Family Investment Companies (FIC) are often established with long-term intentions: to keep control within the family, to grow assets over time, and to pass value to the next generation. Unlike a trust, FIC operates within a clear corporate structure, giving certainty around ownership and control.
This note focuses on the top ten tips on setting up a FIC – specifically, how control is exercised, how value moves between family members, and how decisions are made. Getting these foundations right at the outset can help avoid misunderstandings and costly disputes.
1. Set up separate share classes and control.
FICs commonly use different share classes (e.g. voting vs non-voting) to allow parents to retain voting control while shifting the value to the next generation. Careful drafting is required to ensure rights are clearly defined and that changes to class rights cannot be made without appropriate protections.
2. Articles of Association and shareholder agreement
Model Articles are rarely sufficient for FICs. Bespoke articles are needed to regulate voting rights, dividend entitlements, share transfers, and what happens on death or incapacity.
A well-drafted shareholder agreement complements the company’s Articles of Association by governing matters such as share transfer, voting rights, dispute resolution, and dividend policy.
3. Ensure directors understand their duties
Directors (often parents) must act in the best interests of the company, not individual family members – which can be challenging where there are conflicting interests within family members.
Therefore, it is important that directors understand their duties and how decisions may affect different family members. Failure to do so can expose directors to personal liability and allow minority shareholders to seek remedies, including unfair prejudice claims.
4. Transfer Restrictions
Articles can be drafted to restrict the transfer of shares so that ownership remains within the family. Such provisions may be triggered by events such as divorce, bankruptcy or death and typically require the affected shareholder (or their personal representatives) to first offer the shares to the remaining family shareholders, or to the company itself, before any transfer to a third party can occur. These restrictions preserve continuity of ownership and prevent unwanted third parties from acquiring ownership in the FIC.
5. Minor Shareholders
If children are shareholders, additional thought must be given to capacity, trusteeship, and how voting rights are exercised on their behalf. Where minors cannot legally hold or exercise rights, shares may need to be held by trustees or a nominee, and distributions may be subject to oversight.
6. Dividends
Dividends must be declared in accordance with company law requirements (i.e., out of distributable profits) and in line with the rights attached to each share class. Informal family arrangements about “who should get what” are not sufficient and will not override the company’s Articles. If dividends are not made lawfully, there is a risk they will be treated as unlawful distributions, which may be repayable by shareholders and give rise to personal liability for directors.
7. Decision-Making & Reserved Matters
Certain decisions (e.g. winding up, investments, issuing shares) should be reserved to specific shareholders or require enhanced voting thresholds. Reserved matters may require the consent from certain shareholders (e.g., parents) or enhanced voting thresholds (e.g., 75% or unanimous approval), preventing minority shareholders from making major decisions without broad family consensus.
8. Deadlock
Deadlock can arise at either board or shareholder level where neither side has sufficient voting power to push through a decision. To avoid deadlock, FIC constitutional documents should include provisions around weighted voting for certain shareholders, chair casting votes, or reserved matters that require specific consents. Planning for deadlock at the outset avoids the cost and delays associated with court applications.
9. Corporate Governance & Records
Despite being a “family” vehicle, the company must comply with Companies Act requirements: filings, registers, board minutes, and confirmation statements. Observing these compliance requirements supports the integrity of the FIC structure for legal, tax and succession planning.
10. Periodic review
FICs are long-term vehicles and the family circumstances, tax rules and investment objectives will evolve over time. Therefore, periodic review of the FIC ensures that the structure remains aligned with the family’s objectives and that the constitutional documents reflect such objectives.
At Branch Austin McCormick, we help a range of businesses with their corporate and commercial needs, including family investment companies. If your business needs strategic legal advice on transactions, governance, investment, or digital risk, our corporate team is here to help.
Contact Carmen Yong on cy@branchaustinmccormick.com.