Definition of a Family Investment Company (FIC)
FICs are companies limited by shares (an "Ltd" or "Limited") and often established by parents and/or grandparents ("Founders") to benefit themselves and their family, as shareholders. The popularity of FICs has increased over recent years, and they are viewed as a corporate alternative to the more common discretionary trust.
An FIC owns assets such as property, which generate income and capital gains, which can be distributed to the family shareholders over time.
Assets generally come from the Founders themselves, either through a loan or a direct transfer into the FIC. Each shareholder owns a different class of shares (often referred to as "alphabet shares"), gifted to them by the Founders.
Generally, the Founders' shares will have the usual rights to vote and receive dividends but not capital, whereas the gifted shares will only have the rights to receive dividends and capital but not to vote.
This ensures that the Founders have the sole right to make decisions, regarding the FIC, at both shareholder and board level, including decisions relating to dividend payments.
What are the Benefits of Establishing an FIC?
FICs can be used to move assets from individuals' personal estates into a corporate vehicle, which can then be used, to control those assets by those individuals (Founders), being the only shareholders with the power to vote and to decide the composition of the board. This allows them to provide a controlled source of income for both themselves and their family over a period of time.
If the Founders loan funds to the FIC, the loan can be repaid over time from the FIC's post tax profits in addition to any profit paid out by way of dividends. This can provide the Founders with an ongoing source of income.
Alternatively, if the capital value of the loan is no longer needed, the Founders could gift the value of the loan to other family members. This would move the value of that loan out of their taxable estate, for Inheritance Tax purposes, subject to them surviving the date of the 'gift' by seven years.
There are a number potential tax advantages when using FICs, including Inheritance Tax, but these will vary depending on; the size of the investments/loans, the assets held by the FIC and the personal circumstances of the Founders.
It is therefore very important to speak with a tax specialist at the very start, who can help advise on the tax merits of an FIC, taking into account each potential Founder's circumstances and objectives.
Limited companies also offer the great advantage of flexibility. This is ideal for FICs where family structures, objectives and other considerations, are changing regularly. Examples of such flexibility, include: shares being transferred, new shares being issued with different rights, and changes to the composition of the board of directors. All of which can be decided by the Founders.
How are FICs Set Up and Managed?
FICs need bespoke articles of association and a shareholders' agreement, before any assets are put into the FIC and before any "alphabet shares" are transferred to family members.
These documents will detail; how the FIC will be run, how dividends will be declared, when meetings are to be held, the rights of the shareholders, including voting rights, and rights on the issue and transfer of shares.
The operation of the FIC extending from its day to day activities to amending its constitution, will remain at the absolute discretion and control of the Founders.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
