Keeping It in the Family: How Family Investment Companies Work

Family Investment Companies (FICs) are becoming increasingly popular as a means of holding wealth for the benefit of different beneficiaries.  FICs are seen by some as a useful tool when considering succession and wealth and inheritance planning.

Seen as a useful structure by owner managed business owners who often understand share and corporate structures, but are not so familiar with trusts, we are seeing a number of enquiries from clients who are keen to learn more about them.

The purpose of this note is to provide a general overview of FIC’s and if you would like to learn more, please do not hesitate to contact the corporate commercial team.

What is a Family Investment Company (FIC)?

FICs are typically private companies limited by share capital, they are regulated by the Companies Act 2006 and have a share capital, which is usually split into different classifications enabling shareholders to share in capital and exit events linked to specific assets or investments.

Structuring a FIC

FICs allow for different classes of shares to be distributed to different beneficiaries (usually different family members). This distribution can be in the proportions and with the share rights as the founder sees fit – ie linking a particular share to share in income or capital rights in respect of a particular asset or class of assets. Common amongst FICs is that the founders are allocated a class of shares with voting rights but little to no financial rights and that these shares are used as a mechanism to control the board and governance whilst different share classifications can allow other beneficiaries or family members to share in asset growth and return for specific purposes, such as costs associated with schooling or higher education. .

What assets can be held in a FIC and how do I fund one?

FICs can be funded through share subscription, gifts, directors’ loans and the sale of assets to the FIC.

FICs, can hold any class of asset that an individual or trust could hold; this includes (but is not limited to) property and investment portfolios.

Keeping it in the family and Taxation

It is essential when considering the creation of a FIC that investment advice, tax advice and wills and probate advice are also sought and in particular the value attributable to shares that could be issued from the outset.

As a UK resident company, FICs will be subject to corporation tax, and the dividends paid out by a FIC will be subject to income tax in the usual way..

Calculating the exact amount of tax that can be incurred by a FIC is a complicated process, and specialist tax advice should always be sought.

As FICs are separate legal entities and as such using them to hold assets for the benefit of others can be a useful tool to safeguard assets in bankruptcy or divorce, just as shareholder protections can protect shares in trading private companies from insolvency and family separations.

Please feel free to reach out to our  corporate team. and we would be happy to help.