What Is a Family Business? Definitions and Types

Ask five owners whether their company is a family business and you'll get five answers. One founder with two shares held by a spouse says yes. A third-generation group with a professional CEO and a family board seat says yes too. A listed company where a family holds a third of the votes might say no, and a lawyer might say yes. The disagreement isn't sloppiness. It reflects a real problem that researchers have wrestled with for decades: what exactly makes a business a family business?

This article is the entry point to the family business collection. It covers the competing definitions, why they give different answers, and the types of family business you'll meet in practice, including the ones common across Southeast Asia.

Why There Is No Single Definition

The definition matters because it decides who gets counted, who gets studied and, in some countries, who qualifies for policy support. Researchers have long complained about it. In their own account of how the F-PEC scale came to be, Rau, Astrachan and Smyrnios describe scholars as stuck and unable to agree on a definition, with the result that many studies couldn't be compared because their samples were defined differently.

Most definitions pull on some mix of five ingredients:

1. Ownership: how much of the equity or voting rights the family holds.
2. Control: whether the family can decide who runs the company and what it does.
3. Management: whether family members work in the business.
4. Transgenerational intent: whether the family plans to pass the business on.
5. Self-identification: whether the owners themselves say, "we're a family business."

The definitions below differ mainly in which ingredients they require and how much of each.

The European Commission Definition

The most widely cited official definition comes from an expert group the European Commission convened. According to the summary of the Expert Group's report published by European Family Businesses, a firm of any size is a family business if:

• The majority of decision-making rights sit with the natural person(s) who established the firm, who acquired its share capital, or their spouses, parents, children or children's direct heirs.
• Those decision-making rights can be direct or indirect.
• At least one family representative is formally involved in the governance of the firm.
• For listed companies, the family or founder holds 25 percent of the decision-making rights mandated by their share capital.

Notice what's in there and what isn't. It's built on control and governance. It says nothing about intention to pass the firm on, and it doesn't require family members to work in the business, only to be formally involved in governance. The European Commission's family business page states that family businesses make up more than 60% of all companies in Europe, which shows how much a broad structural definition can capture.

The F-PEC Scale: Influence as a Spectrum

Astrachan, Klein and Smyrnios proposed a different move in 2002. Instead of sorting firms into "family" and "non-family," they measured how much the family influences the firm. Their F-PEC scale, as described by Rau, Astrachan and Smyrnios, rests on three dimensions:

• Power: influence from voting rights, from active family management, and from choosing the management.
• Experience: the knowledge the family has gained over generations of governing the business and the family.
• Culture: the degree to which family values and goals overlap with the business's values and goals.

The practical effect is that a firm isn't either in or out. A company with a 10 percent family stake and no family managers scores low. A company with majority control, three generations on the payroll and a shared set of values scores high. Their paper also argued that comparing family and non-family firms as two clean groups is unwise given how much family businesses differ in size, culture, values and goals.

The Behavioral Definition: Vision and Intent

Chua, Chrisman and Sharma took a third route in 1999. In their paper, they argued for separating theoretical definitions from operational ones, and proposed a theoretical definition based on behavior as the essence of a family business. They also found that the components of family involvement that operational definitions usually rely on are weak predictors of intentions, so they can't reliably tell family firms from non-family ones.

The definition itself, as quoted in a 2021 Frontiers in Psychology paper, reads: a business governed and/or managed with the intention to shape and 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 different generations of a family or families.

Two things set this apart. It puts intent, not just structure, at the center. And it explains why a firm with one founder and a stake held by a spouse might not behave like a family business at all, while a firm with a modest family stake and a strong succession ambition might.

Key Facts: Definitions of a Family Business

• The EU Expert Group definition is based on decision-making rights, with a 25 percent threshold for listed companies (European Family Businesses summary).
• The F-PEC scale measures family influence on three dimensions: power, experience and culture (Rau, Astrachan and Smyrnios, 2018).
• Chua, Chrisman and Sharma (1999) defined the family business by behavior and vision, and found structural measures of family involvement weak at predicting intentions (Entrepreneurship Theory and Practice).
• Astrachan and Shanker's spectrum offers broad, middle and narrow definitions of increasing family involvement (Emerald chapter).
• The EY and University of St.Gallen index counts a listed firm as family-controlled at 32 percent voting control, and requires multiple generations or 50 years of age (index methodology).

