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Family Investment Companies And How They Work

Family Investment Companies are a tax-efficient way to retain control over assets and pass them to the next generation. It is worth considering them as part of a strategy for inheritance, succession and wealth planning. 

Trusts are often the natural choice. However, the law around them can be complex and they are not always tax efficient. Most business people will be familiar with the concept of a limited liability company and how it operates – this is one of the main attractions of a family investment company. A further attraction is the degree of flexibility they provide, they can be fine-tuned to a family’s particular circumstances or requirements. 

How Does It Work?

The parents form a company limited by shares. They own one (A) share each. Each (A) shareholder has the right to appoint one director, and the right to vote at general meetings, but they have no entitlement to dividends or any return of capital. The children have one (B) share each. These (B) shares have no voting or other ‘control’ rights but full entitlement to any dividends or return on capital, which must be approved by the parents.

The parents typically fund the company by way of loan. The company (under the control of the parents) acquires assets – anything from property, cars, art, trading companies etc. which generate a return. Income is either re-invested within the company, or is used to repay the parents’ loan. Any underlying capital value grows in the children’s name.

Why Might You Consider a Family Investment Company?

  • FICs are tax efficient compared with a trust, especially for longer term investments.
  • The company structure is familiar to many people who want to protect and shelter wealth.
  • They allow a measure of flexibility to ensure there is appropriate control, protection and availability of funds.
  • The flexible structure may protect assets in the event of divorce or against creditors.

Setting up a company limited by shares can be achieved quickly and inexpensively. Reach out to us at info@realestatefundingsolutions.com or give us a call at 1-855-91-FUNDS and let our experienced staff get you started today!

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