How to set up a family investment company

Setting up a family investment company (FIC) is not difficult, in the sense that incorporating a company takes little time. The difficulty is in the decisions that come before it, because once shares are issued and money is in, changing the structure can be slow and costly. This guide sets out the steps and where the care is needed.

It is general information, and a FIC should only be set up on advice for your own circumstances.

1. Be clear about what the family wants

The structure follows from the objectives, so the first step is a conversation, not a form. Typical questions:

• What are you trying to achieve: reducing inheritance tax, passing on growth, keeping control, creating family governance, or all of these?
• Who are the founders, and who will receive shares?
• How much money is involved, and how much do the founders need to keep accessible?
• What are the family's existing assets and structures, including any trusts?
• How long is the investment horizon, and how healthy are the founders?

2. Design the share structure

The company's shares are what the family owns, so their rights are the heart of the design. Typical choices:

• Voting rights. Which shares carry votes, so the founders keep control whatever the economic ownership.
• Classes of shares. Different classes can have different rights to dividends and to capital, which gives flexibility. Classes created to direct income to particular family members must be designed with the settlements rules in mind.
• Who holds what. Whether each family member holds directly, or a trust holds shares for some of them.
• Growth shares. Classes that share in future growth but not in the existing value, which can be useful where the company already holds assets.
• What founders keep. Voting rights and, usually, the loan, but not rights to the income or capital of the shares given away, so that the gift is a gift.

3. Choose limited or unlimited

Most FICs are companies limited by shares, where members' liability is limited to what they have agreed to pay for their shares. An unlimited company has no such limit. The attraction is that an unlimited company is, in many cases, not required to file its accounts at Companies House, which can mean more privacy. The cost is exposure to the company's debts without limit, a paper incorporation, and the need to understand the consequences for every member. It is a deliberate choice, not a default.

4. Decide how to fund it

• Cash. The simplest and most common: the founders subscribe for shares and, usually, lend the company most of the money.
• A loan. A loan from the founders can be repaid to them over time, which is how many founders take money back without a dividend.
• Existing assets. Moving investments or property in can trigger capital gains tax and stamp taxes, so it should be considered carefully and often avoided. Homes and assets used personally, such as art, yachts or aircraft, usually belong outside the company.

5. Agree the Articles and the shareholders' agreement

Two documents set the rules:

• The Articles of Association are the company's constitution and are public. They set out the share classes, voting rights and how the directors act.
• The shareholders' agreement is private, and sets out the family's rules: how dividends are decided, what happens when someone wants to sell, die, divorce or fall out, how disputes are resolved and how control passes on.

The rights in these documents and the tax planning need to fit together, and how they are prepared is something we discuss on a call. Sensitive matters belong in the shareholders' agreement rather than the Articles, because only the Articles are on the public record.

6. Incorporate the company

Incorporating means registering with Companies House with the company's name, registered office, directors, shareholders and share capital. Directors and people with significant control, which includes anyone holding more than 25% of the shares or votes, must verify their identity with Companies House first. The people on the register can be seen by the public, which families should consider in choosing who holds what.

7. Complete the set-up

After incorporation, the company needs:

• Share allotments and certificates, with the statutory registers kept up to date;
• Board minutes and shareholder resolutions adopting the decisions made;
• Registration for corporation tax with HMRC;
• A bank account and, where the company will use one, an investment account;
• An investment policy, which sets out what the company will invest in, and who decides. Advice on investments themselves comes from someone authorised to give it.

8. Hand over and keep going

The first year sets the pattern: a note of the company's filing and tax obligations and key dates, advice on dividends and on repaying the founders' loans, and a review soon after incorporation. Then there are annual accounts, a corporation tax return, a confirmation statement and regular reviews. See running a FIC.

What to bring to the first meeting

• A summary of the family's assets and any existing companies or trusts;
• the ages, circumstances and wishes of the proposed founders and shareholders;
• an idea of the amount to be put into the company, and how much needs to remain accessible;
• and your current wills, if you have them, and any existing advice.

How we help

Our family investment company service covers the design, the set-up and the handover, with an agreed fee for each stage. We advise on the structure and the UK tax consequences, prepare and file the incorporation and the first resolutions, and advise on the share rights and governance that the Articles and shareholders' agreement need to reflect. We do not give investment advice.