FICs are companies limited by shares (an “Ltd” or “Limited”) and often established by parents and/or grandparents (“Founders”) to benefit themselves and their family, as shareholders. The popularity of FICs has increased over recent years, and they are viewed as a corporate alternative to the more common discretionary trust.
An FIC owns assets such as property, which generate income and capital gains, which can be distributed to the family shareholders over time.
Assets generally come from the Founders themselves, either through a loan or a direct transfer into the FIC. Each shareholder owns a different class of shares (often referred to as “alphabet shares”), gifted to them by the Founders.
Generally, the Founders’ shares will have the usual rights to vote and receive dividends but not capital, whereas the gifted shares will only have the rights to receive dividends and capital, but not to vote.
This ensures that the Founders have the sole right to make decisions regarding the FIC, at both shareholder and board level, including decisions relating to dividend payments.
What are the Benefits of Establishing an FIC?
FICs allow individuals to transfer assets from their personal estates into a corporate structure, where they—acting as the sole voting shareholders (Founders)—retain control over those assets, including decisions about the board’s composition. This setup enables them to generate a controlled and ongoing source of income for themselves and their family over time.
If the Founders lend money to the FIC, the loan can be gradually repaid using the FIC’s post-tax profits, alongside any dividends distributed from its earnings. This arrangement can offer the Founders a continuous stream of income.
Alternatively, if the loan’s capital is no longer required, the Founders may choose to gift its value to other family members. This would remove the loan’s value from their taxable estate for Inheritance Tax purposes, provided they survive for seven years following the date of the gift.
There are a number of potential tax advantages when using FICs, including Inheritance Tax, but these will vary depending on the size of the investments/loans, the assets held by the FIC, and the personal circumstances of the Founders. It is therefore very important to speak with a tax specialist from the outset, who can provide guidance on the tax merits of an FIC, tailored to the specific circumstances and objectives of each prospective Founder. .
Limited companies also offer the great advantage of flexibility. This is ideal for FICs where family structures, objectives and other considerations, are changing regularly. Examples of such flexibility, include shares being transferred, new shares being issued with different rights, and changes to the composition of the board of directors. All of which can be decided by the Founders.
How are FICs Set Up and Managed?
FICs need bespoke articles of association and a shareholders’ agreement, before any assets are put into the FIC and before any “alphabet shares” are transferred to family members.
These documents will detail how the FIC will be run, how dividends will be declared, when meetings are to be held, the rights of the shareholders, including voting rights, and rights on the issue, and transfer of shares.
The operation of the FIC extending from its day to day activities to amending its constitution, will remain at the absolute discretion and control of the Founders.
Additional Information
To find out how an FIC might be of benefit to you, and for assistance in establishing an FIC appropriate to meet your needs, please contact Paul Webb at: hello@dixcartuk.com.
