Introduction
I have been approached to establish and offer assistance to the Client, explore the possibilities of setting up a structure referred to as the Family Office structure, where the Client hopes to be able to understand better the mechanisms involved in the setting up of a Family Office Structure, and also to better understand the benefits of this structure in the light of the Client’s personal comfort level, and objectives for his family and the planning of his estate.
The Use of Special Vehicles
In short, the Family Office structure is usually made up of a formed special purpose vehicle, which will begin as the vehicle for the assets to vest in, collectively. The structure is that usually of a Company incorporated under the Companies Act (Cap. 50). Other structures may also be used like an LLP (Limited Liability Partnership), or an LLC (Limited Liability Corporation). One of the main reasons why a private limited company is usually used, is that it is a familiar type of vehicle which the Client is usually comfortable using, considering the need to understand how to maintain and manage the vehicle year on year and how ownership issues can continue through time, and eventually evolve as the family grows and evolves through time.
It is also common to use existing vehicles, like existing companies already formed and existing for some time.
It is also possible to form a Trust as well, which is managed by a Board of Trustees, and certain powers delegated to a group of people from the family who make management decisions. These are usually common in the above S$100,000,000.00 (SGD One hundred million) type situations.
Most of the time, families can use hybrid type structures because of the asset type and nature of holding of the assets. (eg. If assets are shares in a company, thought must be given as to how best to hold these shares under the Family Office Structure. Cash, and physical items such as Gold and Silver, are easier to hold under the entity/special purpose vehicle).
Accounting
Accounting is an important consideration in the Family Office Structure as well. Just like in any company or business, accounts have to be maintained to account for cash flow, expenses, and also balance sheet items. In a Family Office Structure this is no different, the only difference is the objective or management in finalizing its accounts. The Management of the Family Office will need to take into account the mandate of the Client and his/her wishes in determining how best to manage cashflow issues and also balance sheet items, and these are common discussion topics at the Annual General Meetings of the Family Office set up.
The Accounting treatment is also a particular feature in a Family Office set up because, the more efficient and knowledgeable the family is to accounts, the deeper the appreciation for the skills required for a well run Family Office.
Investment Platforms
In Family Offices, there is much talk and discussion surrounding asset holding by the special purpose vehicle. Due to this focus, the usage of investment platforms becomes relevant in understanding how Family Offices work as well. It is therefore very common for the Family Office to have an established portfolio management relationship with a Fund Manager.
This brings in the role of the Fund Manager who allows his platform to be used to manage the assets/investments under portfolio, for and on behalf of the Family Office.
I make reference now to the attached article by Nech Capital 1 that offers a deeper insight to how the Fund Manager looks at Family Offices. There are numerous suggestions made in that article on the entity used in Family Offices, and each offers a possibility which will have to be explored by the Client.
Some references are also made to certain costs and expenses usually associated with certain types of set ups, but those are given only to provide you with a sense of what industry norms are. What we would like to do is to first try and understand the Client’s needs, objectives, and what we refer to as the mandate (the Mandate”). As discussed earlier in our meetings with you, we would like to give you access to the information and methodology for your benefit, and our first aim is really to try and see if the Project can be set up constructively to achieve your objectives with the cost-benefit consideration fully explored.
Business as per Normal
One important point to note is that normal business activities can still continue under a Family Office structure. This is important to understand because many people think that once they vest their assets under a structure, they somehow lose control. This is not really the case. There is a need to understand the structure and how it works, but once you do that, it is “Business as per Normal”.
So, for example, if you were wanting to acquire shares of a target company because you have been invited to partake in a venture, the acquisition or allocation could happen under the Family Office structure. The same could happen if you were invited to take over or be part of a business. You could acquire it through a company, which is then wholly owned by the Family Office for example.
The framework merely provides the Client the ownership structure such that it lasts beyond that person’s life, and another person’s life. It transcends through time and could technically last forever. That’s the point of the structure and one of the many objectives the Client could adopt.
Concluding Thoughts
Once the Family Office framework is clear in the mind, we can start to plan the activities and assets that will go into the structure. It is like a bag of sorts, where you elect what you want to put inside. I think the challenge is to decide how much to put in, to achieve maximum cost benefits and most efficient results, whilst having the comfort of knowing that your objective are met constantly, with the right amount of flexibility while you are still active on earth. One of the more exciting areas that will begin to emerge, is that once you wrap your head around the concept and framework, you will begin to realise that you can still conduct normal business activities (eg. Starting a new business venture, or acquiring more investments and acquiring new companies) and continue to seek out new opportunities but under the new Family Office framework. Once you begin to realise that this is completely possible, the world is your oyster and we should begin. I truly hope that the above article gives you a better understanding to the subject matter of a Family Office Structures, we will continue our discussions and I will reveal more details as we go along. I look forward to our next planning meeting.
