Taking the Family Investment Company route
In broad terms a FIC operates like a traditional trading company, where the boss retains control of the direction and strategy of the assets. The FIC does however enable multiple classes of shareholdings, each of which can have differing rights attached to them, giving flexibility to distributions to the different shareholders. At present, favourable rates of corporation tax mean that FICs are a very effective means for the rolling up of investment returns particularly given the relatively low costs of operation relative to some trust structures.
Project long term gains in the form of private Open Ended Investment Companies
Another option for long-term wealth planning is a private OEIC, a UK-domiciled unitised fund. These structures tend to be used as a framework for holding predominantly quoted stock market investments i.e. shares, bonds, funds and other market based or pooled instruments. Often assets within the fund are farmed out to discretionary managers and specialist asset managers.
Consequently, the structure enables diversification and relative ease of reporting, as all the investments sit under one reporting line. A key benefit is that the POEIC may be managed and built up without incurring CGT. Another advantage is that management and administration expenses may be deducted from gross income. Only when investors or unit holders dispose of units, and thereby crystallising a gain, will a CGT liability be formed.
Read more business exit related articles:
- If an entrepreneur fails to plan an exit, do they plan to fail
- Thinking of selling Here’s how to make a grand exit
- Lara Morgan: What I learnt from screwing up my first business exit
Maxmise on charitable giving
Successful entrepreneurs often incorporate philanthropy into their lifestyle after selling a business. This commonly takes the form of gifting via direct donations. This can lead to gifts being dictated by timing in order to maximise their tax relief, as opposed to the more important factors such as the end cause, charity fit and values against personal objectives and beliefs.
To maximise tax relief on donations, the timing needs to be suitably managed. By opening a donor advice foundation account (DAF), a donations timing can be better matched with finding the right charities to support. The point at which money enters a DAF is the time when a donation has been made for tax relief purposes, and this approach buys time to find the charity best aligned to an individuals interests and ideals, whilst allowing tax relief to be maximised.
Whilst the framework for setting up the above holding vehicles is a well-trodden path, every situation will have its nuisances, requiring an element of bespoke structuring for those involved, the assets in question and wishes of the entrepreneur. As such, establishing such structures is a lengthy process, requiring input from professional advisers. There are associated costs, and tend to follow a significant time lag before such arrangements become operational and effective. Furthermore, in all instances there will be legal, accounting and other professional fees to consider.
Laying out ones strategy for exiting a business prior to negotiations, not only avoids all the potential pitfalls in managing the proceeds of a business sale, but also gives hard-working entrepreneurs the funds to live the lifestyle they dreamed about – and deserve.
Adam Benskin is director at Strabens Hall.
We also took a look at how?one of the key responsibilities of being a CFO of a private-equity backed company is to guide and lead the business through an exit processto crystallise the value that has been created for the shareholders.