In brief
- Family investment companies (FICs) are often discussed through a tax lens. But for many families, the real attraction is more practical.
- A well-designed FIC can provide clear control over investment decisions, flexibility to adapt as the family evolves, and a sensible way to contain risk, particularly where those “investments include operating businesses rather than a passive portfolio.
What is a FIC?
A FIC is a private company which holds and invests assets. It is typically structured with different classes of shares, allowing a family to separate:
- control (usually through voting shares); from
- economic value (usually through shares with dividend and/or capital rights).
This allows senior family members to retain day-to-day control over investment decisions while gradually sharing the economic growth with children (and, over time, grandchildren), subject to appropriate advice and careful drafting.
Benefit one: a robust decision-making framework
As wealth moves from one generation to the next, governance can become difficult. Multiple family members may be entitled to benefit, but that does not mean every family member should be involved in approving every investment decision.
A FIC can help because it provides a ready-made decision-making framework:
- Voting rights can be kept with a small “stewardship” group so that decisions remain efficient and consistent.
- A board of directors can act as the engine room, making decisions, appointing investment managers, and documenting strategy.
- Documentation can protect “reserved matters” – key decisions such as substantial lending, major acquisitions/disposals, or changes to investment mandates – so that everyone is clear up front which decisions require wider consent.
The result is often a structure that feels more like an organised platform and less like an informal family arrangement that becomes harder to manage as the family grows.
Benefit two: corporate flexibility as the family (and portfolio) changes
Even where a FIC starts with a simple portfolio, it rarely stays that way. Families diversify, liquidity needs change, and one generation’s preferred asset class may not suit the next. A FIC offers flexibility without requiring a complete redesign when circumstances change:
- Different share classes can reflect different objectives (e.g. income-focused rights for some, growth-focused rights for others), within the limits of company law and the constitutional documents (note: jurisdiction choice for a FIC may also be relevant).
- The FIC can act as a single hub for reporting, engagement with investment advisers, and oversight, rather than having multiple individuals or entities hold and manage investments separately.
- It promotes a more professional approach: agreed investment policy, delegated authority levels, and a repeatable approval process for new opportunities.
The “corporate wrapper” is not just packaging. It can be a practical governance tool.
Benefit three: limited liability and sensible ring-fencing (especially for operating businesses)
Where underlying assets include operating businesses, risk and liability are important considerations. Trading brings real-world exposures: employees, customers, suppliers, regulators, leases, contractual disputes, and (potentially) insolvency risk.
A FIC can help manage risk and liability in two key ways:
- Limited liability at shareholder level – a company limited by shares generally limits each shareholder’s exposure to the amount invested (subject to the usual exceptions in the real world: most notably personal guarantees, wrongdoing, and certain insolvency-related rules).
- Ring-fencing through group structure – the FIC sits at the top as a holding company, with operating businesses (or higher-risk projects) held in separate subsidiaries. This way, problems in one business, project, or investment are unlikely to contaminate or jeopardise the wider portfolio (although care is needed where lenders require security, cross-guarantees, or group-wide covenants, among other things).
Used properly, this can be one of the most commercially valuable features of a FIC, particularly for families whose wealth is built on family businesses: it separates risks that might otherwise spill across unrelated family assets.
A final word
FICs can be a helpful tax planning tool: for some of the considerations that may apply from a tax perspective, please see our previous article: The advantages of family investment companies - but beware of getting stung. However, FICs are equally valuable tools from a corporate governance and risk management perspective. For many families, they can help control decision-making, build structures that adapt over time, and contain risks and liabilities.
The utility of a FIC will depend on each family's circumstances and how the structure is implemented in practice. Professional advice is essential to maximise that utility. If you would like to discuss any of the issues discussed in this article, please contact us.