Family companies are used to structure company and asset succession. However, a family company can also be an interesting model for structuring assets independently of a generation change.
A family asset pool or family investment company is a company that holds family assets and in which the members of a family are shareholders. The family investment company can be established as a partnership or corporation. It can limit itself to holding and managing the assets, or it can be commercially active on its own.
Fund structures are used to consolidate and manage the assets of a family and to give members of the family the opportunity to benefit from them across generations. As such, the establishment of a family asset pool can be a good alternative to a family foundation or to a lifetime gift or testamentary transfer.
There may be tax or inheritance reasons in favor of setting up a family investment company. In addition, the family investment company can prevent the assets from being fragmented or smashed if shaped accordingly.
Upon the establishment of a family asset pool, the previous owner transfers their shares in
- Securities/Bonds or
- Real Estate
to the family investment company that holds and manages these assets. The previous owner becomes a shareholder of the family investment company and thus retains control over the contributed assets.
In addition, those family members who are to receive the assets on a long-term basis also become shareholders. To this end, the shares in the family pool are distributed in the form of free allowances. If the assets are transferred over an extended period of several decades, allowances can also be used repeatedly. The income of each shareholder is taxed at the personal tax rate, on which the younger generation often pays even less.
In general, the family investment company is established as a partnership (partnership under civil law, limited partnership or GmbH & Co. KG). However, it is also possible to set up a corporation (GmbH or AG).
When deciding on a legal form, the tax implications are not the only factor involved. The (corporate) legal particularities of the individual legal forms should also be taken into account.
There are many reasons for setting up a family investment company and the framework conditions of the family are varied. Therefore, there is no one right design that fits all family investment companies. However, the following considerations are usually at the center of the structuring:
- Restrictions on termination
Whoever establishes a family asset pool is usually interested in sustaining it on a long-term basis. Therefore, the termination options of the shareholders/family members should often be limited. It should be noted that the right of termination might not be completely prohibited. Termination for a period longer than 30 years may not be excluded.
- Recall rights
Even if the family asset pool is usually permanent (see above), there may be circumstances in which the benefits are to be reclaimed from the family members. Such rights of reclamation may apply in situations such as the following:
- Premature death of the considered partner
- Unfavorable disposition of the participation in the shareholder position
- Asset collapse and imminent insolvency or foreclosure
- Disproportionate distribution of profits
In many cases, it is in the interests of the parents' generation to let their children have a share in the assets while they are still alive. However, the children are not to benefit fully or not yet from the profit or yield of the assets. This can be achieved by a disproportionate distribution of profits, in which the participation in the profit is determined differently from the participation in the company.
The family asset pool can be a good way of structuring assets during your lifetime and transferring them in a controlled manner to the next generation. Our experienced advisors will work with you to develop the optimal structure for your assets. Among other things, we handle
- tax and legal structuring advice,
- advice on the appropriate legal form,
- advice on articles of association and shareholder agreements, and
- the complete accompaniment in the founding process.
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