Most FIC marketing material talks about "bespoke share classes" and "retained founder control" as if those things were structural givens. They are not. They are clause text. A property Family Investment Company that opens for business on the Companies House default articles has no bespoke share classes, no reserved-matters protection, no class-based dividend mechanic, no transfer pre-emption beyond the limited statutory pre-emption on new share issues, and no founder lock that survives a 75% special resolution. The structural FIC benefits all live in the articles of association, and they live in specific clauses written against specific sections of the Companies Act 2006.

This page is the drafting layer. It walks the clauses that a property FIC typically needs in its articles, indexed against the Companies Act 2006 sections each clause is operating with or against. It covers the share-class architecture, the reserved-matters list, the statutory pre-emption disapplication, the transfer pre-emption cascade, drag-along and tag-along, dividend control by class, preference share redemption, deadlock breakers, and the section 22 entrenchment lock. Out of scope: the growth-share hurdle setting and the option-pricing methodology (see our growth-share and freezer-share design page), the threshold question of whether a FIC fits the family at all (see our FIC versus discretionary trust comparison), and the IHT BPR position on FIC shares (see our FIC IHT and BPR page). The clause text examples on this page are illustrative drafting points, not precedent.

Model articles versus bespoke articles: what the default leaves you with

Every UK private limited company has articles of association. Section 18 of the Companies Act 2006 obliges the company to have them, and section 20 supplies a default if the company does not adopt its own: the model articles set out in the Companies (Model Articles) Regulations 2008 (SI 2008/3229). On incorporation, a company that does not file bespoke articles is governed by the model articles without further action.

The model articles for a private company limited by shares give the company a useful but plain constitution. There is a single class of ordinary shares, with one vote per share on a poll under the default in section 284. Dividend declarations are board-driven, equal across all shares, and subject only to the distributable-reserves test under section 830. The amendment threshold for the articles themselves is a special resolution under section 21: 75% of votes cast. Statutory pre-emption under section 561 applies on the issue of new shares, with no transfer pre-emption between existing holders. There are no reserved matters and no entrenchment.

A property FIC layers four design pressures on top of this default. First, founder control needs to be preserved across specified decisions for the duration of the founder's life, independent of the founder's economic holding. Second, capital growth needs to flow to the next generation's class from the date of growth-share issue, not on death. Third, dividend income needs to be allocable differentially as between share classes so that spouse and adult-child income can be drawn at their own marginal rates without being attributed back to the founder under the settlements legislation. Fourth, share transfers need to stay inside the family, which requires both a transfer pre-emption mechanic that the default does not have and a permitted-transfers carve-out that the cascade does not block.

None of these four pressures is addressed by the model articles. The bespoke FIC articles replace or supplement the default to deliver each. The clauses that do the work are not numerous (a well-drafted set is typically 30 to 50 pages), but each is doing specific work against a specific section of the Companies Act 2006.

The Companies Act foundation clauses you are working against

Six Companies Act sections form the foundation that the FIC articles either lean on or override:

  • Section 18 (articles requirement). The company must have articles. The articles can be bespoke, model, or a combination.
  • Section 20 (model articles default). If the company does not adopt its own articles, the default model articles apply. If the company adopts bespoke articles that cover only part of the constitution, the model articles fill the gaps. Most bespoke FIC articles displace the model articles entirely to avoid uncertainty about which provisions apply.
  • Section 21 (amendment by special resolution). The articles can be amended by 75% of votes cast on a poll. This is the standard amendment threshold. Section 22 lets the articles set a higher bar for named provisions.
  • Section 22 (entrenched provisions). The articles can specify a higher amendment threshold (anything up to unanimous consent or a defined external event) for named provisions. Section 22(2) requires the company to notify the Registrar of Companies of entrenched provisions and any subsequent removal.
  • Section 284 (voting on a poll). One vote per share on a poll unless the articles vary the position. Any weighted-vote arrangement must be express.
  • Section 561 (statutory pre-emption). A company proposing to issue new shares (other than employee-scheme shares) must offer them first to existing shareholders in proportion to their existing holdings. The default is disapplied in most FIC articles via section 567, combined with a board allotment authority under section 551.
  • Section 629 (classes of shares). Defines what makes shares belong to different classes (different rights attached). Section 630 then locks each class against variation without the consent of that class (75% of the class or a separate class meeting under section 334).