Broad, Middle and Narrow

Astrachan and Shanker's well-known spectrum gives practitioners a more usable tool than a single yes-or-no test. As summarized in an Emerald chapter on the meaning of a family business, the three levels are:

Pick the broad definition and almost every owner-managed company qualifies. Pick the narrow one and you're left with a small group of multigenerational firms. Neither is wrong. The right one depends on what you're trying to decide. A policy maker counting jobs wants broad. An advisor designing a family constitution wants middle or narrow.

How Definitions Disagree About the Same Company

Take a hypothetical company, here for illustration only. A founder holds 60 percent. Her brother holds 10 percent and sits on the board. No children work in the firm. A professional CEO runs it.

• Under the EU definition, it's a family business: the founder and her sibling's holdings give the family majority decision-making rights, and a family member sits in governance.
• On the F-PEC scale, family power is high, experience is low, and culture depends on how much the family's values shape the company.
• Under the Chua et al. definition, it depends on whether the owners intend to keep the firm in the family. If the plan is to sell in five years, it isn't.
• On the Astrachan and Shanker spectrum, it's broad but not middle or narrow.

The same firm lands in four different places. That's why the first move in any family business conversation should be to say which definition you're using.

Types of Family Business

Definitions tell you whether a company counts. Types tell you how it behaves. The most useful typology is developmental.

Ownership stages: controlling owner, sibling partnership, cousin consortium

Kelin Gersick and his co-authors of Generation to Generation identified three ownership categories. In an interview, Gersick says he still finds these initial developmental categories useful:

• Controlling owner: one person, often the founder, holds control.
• Sibling partnership: brothers and sisters share ownership and often management.
• Cousin consortium: the cousin generation holds shares, usually a larger and more dispersed group, many of whom don't work in the business.

Each stage has a different centre of gravity. A controlling owner can decide fast and carries everything personally. A sibling partnership has to negotiate between equals. A cousin consortium needs formal rules, because informal family understanding doesn't scale to thirty shareholders. The family business lifecycle article covers the stages in depth, and family ownership structures covers how the equity is organized.

Gersick also notes that many families now run what he calls complex systems of operating companies, holding companies, family offices, foundations and pooled investments, which "almost defy typology." He shifted his own language from family business to family enterprise for that reason.

Family-owned versus family-managed

Ownership and management are separate dials, and the three-circle model shows why:

Moving a family from the first row to the second is a major step, and the ownership versus management succession article explains why the two transitions should be planned separately.

Public family firms

Family control doesn't end at the stock exchange. The EY and University of St.Gallen Global 500 Family Business Index, per its methodology page, includes the 500 largest family-controlled businesses by revenue, and treats listed firms as family-controlled when the family has at least 32 percent of the votes. It also requires multiple generations or at least 50 years of age. According to the University of St.Gallen, the 500 largest family businesses generate US$8.8 trillion in revenue and employ 25.1 million people. That's a ranking of the very largest, not a measure of the typical family company, but it shows the form scales a long way.

Family business groups

In much of Asia, the unit isn't a single company but a group. One family sits at the top of a set of companies, often linked through holding companies and cross-holdings. A study of 2,980 listed companies in nine East Asian countries, using ownership data as of 1996, found 68.6 percent of Indonesian listed companies in family hands at a 10 percent voting cutoff, with over half of companies in most other countries also family-controlled. The same paper found Japan the outlier, at 13.1 percent. The data is dated, but it shows how normal family control is across the region.

For founders and owner-CEOs in Southeast Asia, the group structure changes the practical questions. Succession isn't about one company, it's about how a portfolio gets divided or kept together. The articles on family conglomerates in Asia and family business in Southeast Asia take this up.

Where Founder-Led and Family Business Overlap

A founder-led company isn't automatically a family business. Under the Chua et al. view, the moment the founder expects the firm to pass to the next generation, it starts to behave like one. Under the EU definition, it's one as soon as the founder or relatives hold the majority and a family member is in governance. The article on what a founder-led company is covers the overlap from the founder's side.

Which Definition Should You Use?

A short rule of thumb:

• Reporting or policy: use the EU or EY style structural tests. They're easy to check.
• Governance design: use the F-PEC dimensions or the three-circle model to see where family influence is strongest and where it's missing.
• Succession and continuity: use the behavioral definition. If there's no intent to pass the business on, a succession plan has nothing to anchor to.
• Planning for the next decade: use Gersick's stages to see which one you're in, and which one is coming.

Whichever you pick, write it down. Disagreements in family firms often start with each person quietly using a different definition.

Related Reading

• The three-circle model of family business
• Family business lifecycle
• Family business strengths and weaknesses
• Family ownership structures
• Family business in Southeast Asia
• Family business succession
• What is a founder-led company?
• What is family governance?
• Sibling partnerships in family businesses