Setting up a family Investment company
In essence, a family investment company is the same as any other limited company for tax purposes following its incorporation. The difference is in the inception, how it is set up in the first place.
Normally you could get your accountant to set up a limited company for around £500 pounds, and you could do it even cheaper if you did it yourself. This type of limited companies all use standard articles of association and so no legal work needs to be done. The articles are the rulebook of how the company operates.
When you set up a family investment company, you set different rules, and those different rules allow you to do things in a way that benefits your family.
Beneficial rules of a family investment company
One of the major advantages that a family investment company allows for is to set up an entrenched directorship. Entrenched directorship rules provide that irrelevant of who owns the capital shares of the company, you can remain as a director of the company for as long as you live.
If you're a director, then you can control the assets in the company and more importantly, you can control the dividends that come out of that company from its profits (which allows you to pay yourself an income out of those profits, even if you don't own any capital shares)
The other major benefit is that alphabet shares can be set up. The parents (founders) would normally have A & B capital shares. Both they and their children have A, B, C, D and E, income shares. And therefore, you can allocate a different level of dividends to each child.
The children often also have growth shares which means the increasing value of the company is outside of the parent’s estate for Inheritance tax.
One of the other rules would be that only the people founding the company (e.g., husband and wife), their children, their grandchildren and their bloodline are the only people who are allowed to own shares.
Any spouses of children and grandchildren are not allowed, under the rules of the company, to own shares. Such structure has significant benefits in terms of asset protection in the event of a divorce of the children or grandchildren.