These seven sections (s.18, s.20, s.21, s.22, s.284, s.561 with s.567 disapplication and s.551 allotment authority, s.629 with s.630 class-rights lock) are the structural foundation. The FIC articles are largely a structured exercise in placing the right wording against each.

The share-class architecture in the articles

Property FIC articles typically define four classes of share, although smaller FICs may collapse classes and larger ones may add further classes. The taxonomy that does most of the work:

A-class (founder voting class). Holds the voting rights (often 100%, sometimes 50% plus one). Entitled to a frozen capital value on a winding-up (the hurdle), ahead of the growth-share class. Dividend at the directors' discretion. Pre-emption applies on transfer; permitted transfers (typically to a trust for the same family, or to a spouse) bypass the cascade. The A-class is the founder's lifetime control instrument.

B-class (growth class, next generation). Non-voting. Entitled to capital growth above the hurdle; nil entitlement to value at or below the hurdle. Dividend at the directors' discretion. Held either directly by adult children (clean structure, less flexible) or by a discretionary trust for the children (more flexible, additional administration). Subject to the transfer pre-emption cascade.

Preference class. Holds a fixed cumulative coupon (typically 4% to 7% per annum on paid-up value), redeemable under sections 684 to 689 CA 2006. Frozen capital value at par; no growth participation. The founder's coupon income strand, distinct from the A-class capital entitlement at hurdle. Redemption mechanic specifies the trigger (option of the company, option of the holder, or event-triggered).

Alphabet income classes (C, D and further as needed). Non-voting, non-growth, non-capital. Dividend at the directors' discretion on a class-by-class basis. The mechanism for splitting dividend income to a spouse (C-class) and adult children (D-class and beyond) at their own marginal rates. The settlements-boundary analysis sits in our alphabet shares page; the articles' job here is to define the class with sufficient genuine economic substance that the class rights are not collapsible by HMRC.

Each class definition in the articles specifies five things: voting rights (typically nil for B, preference, and alphabet classes), dividend entitlement (typically discretionary at the directors' option), capital entitlement on a return of capital or winding-up (the engine of the value-freeze), transfer restrictions (pre-emption and permitted transfers), and redemption rights where applicable (preference class only). A well-drafted set runs each class through these five points with a consistent structure.

Founder-protection mechanics: the reserved-matters list

A reserved-matters list specifies decisions that cannot proceed without the consent of a named party (typically the founder, while the founder is alive and competent). Without a reserved-matters list, every decision is taken on the default voting rules: ordinary resolutions of shareholders, board resolutions of directors, or special resolutions for matters reserved to a 75% vote. A founder who has gifted away most of the economic interest in the FIC (the growth-share class) but retained the A-class voting can still be outvoted on specified resolutions if the articles do not protect the position.

Eight reserved matters appear commonly in property FIC articles:

  • Sale of any property held by the company above a specified value threshold.
  • Refinancing, charging, or granting security over any property held by the company.
  • Issuing new shares of any class (overriding the section 551 allotment authority for that issue).
  • Varying class rights of any class (operating in addition to the section 630 class-consent requirement).
  • Amending the articles (operating in addition to, or as an entrenchment of, the section 21 special-resolution threshold).
  • Resolving to wind up the company.
  • Appointing or removing directors.
  • Entering material related-party transactions above a threshold.

The drafting trap is the relationship between the reserved-matters list and the section 21 amendment power. If the reserved matters are drafted as ordinary articles provisions, a 75% vote can remove them. To bind the list beyond a future 75% supermajority (which becomes more achievable as growth shares dilute the founder's economic interest), the reserved-matters provisions must be entrenched under section 22. The most defensive drafting entrenches both the reserved-matters list itself and the section 22 entrenchment notice, so that removing the founder protection requires whatever higher bar the founder set.

