26 Issue 36 • DECEMBER 2014
Private Trust Companies
Have your cake and eat it too
Private Trust Companies (PTCs) are the
perfect way for a family to divest itself of
direct ownership of the family business
for succession planning while also
retaining a comfortable level of control.
This falls in tune with the old saying – having your
cake and eating it too.
The PTC model has rocketed in popularity in the
Far East in the last five years and this trend has started
to permeate our MENA family offices. To understand
the reason for this, we need to look at the lifecycle of a
family business – from entrepreneur to family office –
to reveal the trigger point for the need for a PTC.
Evolution of the Family Office – the PTC
Although no two family offices are the same, a single
family office (SFO) starts life with the entrepreneur
– phase one of the evolution of the family office.The
family business often enshrines the founder’s core
values and the business itself will play a significant
role in the dynamics of the family for generations to
come if it is properly managed and handed down.
The family business, when initially established and
successful, could be regarded as the “glue” that binds
the family together.
As the family and the business grow, there is an
increased demand for other family members to join
the firm for they are a trusted pool of talent who have
grown up knowing about the business.
As the next generation joins the business, a degree
of management control is passed to them from the
founder. This is phase two in the evolutionary process.
Later, as the founder retires from day to day
involvement, the siblings find it necessary to share
power and control with each other. This is phase three.
Given that the siblings are usually all close and that
the founder is still involved, albeit behind the scenes,
the way that family decision making is handled
As the business transmits to the third generation
and widens to cousins, it is usually the case that
not everyone in the family is or wants to be directly
involved with running the family business. While
they might all be owners, management of the
business tends to be left to a core of individuals
Angela Calnan of Collas Crill Guernsey elaborates on why Private Trust Companies are an
ideal option for Middle Eastern entrepreneurs who want to maintain control of their family
business while it is managed by another entity.
theoath-me.com • the Oath 27
Private Trust Companies
who are not necessarily family members.
There is therefore a separation of ownership and
management – this is phase four.
Finally, the original business is likely to decline
in importance over other businesses and financial
interests. Often the original family business or a
proportion of it will be sold and there will be an
injection of family cash for investment.
There is now a broad range of family interests
and, without the glue of the original family business
together, the family
will need a new
platform to capture
and consolidate its
interests. We have
now moved from a
family business to a
family in business
– enter the family
office. This is
So, in this lifecycle,
where does the need
for formal governance
by way of a PTC arise?
The trigger event is
between phases three
and four – as we move
from a small pool of family decision makers regarding
one core business to a larger more diverse pool of
decision makers regarding multiple businesses and
It is absolutely essential that, as we move from
phase three to four, we formalise the ownership and
It is best to act at this point or even earlier for two
1. The founder is likely to still be on hand so his
wishes, culture and vision can be hardwired into
the constitution of the PTC permanently for
generations to come; and
2. With only a small number of closely related
controllers in position at phase three, it is likely that
quick consensus will be reached to move forward
with the PTC structure. If we wait until the owner/
manager structure becomes too wide – consensus
is unlikely to be reached. Or, if it is, it is likely to be
a lengthy and costly process.
The PTC Structure and Key Advantages
A PTC is a corporate entity – i.e. just a normal company
– most commonly used for the entrepreneurial client
who has a very valuable family business, the shares of
which or proceeds of sale of which he wants to remain
in his family for generations to come.
The traditional method of passing down the family
business was to put the company shares into a family
trust run by a professional trust company as trustee.
However, historically, entrepreneurs especially in
the Middle East and the Far East have struggled to
get comfortable with the idea of handing over their
valuable shares in the family empire to a “stranger”
(such as an offshore trust company).
The solution to that “loss of control” dilemma is
the PTC. The entrepreneur sets up his own offshore
corporate trustee and controls the board of it – at
least initially until he becomes comfortable that the
structure is working.
The PTC is a “win/win” – the entrepreneur can hand
over ownership for succession planning purposes but
can still retain a high level of control.
So, the key advantages of a PTC for Middle Eastern
1. No loss of control – the founder can pass the
ownership of his valuable business to a trustee but
he can still control the board of the trustee. As such
– he can have his cake and eat it too!
2. Unregulated – in Guernsey, PTCs are unregulated
entities which makes them nimble and inexpensive
to run and maintain.
3. Private – in Guernsey, the trusts that the PTCs
looks after will be out of the public domain
save as for the regulator’s basic due diligence
requirements on registration.
4. Longevity – Succession Planning – unlike
individuals, a company does not “die” so the
family assets do not constantly have to change
hands as the family wealth transmits through the
generations. The founder can set out his wishes
when the PTC is set up – either in a Family Charter,
or in the constitutional documents of the trusts
or in a simple letter of wishes. These wishes will
continue to permeate the administration of the
PTC from generation to generation.
5. Good Value for Money – a PTC can be established
in Guernsey within GBP5,000 to GBP10,000,
depending on complexity.
6. Family Harmony – in acting early and organising
the family’s affairs before ownership fragments
too far, it is possible to prescribe good family
governance measures which can lay down a
roadmap for decisions about the family enterprise
for generations to come.
That way, everyone knows where they stand and
the expensive and upsetting family conflicts which so
often arise in the third generation can be avoided.
The solution to that
“loss of control”
dilemma is the PTC.
sets up his own
trustee and controls
the board of it –
at least initially
until he becomes
comfortable that the
structure is working.
ANGELA CALNAN, group partner,
Collas Crill Guernsey