Understanding the Challenge
Families often face the strategic question: how should the holding company be structured to balance succession planning, fairness among shareholders, and sustainable governance?
The core ambition is to create a mechanism that allows capital to be pooled while ensuring equitable participation by family members. Above all, families aim to engage the next generation, empowering them to drive the enterprise forward and grow the family’s collective capital.
Strategic Response: The Isle of Man Exempt Scheme
An increasing number of families are developing a formal Ownership Strategy: a governance blueprint defining how ownership of the family business or family office will evolve through key transition points such as:
- Intergenerational wealth transfers;
- Buy-backs from retiring or exiting family shareholders;
- Issuance of equity to the next generation.
While regulated fund structures are often used to professionalise participation, they can be both expensive and administratively demanding. An Isle of Man Exempt Scheme provides a more pragmatic alternative, allowing families to structure ownership flexibly while maintaining privacy.
An Isle of Man Exempt Scheme is a private company with fewer than 50 investors, whose constitutional documents expressly prohibit public subscription. Although classified as a Collective Investment Scheme, it is exempt from certain fund regulations making it both cost-efficient and private.
Through this structure, family members invest collectively as shareholders in a holding company, which in turn owns stakes in the operating business and other family assets, collectively constituting the financial capital of the family. Different share classes are created to differentiate profit participation rights and voting rights.
The Ownership Strategy sets out the succession vision, while the company’s constitutional documents ensure the corporate governance framework aligns with that vision.
Best practice points to bear in mind?
- Ensure substance (management, decision-making, control) is genuinely in place, to satisfy tax authorities and regulators in investors’ home jurisdictions. Preferably these are performed physically from the Isle of Man.
- Be precise in documentation. Constitutional documents must explicitly prohibit public offers; avoid ambiguous language implying regulation.
- Be aware of investor due diligence expectations. Many private investors still will demand audited accounts, reliable governance, appropriate custody. Ensure that the Family Governance systems and arrangements align with the requirements of the Exempt Scheme.
- Monitor and limit investor base: Exceeding 49 participants puts you outside the Exempt Scheme regime, exposing you to regulation and legal risk. This may become an issue as the family grows. By monitoring the number of participants, alternative arrangements can be made sooner rather than later.
- Keep an eye on international tax regime changes (e.g. BEPS, OECD rules, exchange of information etc.). Jurisdiction alone doesn’t shield from substance and transparency requirements. Ensure that professional advice is secured during the establishment process as well as periodically thereafter, say, at a minimum, every 5 years.
- External independent administrator. Appointing an external independent fund administrator is an easy method of managing potential disagreements in the family. The fact that a licensed external body keeps an eye on the Exempt Scheme brings a level of comfort. The fund administrator comes into play when an investor exits, and the agreed process has to be followed to value their stake.
- Investment strategy of the Exempt Scheme. Setting the parameters for investments helps keeping the family focused do their purpose and avoid being distracted by supposed lucrative investments. The investment policy of the Exempt Scheme must align with the overarching Investment Policy of the family.
Advantages of the Isle of Man Exempt Scheme
- Regulatory efficiency: Falls outside the full scope of fund regulation.
- Professional oversight: Appointment of a regulated fund administrator provides independence and assurance, mitigating potential family conflict.
- Governance support: Administrators advise directors and ensure compliance without intervening in daily operations.
- Banking facilitation: Involvement of a regulated administrator can streamline banking and operational arrangements.
- Privacy: As the share cannot be offered to the public, the family retain a sense of privacy with control firmly in the hands of the family.
Balancing the Ownership Strategy and Constitutional Documents
The Ownership Strategy is a key component in a family governance architecture. It articulates the long-term vision and defines how ownership should align across emotional, financial, and operational dimensions. Typically, it outlines:
- The family’s overarching purpose and strategic ambition;
- Risk appetite and capital growth expectations;
- Succession triggers, shareholder rights, and share class distinctions;
- Internal share transaction protocols (buy, sell, repurchase);
- Agreed conflict-resolution processes.
The Constitutional Documents provide the enforceable corporate governance mechanisms that enable the Directors to implement the Ownership Strategy. They should:
- Permit the creation of multiple share classes with differentiated rights;
- Establish transfer mechanisms between family members and generations;
- Define the process for amending share rights;
- Set out exit terms and conditions for shareholders.
Raising Capital and Managing Family Investors
As the family business grows, additional capital may be required from within the family group. While new equity can provide growth capital, it also brings new governance expectations and may shift control dynamics between family branches.
The Constitutional Documents should address the procedural elements of capital raising. The Ownership Strategy, meanwhile, guides how these shifts in control are managed ensuring that such transitions are planned, transparent, and aligned with family harmony.
Bridging the Governance Gap: The Shareholders’ Agreement
To align corporate and family governance, it is best practice to formalise the relationship through a Shareholders’ Agreement. This document:
- Defines the rights and obligations of all shareholders;
- Establishes clear dispute-resolution mechanisms;
- Ensures decisions reflect the family’s shared purpose and strategy;
- Lists reserved matters requiring shareholder consent;
- Clarifies governance and exit procedures.
The Ownership Strategy sets the direction; the Shareholders’ Agreement makes it enforceable. Together with the Constitutional Documents, they create a coherent governance ecosystem that blends family values with commercial discipline.
Conclusion
A well-defined Ownership Strategy, supported by robust Constitutional Documents and a clear Shareholders’ Agreement, forms the foundation of a sustainable family enterprise. Structuring the holding entity as an Isle of Man Exempt Scheme introduces independence, governance integrity, and the assurance of professional oversight.
Combined, these elements:
- Strengthen succession and continuity planning;
- Clarify evolving shareholder roles;
- Balance family influence with commercial and regulatory realities;
- Ensure the enterprise remains aligned with the family’s long-term purpose.
By formalising intent through an Isle of Man Exempt Scheme, families create resilient ownership structures capable of navigating generational change preserving both unity and prosperity across time.
To discuss this topic further or explore how Boston Multi Family Office can assist in implementing an Isle of Man Exempt Scheme, please contact:
Roelf Odendaal – rodendaal@bostonmfo.com
Boston Multi Family Office is a multi-jurisdictional fiduciary services provider with offices in the Isle of Man, Jersey, Malta, and the UK, specialising in implementing bespoke governance and ownership solutions for internationally active families.