Two further founder-control levers commonly appear in property FIC articles. A casting vote on tied board or general meeting resolutions, vested in the chair (typically the founder), fires only in deadlock but is cheap to include. Weighted votes on specified resolutions (for example, ten votes per A-class share on a resolution to sell a property) operate on every poll on the specified resolution, not just deadlocks; the wording must be express because section 284 sets one vote per share as the default.

Pre-emption rights: statutory disapplication and transfer cascade

Pre-emption in the FIC context covers two distinct mechanics that the articles handle separately.

Statutory pre-emption on new share issues. Section 561 requires new shares to be offered first to existing shareholders in proportion. A FIC almost always disapplies this default. The reason: the board needs to issue new growth-shares to the B-class (the next generation, or a trust for the next generation) without first offering them around to the A-class and preference holders. The model articles do not disapply section 561; the bespoke articles add a section 567 disapplication, typically combined with a five-year section 551 allotment authority (renewable by ordinary resolution).

Transfer pre-emption between existing shareholders. The Companies Act has no statutory transfer pre-emption between existing shareholders. The model articles have only a director-veto on share transfers under model article 26, which is too thin to do real work for a FIC. The bespoke articles install a substantive cascade. A common six-step mechanic:

  1. The transferring shareholder serves a transfer notice on the company specifying the shares offered and a proposed price.
  2. If the price is not agreed by the proposed transferee, an independent valuer (often the company's auditor or a named firm) determines fair value, applying recognised methodologies for the relevant share class (option-pricing for growth shares, capitalised-coupon for preference shares, discounted cash flow for ordinary or alphabet shares).
  3. The shares are offered around the same class at fair value, with a defined acceptance window (typically 28 days).
  4. If no taker in the same class, the shares cascade to the next class in a defined order (typically A, then preference, then alphabet, then B).
  5. If still no taker, the board can nominate a buyer within a defined further window.
  6. Only if every internal route refuses does the transferring shareholder become free to sell externally, typically subject to a residual board-approval right on the external buyer.

The articles also list permitted transfers that bypass the cascade entirely. The standard list covers transfers to a discretionary trust for the same family group, transfers on death (to the deceased's personal representatives, then to the named beneficiaries), and transfers to a spouse or civil partner. The permitted-transfers list is the mechanism that lets normal succession planning happen without triggering the full pre-emption procedure.

Drag-along and tag-along clauses

Drag-along lets a defined majority of shareholders force the minority to sell their shares on the same terms in a third-party sale. Tag-along, the mirror, lets the minority ride a majority sale on the same terms. The threshold is typically 75% by value of the company's issued share capital, sometimes 75% by voting class, sometimes 75% by economic interest. The articles set the threshold and the headline mechanic; the shareholders' agreement typically carries the procedural detail (notice periods, escrow arrangements, warranty proportionality).

A property FIC's drag-along clause rarely fires in the founder-control phase. Property FICs are usually multi-generational holdings and liquidity comes from asset-by-asset disposals rather than share-sale exits. The clauses still earn their place against two scenarios. First, if family fragmentation across generations produces remote shareholders whose interests no longer align with the holding strategy, drag-along provides an orderly route to a share-sale exit if one becomes desirable. Second, if a strategic counterparty offers to acquire the entire FIC (a competing landlord, a property fund, an investor consortium), drag-along avoids a minority holdout breaking the deal. Neither scenario is common but neither is implausible across a 30-year structural horizon, which is the planning frame for most property FICs.

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Dividend control by class

The discretionary class-by-class dividend mechanic is the engine that lets a FIC split rental income to a spouse and adult children at their own marginal rates. The settlements legislation under ITTOIA 2005 section 624 sits over the top: where the settlor (typically the founder) is treated as the source of income that another person receives, the income is attributed back to the settlor. The Arctic Systems case (Jones v Garnett [2007] UKHL 35) confirmed the section 626 spouse-exception carve-out for outright gifts of ordinary shares, with the dividend on those shares not attributed back to the founder. The companion settlements-boundary analysis lives in our alphabet shares page; what concerns the articles drafting is the wording that preserves the genuine economic substance HMRC expects to see.

