Family Investment Companies

The Myerson team provided initial advice in relation to the legal structure of an intended FIC including the consideration of the use of trusts as part of the structure. This involved reviewing existing trust arrangements to consider if it would be appropriate to use the existing trusts or to set up new ones.

Once the structure was settled upon the Corporate Team incorporated the FIC vehicle and the Private Client Team created a bare trust for the benefit of the FIC to transfer value into the FIC. Value was transferred to the FIC through a facility agreement entered between the founder and the FIC.

The FIC was re-registered as an unlimited company and bespoke articles of association were prepared to govern day-to-day management as well as creating different share classes and allotting shares to various family members to benefit from the investments and assets held in the FIC.

Following the sale of a business the Myerson Team assisted in the establishment of a FIC to provide a corporate vehicle for the business sale proceeds to be invested in for the benefit of future generations.

Detailed corporate governance provisions were considered to ensure maximum protection was afforded to the FIC assets including an assessment of the effect of divorce of any shareholders.

A facility agreement was entered into to between the founder and the FIC to introduce funds in excess of £10 million into the FIC and provide the founder with a potential source of future income through the payment of interest on the loaned funds.

Family members were allotted shares of different classes to give the FIC flexibility in providing a benefit to the different family members.

The Myerson Corporate and Private Client teams assisted in initial discussions regarding the structure of the intended FIC through to the proposed implementation, working alongside tax advisors.

The proposed structure involved transferring interests held in multiple property investment companies to the FIC. This was intended to create a group structure with the FIC as the ultimate holding company. Our Corporate Team prepared the constitutional documents for the FIC .

Alphabet shares were to be allotted to different family members, allowing control of the FIC to remain with the founders, whilst reserving the benefit of future growth to the family. Our Private Client Team also prepared several discretionary trusts for the benefit of the descendants of the founders.

Client Intro

Our client is a family investment company managing a portfolio of private loans as part of a wider wealth and succession planning strategy.

Case Overview
We advised on the restructuring of a complex loan portfolio originally held by an individual and subsequently transferred into a family investment company. The portfolio included both secured and unsecured loans to third parties, each requiring amendments to enable assignment and alignment with the new ownership structure.

Our work involved preparing deeds of amendment and restatement, facilitating the assignment of loans into the company, and structuring new intra-family lending arrangements. As part of a broader succession planning exercise, interests in the loans were then gifted to the next generation.

We also drafted intercreditor arrangements to regulate the relationship between family members as lenders, including provisions governing repayment rights and dispute resolution. The project required close coordination between banking, corporate and private client disciplines to ensure the structure was legally robust and aligned with the client’s long-term objectives.

“This was a highly structured exercise combining lending, succession planning and family governance. Our role was to simplify the legal framework while preserving the commercial and personal objectives behind it.” - Chris Moss, Partner

The structure of the FIC will vary depending on your circumstances (i.e. family and existing assets).

However, there are some common elements, including:

• We regularly use trusts to hold the shares on behalf of the children/grandchildren, which will not accumulate any wealth themselves but are used as a tax-efficient way of passing the wealth on to the family members whilst retaining control.
• Limited or Unlimited? Whether the FIC is set up using a private company with limited share capital or a private company with unlimited share capital. The main difference is that unlimited companies are not required to file accounts at Companies House (retaining some of the privacy of the family’s wealth). However, unlimited companies do not have the benefit of giving the shareholders limited liability, which may be an issue if the FIC invests in trading businesses or the disposal of assets in the future.
• Introduction of Assets. Usually, the founder of the FIC will either gift or loan assets to the FIC, but this will depend on the nature of those assets and whether there are any tax consequences on transfer. We have seen cash, property, equity securities (i.e. shares), artwork and even classic cars being held by FICs.
• Different classes of shares will be issued to the founders and their children/grandchildren. This ensures that the value arising from the growth of the assets held in the FIC are passed to the children and not retained by the founders (therefore minimising exposure to inheritance tax). The different classes also create flexibility on the distribution of income and assets. It is, therefore, vital that the FIC has a detailed shareholders agreement and/or articles of association to provide for this flexibility and control. Such documentation will also ensure that the only shareholders of the FIC are the intended family members.

If you are considering using an FIC, there are several initial steps that you need to think about, such as how much you are going to invest in the FIC, what assets the FIC will invest in, and whether these are existing assets or new assets.

Whilst we can advise you in relation to the legal structure of the FIC and drafting the relevant documents, it is essential that you also seek advice from your accountant or tax advisor and your financial advisor.

If you don’t have such advisors, we would be happy to make the necessary introductions.

An OEIC is an Open Ended Investment Company and an AUT is an Authorised Unit Trust. Each of these are ‘regulated’ investment fund structures, and have to be managed by FCA-authorised entities. They have different rules and different limits around borrowings and related matters. An OEIC is a corporate body and has independent legal identity. An AUT is a type of unit trust constituted by a trust deed but does not have separate legal personality and acts through its (regulated) trustee or its delegates. The trustee of the AUT holds the legal title to the AUT assets for the benefit of its beneficiaries who are the investors.

OEICs and AUTs are ‘open ended’ funds. This means that they have variable capital, with no fixed number of shares or units in issue. New shares/units in the fund are created in accordance with investor demand and any shareholder/unitholder has the right to sell their shares/units back to the fund at a price determined by reference to the value of the fund’s underlying portfolio.

A FIC is simply a name given to a private company which is set up for a family to hold their investments. The FIC will be registered at Companies House. The process of incorporation of a FIC is the same as for any private company and it is relatively quick and straightforward process. Usually, a FIC is incorporated as a private limited company, which ensures limited liability for its shareholders. An unlimited company can also be used for the FIC (in which case accounts do not have to be filed at Companies House, giving greater privacy regarding the assets of the investors, but also exposing them to risk from the corporate body should it fail).

There are detailed regulatory (and tax) matters to consider if choosing between an FCA regulated and a non fca- regulated structure and between the 3 different structures (and others are possible). It is always vital to obtain good tax and legal advice in detail but focussing on your personal needs (and those of your family) when considering which vehicle to use.

 Yes, most FICS invest in property as part of their investment portfolio.

A FIC can be set up with a property (or multiple properties) transferred to it by the founder of the FIC, with the purchase price for the property left outstanding as a loan owed by the FIC to the senior family member.

Alternatively, the senior family member may provide a loan to the FIC to enable the FIC to purchase property. FICs also often invest in listed securities.

There are unlikely to be any major disadvantages so long as a FIC is suitable for the founder.

A FIC is often only suitable if the founder has excess cash as the founder will not share in the future capital growth of a FIC.

As such, the suitability of a FIC should be carefully considered, in particular from a tax perspective which is likely to be the main driver of the adoption of a FIC structure.