This study argues that family firm leader's authority is an effective governance structure of the incomplete contract whose center contractor is the leader, and the authority system of family firms contains three dimensions based on different origins, which are legal authority from ownership, charming authority from capabilities and characteristics and family authority from clan based on the contract theory and the Three-circle Mode. It also argues that during the succession, legal authority can be succeeded immediately by stock transfer and management appointment, while the other two can not be succeeded, which finally causes “succession puzzle”. This study further tests the difference between family authority and charming authority and finally emphasizes the importance of authority succession in family firm's succession by analyzing typical cases of Hongdou Group and Haixin Group.