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  • Katherine Bullock

Finding the best fit - The Family Charter and the Family Investment Company

Perhaps spurred on by the potential for significant change in the November Budget, many are currently considering passing on wealth, separating investment from business activity and revisiting their investment strategy. Family investment companies (FICs) can of course be a very attractive solution – alone or combined with a family trust - either as a tax-efficient “wrapper” or as a structure to hold wealth for future generations. I’ve written about some of the tax considerations here but in this post, I’d like to focus on governance.

Good governance is critical to the effective control and management of the FIC, ensuring that it achieves its commercial and tax objectives. A great deal of time is rightly spent structuring share rights and loans, drafting shareholders agreements, shaping the articles of association and making suitable appointments to the Board. Where an FIC fits alongside the business, the family charter can also encompass the investment and tax strategy, perhaps in an Investment Addendum. A family charter is after all not just applicable to the trading affairs of a family business. It can provide structure and guidance around investment and philanthropy too, areas sometimes overlooked but vital to the smooth operation of the family’s total wealth.

"Good governance is critical to the effective control and management of the FIC, ensuring that it achieves its commercial and tax objectives…"

Here is a little of what I’ve learnt from watching the best in action:

Investment strategy It can help to decide ahead of time what kind of investments may be made and what risks ought to be taken. High-risk investments may not be suitable or supported by all whose money is collectively invested. Conversely, investment profile should not be entirely dictated by the least bold family members or the trustees’ comfort levels. A happy medium should be negotiated that ensure that wealth is invested wisely and profitably. This may require education. How often, if at all, will the family be updated with the details of what money goes where and why? It would be interesting to know how many business families were prepared for what has been, to put it mildly, a volatile economic environment.

Charitable ventures Do these align with the family’s values? Will family members find themselves supporting causes they are opposed to? How can ethical and moral values set out in the charter be reflected in the investment policy and what effect, if any, will this have on return? If ethical investing is desirable, it is important to access the expertise to invest, monitor and audit those requirements. While charitable activity can be an excellent training ground, possibly with lower stakes for newer members and next generation talent to cut their teeth, it should be treated seriously and with a suitable level of expertise and professionalism.

Having the best team Who is appointed to manage a family’s investment – whether ancillary to the business or the main event - is an important consideration. Trusts, funds and charities need to be overseen and managed by a healthy mix of family and non-family members to ensure:

  • The selection of appropriate investment managers is balanced by oversight and review so that decisions made previously concerning risk, strategy and tactics are adhered to

  • Clarity upfront about the length for which funds will be invested, the level of risk that may be taken, the priority of tax and in which jurisdiction, the withdrawal of income and/or capital

  • The business is balanced against exposure to other asset classes or geographies. Where land and property are a key component skilled management of tenants, location and type may be required to blend heritage assets with new acquisitions – and yes, tax absolutely is part of that blend.

Family may be familiar with business risk where there is control, but entirely uncomfortable with investments outside their control and the strategy may need to be staged or adapted over time as experience increases. The best team and appropriate checks and balances can provide the right structure for creativity and opportunism to flourish. After all, a stitch in time…


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