A family investment company can help relatives consolidate wealth and plan for the future. Funding the company also removes money from the family’s estates, potentially reducing tax liability and inheritance issues later.
What Is a Family Investment Company?
A family investment company, sometimes also called a private investment company, is a business structure owned and controlled by family members. In the United States, the family can choose to form a corporation or a limited partnership, among other options. In some other countries, the family investment company (FIC) is a legally recognized entity. Whichever structure the family chooses, the company is set up in a similar way.
Usually, the parents or family heads own controlling shares or have managing control of the company. For example, each parent could own 25 percent of corporation shares. The parents’ shares entitle them to choose directors and vote at meetings, but they cannot receive dividends or other disbursements from the company. Children could own the other 50 percent of shares. Unlike the parents’ share type, the children’s shares entitle them to dividends and returns from the company, but they cannot choose directors.
As a result, the parents manage and control the company’s operations, while the children receive the benefits. Any money or property that the family gives to the company can be invested and managed for the benefit of children and future generations.
What Are the Benefits of Starting a Family Investment Company?
Because the family’s wealth is held by a company, corporation, or partnership, family members may have reduced the values of their taxable states, as well as the size of their probate estates. Depending on the ownership structure, the family could pay lower taxes or avoid going to probate court to distribute estates.
Further, children can receive wealth from their parents smoothly and without having to manage assets themselves. The company can keep operating even if parents pass away, with management rights passing to children gradually or passing to a professional manager.
Keep in mind that the benefits of a family investment company depend on its structure and on how people contribute assets to it. If you would like to set up a corporation or limited partnership, or if you already have one in place, talk to an experienced lawyer near you for help with your future planning.
Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.