Family businesses – their defining characteristics

Family businesses are owned by one or more families. © Fotolia/industrieblick

Family businesses make a huge contribution to the German economy and German industry as employers and as tradition-conscious innovators. They are defined as companies that are owned by one or more families, with a difference being drawn between “family-controlled” and “family-led” businesses.

In family-controlled businesses, up to two natural persons or their family members hold at least 50 percent of the company shares. In the case of family-led businesses, these natural persons are also involved in the management of the company. This basic definition brings two aspects into focus: 

  1. Ownership structure has key significance
  2. Management of the company is very often in the hands of the owner/s. 

These features give rise to certain typical characteristics. Many family businesses in industry are being run by the second or third generation. The shareholders are keen to maintain and grow what their parents, grandparents, or great-grandparents have built up over decades or even centuries. This is one of the decisive differences between family businesses and public corporations: families prioritize long-term stability over short-term yields. Another fundamental aspect of family businesses is that risk and liability go hand in hand. This forces family entrepreneurs to be especially prudent, as they are accountable to their family for their decisions. Thus, family businesses care more about sustainability than they do about maximizing profits in the short term. Where businesses are owned and managed by the same people, decisions can also be made more flexibly. Family business owners are always thinking about the next generation, rather than the next quarter. The most important decision is how the company can best be passed on to the next generations in the family, which obviously has a major influence on business activities and strategy. Consistent efforts to ensure the continuing existence of the company in the long term are a key hallmark of family businesses. And this is what makes them so successful. Owner-managed family businesses in Germany accounted for 47 percent of the total turnover of all companies in Germany and 50 percent of total employment during the survey period.

Family businesses as share of all German businesses

Measured in share of all active companies, share in total employment and share of total turnover (note: FCC = family-controlled companies, OOFB = owner-operated family business)

Source: Statista