Family Investment Companies

Family investment companies (FICs) are private companies can be used in Jersey as an alternative to trusts and foundations to allow families to pool and invest their wealth. This wealth often consists of a family run business but any type of wealth could be held in a FIC. The FIC normally has bespoke governance terms drafted to suit the requirements of that family in relation to issues such as transfer of wealth down the generations and control of the assets.

The popularity of FICs has increased in recent years. This is particularly the case where individuals would incur a tax charge when transferring assets into a trust but do not wish to give outright immediate control of family wealth to the next generation by just gifting the assets.

Families transfer wealth into a FIC, normally in return for shares. There can also be subsequent share issues if further assets are transferred by the family after incorporation. Funding could also be provided by loans from family members. Once assets have been transferred then growth or income generated on those assets would be retained in the FIC. This growth or income generation can be used to pay distributions or dividends to the shareholders or make debt repayments if funding has been by way of loan. The options for funding and withdrawing funds from a FIC would be the same as for any other company and can be tailored through bespoke drafting in the articles (subject to the requirements of Jersey companies’ laws.)

A major reason for using a FIC can be to allow family wealth to be pooled in one entity but different financial and voting interests held by family members, particularly across generations. FICs commonly have multiple classes of shares, each of which creates specific voting and economic rights. This allows, for example, the right to income and capital and the right to vote to be separated. This could be used so that the next generation can benefit financially from income and future growth in the family wealth, whilst the older generation, who may have less need for that income, can continue to maintain control over how the wealth is invested or family businesses run. Control could then pass to younger generations perhaps at certain ages or upon the death of the parent. Control could of course still be held in line with shareholdings if that is the wish of the family and there is no requirement to split control from rights to income and capital. The rights attached to the various classes of shares would normally be set out in the articles and memorandum of association for the FIC, both of which are public documents and registered at the Jersey Companies Registry.

The use of a FIC to own a family business may be preferred over family members owning a family business directly. There can be more control and/or flexibility over the long term continuance of the business, for example on the death of a shareholder, so preventing there being conflict or the risk of a family business having to be split and sold.

Another feature of FICs is that they often have governance structures, such as family councils, in addition to the board of directors. A family council could potentially allow the younger generation to gain experience and awareness of the management of family wealth without the power and responsibility of being a director. This involvement could be graduated over time. The use of family councils does need to be monitored carefully to ensure that shadow directors or control issues are not created.

Even if the FIC is incorporated in Jersey then it may be managed and controlled in another jurisdiction in line with the family’s requirements, subject to regulatory, substance and tax implications. The directors of a FIC will always need to be aware of where the FIC is being managed and controlled as this can be very important, particularly for tax residence and substance requirements. The residence and location of the directors is an important consideration, alongside where decisions are made, and may be a reason to use professional individuals or corporate administrators in Jersey as directors. The directors would also need to be aware and take into account the substance requirements that apply in Jersey in accordance with international tax commitments.

Private companies in Jersey do not have to file public accounts although certain information about persons with control is available on a public register. Whilst Jersey maintains a central register of beneficial ownership this is not currently able to be viewed by the public (although is available to appropriate authorities and to financial services businesses for the purposes of fulfilling their customer due diligence obligations under anti-money laundering legislation).

There may be tax benefits for some families in using a FIC rather than a trust or foundation. For example, there may be a UK tax charge when assets are settled into trust. This may not apply to assets being transferred into companies. Jersey is a tax neutral jurisdiction. It does not have capital gains or inheritance tax. Shares in Jersey companies are not UK situs assets.

Most private Jersey companies are subject to 0% corporation tax (although there are some exceptions, including certain property income, financial service companies and utility companies). The taxation of FICs, trusts and foundations depends on the circumstances of the family and specific advice would need to be taken.

Jersey is the jurisdiction of choice for incorporation of a FIC. Jersey has been a leading international finance centre for more than 60 years and has real substance and more than 14,000 professionals working in the finance industry on the Island. Jersey is known for the high level of expertise and qualifications of its industry professionals. The law governing companies in Jersey is modern and flexible allowing the FIC to be tailored to the needs of the family whilst still maintaining its legal integrity. As a forward-thinking jurisdiction, Jersey continues to adhere to the highest regulatory standards. This is reflected in the many endorsements received from authorities such as the Organisation for Economic Cooperation and Development (OECD), the International Monetary Fund (IMF) and MONEYVAL (the Council of Europe’s monitoring body for anti-money laundering). Jersey has an internationally respected independent court and legal system. Many of the world’s leading financial institutions, accountants, banks and “magic circle” offshore law firms have a substantial presence in the Island.