms are those in which multiple members of the same family are involved as major owners or managers, either contemporaneously or over time (Miller, Le-Breton Miller, Lester, Canella, “Are Family Firms Really Superior Performers,” Journal of Corporate Finance, Vol. 13, Issue 5, 2007).
Family firms are those in which the family controls the business through involvement in ownership and management positions. Family involvement in ownership (FIO) and family involvement in management (FIM) is measured as the percentage of equity held by family members and the percentage of a firm’s managers who are also family members (Sciascia and Mazzola, Family Business Review, Vol. 21, Issue 4, 2008).
A family enterprise is an economic venture (enterprise group) in which two or more members of a family (family group) have an interest in ownership (owners) and a commitment to the continuation of the enterprise.
The family business is a business governed and/or managed with the intention to shape and/or pursue the vision of the business held by a dominant coalition controlled by members of the same family or a small number of families in a manner that is potentially sustainable across generations of the family or families.
A firm of any size is a family business if:
1. The majority of decision-making rights are 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.
4. Listed companies meet the definition of family enterprise if the person who established or acquired the firm (share capital) or their families or descendants possess 25 percent of the decision-making rights mandated by their share of capital (European Union definition 2009).