Family Investment Companies (FICs) are increasingly seen as an attractive investment vehicle for family wealth, with many families choosing to hold their income-producing investments via a UK company.
FICs offer an alternative to trusts as they enable significant wealth to be passed on to future generations, while both protecting and retaining control over the assets.
What is a FIC?
An FIC is normally established as a private limited company (or an unlimited company in the event that complete privacy is required) with family members as its only shareholders. Typically, the FIC is set up by an investor who will subscribe for shares. The investor then transfers some or all of those shares to their family members. The FIC facilitates the accumulation of income and gains over a period of time allowing for succession planning within a tax efficient structure.
An FIC can be incorporated quickly and inexpensively in the same way as any company.
What is important is that the FIC’s articles of association and/or shareholders’ agreement is carefully tailored accordingly. These documents will define and regulate how specific family members will benefit in their capacities as shareholders with regards to dividends and capital distributions. For example, it is commonplace to issue different classes of shares to enable flexibility around the payment of dividends. It is also possible to create redeemable preference shares to enable further flexibility around the extraction of capital. Given the very nature of an FIC, both documents are tailored to suit a family’s specific needs and concerns.
Control and protection
With the older generation usually wanting to keep full or significant control of the FIC, it is important that the company’s articles of association and/or shareholders’ agreement contain the necessary restrictions, such as regarding the transferability of shares and the voting rights that attach to a class of shares.
Some measure of asset protection can also be provided through compulsory transfer provisions, which deal with circumstances in which family members have to transfer their shares. These are likely to include events such as the bankruptcy of a shareholder or a divorce.
This vehicle can be extremely tax-efficient where an individual transfers significant sums of cash into the FIC which then generates income for the family. FICs are most efficient when used as a mechanism for long term investment.
However, it is important that tax advice is sought as early as possible when considering setting up an FIC as this will have an impact upon the structure of the FIC.
How can we help?
There is no ‘one size fits all’ approach to planning an FIC. We can advise on company formation, the bespoke structure of the company’s constitutional documents and work closely with your tax advisors to ensure that tax benefits are maximised.