Family Investment Companies (“FIC”)…
We are often asked what Family Investment Companies (FICs) are and what benefits they bring.
What is a Family Investment Company (FIC)?
A Family Investment Company (FIC) is often used by one generation that wishes to retain control of family assets, whilst providing for future generations to benefit from that wealth. A ‘FIC’ is a company that can either be a limited or an unlimited company used for estate planning and wealth management. A bespoke set of articles of association and/or a Shareholders Agreement, together with a tailored share structure, make the company, whether limited or unlimited, suitable to operate as an estate and wealth planning vehicle.
Unlimited or Limited Company?
There are pros and cons for each when choosing to set up a limited or unlimited company. An unlimited company does not provide the limited liability that many owners seek, however, its main advantage is that it can keep its financial affairs private. A limited company benefits from limiting the personal liability of shareholders, nevertheless, the accounts of a limited company are a public document and will need to be filed at Companies House, which is easily accessible and downloadable by the public. It is important to note that small companies may be eligible for audit exemption if they meet the criteria governed by the Companies Act 2006.
The structure of Family Investment Companies (FICs).
Family Investment Companies offer a different structure in which families can pass wealth on to future generations whilst retaining control over the investments and assets.
Typically, Family Investment Companies will have a mixture of voting shares and non-voting shares, as well as different classes of shares (which allow for different dividends to be distributed to different shareholders). It is important to note that just giving a share a different name is not sufficient to create a different class; the shares must have different entitlements as well. Preference shares and redeemable preference shares are often seen in a Family Investment Company as they provide their holders with a preferential right to income ahead of ordinary shares. The shares will normally only be owned by family members and family trusts. The articles of association and/or a Shareholders Agreement can be tailored to the family’s needs. Articles are publicly available documents held by Companies House, whereas a Shareholders Agreement is a private agreement between the shareholders (and the company). These will contain provisions regulating the relationship between the shareholders and safeguarding the control of the company and the assets. Some other provisions may include; appointment and removal of directors, share rights, transfer of shares, dividend policy, valuation of shares, dispute resolution, and compulsory transfer of shares in certain situations.
This structure allows certain family members to maintain control over the assets, while the FIC is growing wealth, in a tax-efficient manner.
Reasons why you may find a Family Investment Company (FIC) useful.
- Inheritance tax planning;
- Wealth passed to next generation;
- Ability to keep control of wealth whilst allowing the next generation to benefit;
- Capital and assets protection;
- Allows family members to become involved with investment planning, allowing control to be passed steadily over time; and
- Tax efficiency.
Family Investment Companies can be used instead of, or in addition to, typical estate planning vehicles. When deciding if a Family Investment Company is the right option for your family, it is imperative to obtain clear professional guidance and advice as each family is different with its own specific needs, dynamics, and objectives. Professional tax advice is recommended when considering any form of estate planning
Estate planning is forever evolving and developing. Great care should be taken to ensure the success and future-proofing of your family wealth.
Tollers have significant experience working with independent financial advisors, tax specialists and accountants in the creation and implementation of Family Investment Companies (FICs).
If you would like to discuss Family Investment Companies further… Talk to Tollers on 01604 258858 and our knowledgeable and experienced team will guide you through the process in order that you can choose the right vehicle for your needs.