Legal entity considerations for family offices
Family offices around the world are generally structured as traditional corporations and their equivalents or as Limited Liability Companies (LLCs) and their equivalents. In the United States, family office corporations are either structured as Subchapter C or Subchapter S corporations. Family offices can also be structured as proprietorships or partnerships but this generally isn’t advised as these entities do not protect family member assets with respect to personal liability.
Tax regulations and new laws governing securities exchange and investment advisory services have evolved significantly over the past couple of decades. In many cases, these regulatory changes have rendered many established family office structures inefficient or obsolete.
When determining the appropriate family office structure, one must consider both the planned and future services to be provided, the size of AUM and applicable government regulation in a particular jurisdiction. Optimal, best-in-class structures take into account specific regulatory, liability and asset preservation considerations and therefore often include multiple legal structures. This is to ensure optimal tax efficiencies whilst ensuring compliance and good governance. Common legal entities that are formed include the central family office operation itself as well as related entities like ancillary family offices (secondary family offices set up in other jurisdictions), real estate property management companies, captive insurance companies, registered investment advisors, private trust companies and family holding companies. Family holding companies, set up as family limited liability companies are particularly effective in centralizing asset ownership, protecting personal assets, estate planning and tax planning.