As we continue to navigate turbulent economic times, many people are lasering in on their succession planning strategy.
One option that has grown in popularity is the use of a Family Investment Company (FIC). Historically, to consider an FIC, you would need reasonable wealth.
However, over time the sums being invested in FICs have decreased as experience and familiarity with the structure becomes more established.
So, what is an FIC? In simple terms, it is a vehicle for investing family wealth, applying control, and providing opportunities to pass down generational wealth.
Rising corporate tax rates will inevitably negatively impact tax efficiency but it is important to balance both the tax planning aspects and the controls available. Typically, there are different classes of shares in an FIC, with differing rights surrounding voting, dividends, and capital.
The sums invested have decreased as familiarity with the structure becomes more established
Generally, the FIC founder will retain voting rights but hold shares without financial benefit rights. Shares are often given away to the next generation.
Many FICs are established with a loan from the FIC founder, which is repayable to them and their estate. Therefore, in early stages, the assets and liability of the FIC are closely aligned, so shares gifted to family members are of little value.
The intention is for funds loaned into the FIC to be invested, building the value of the company beyond the value of the founding loan. Keeping the structuring as simple as possible is key.
An FIC is not revolutionary and is simply a company, usually registered in Companies House, with the associated transparency. However, for privacy reasons, some may opt for an unlimited company, with the associated risks, thus avoiding easily accessible information being held on Companies House.
What makes the company an FIC is the general ownership of shares among family members and the collective aim of increasing family wealth. The FIC will often invest in financial products, shares, or property depending on the family.
While FIC structure is not complex, the professional advice around the structure and the wider family governance is vital. Arguably, an FIC works best when considered as part of wider family succession strategy.