The standard clause shape is along the lines of: "The directors may at their discretion declare a dividend on any class of share without declaring a dividend on any other class, and may declare different rates and amounts as between classes, subject to the company having sufficient distributable reserves under section 830 of the Companies Act 2006." The dividend decisions are then minuted at the time of declaration with the rate per share, the class, and the total amount. The discretion must be genuine, exercised contemporaneously, and visible in the contemporaneous record.

The drafting trap is the "automatic" or "formula" dividend clause that ties the directors' hands. A clause that says "the C-class shall receive 25% of distributable profits each year" looks tidy but removes the discretion HMRC expects to see and shifts the analysis closer to a settlor-controlled cashflow stream. HMRC's ERSM110000+ guidance on employment-related securities also applies where the dividend-receiving shareholder is also an office-holder; a section 431 ITEPA election may be needed to protect the position, and the articles' transfer-restriction wording feeds into the restricted-securities analysis.

Preference share redemption and amortisation

Preference shares as the founder's frozen-coupon income strand are typically drafted as redeemable under sections 684 to 689 CA 2006. The articles specify three things: the redemption trigger, the redemption price, and the source of redemption.

The trigger can be optional (the company can elect to redeem), mandatory (the company must redeem on a defined date or event), or event-triggered (the founder reaches a defined age, the company's distributable reserves pass a threshold, or a specified external event occurs). For a property FIC the most flexible drafting gives the company an option to redeem from age, say, 70 of the founder, with a holder's put option from age 75. The combination lets the founder either run the coupon or unwind it, depending on the family's circumstances at the time.

The price is typically par plus any cumulative unpaid dividend, sometimes with a premium for early redemption (rare in practice) or a discount for late redemption (occasional, where the company's reserves are stretched). The articles can also set out a redemption schedule (a tranche each year, or each five years) to produce the amortisation profile.

The source is constrained by the Companies Act: redemption can only proceed from distributable reserves or from the proceeds of a fresh share issue. A property FIC's distributable reserves are the post-corporation-tax rental profits less retained capital reserves; the articles do not change the source rules but should not promise more than the Companies Act allows. The drafting safest line is: "Redemption shall be funded out of distributable reserves available under section 687 of the Companies Act 2006 or out of the proceeds of a fresh issue of shares of any class made for the purpose."

Deadlock-breaking

A 50/50 split between founder and spouse is common in property FICs that ran an alphabet-share design from incorporation. The deadlock problem is structural: each shareholder can block any ordinary resolution, and the company sits paralysed if the two disagree. Three standard mechanics handle the case.

First, a chair casting vote in the articles (vested in the founder while alive, in a defined successor afterwards), breaking the deadlock by procedure rather than substance. Second, a Russian roulette mechanic: either shareholder can offer to buy the other out at a stated price, with the other holder having the choice to accept or to buy the offeror out at the same price; suitable where the relationship has broken down and a clean exit is preferred. Third, expert determination on the substantive question (sell or refinance a property, change letting agent, agree budget) with the expert's decision binding.

Property FIC realism: deadlock is rare in the founder-control phase because the founder holds the voting class outright. It becomes a live risk in the post-founder phase, when the A-class has been distributed across multiple successor holders or held by a trust with multiple trustees. The deadlock mechanic earns its place across the structural horizon, not for the first decade.

Entrenched provisions: the section 22 lock

Section 22 of the Companies Act lets the articles specify a higher amendment bar than the section 21 special-resolution threshold for named provisions. The bar can be anything: unanimous shareholder consent, the consent of a named shareholder for the duration of their life, the consent of a named class, or the satisfaction of a defined external condition. Section 22(2) requires the company to notify the Registrar of Companies of entrenched provisions on incorporation and any subsequent change.

Three categories of provision are worth entrenching in a property FIC's articles:

  • The reserved-matters list. If the founder protection is to survive a future 75% supermajority of growth-share holders, the list itself must be entrenched.
  • The pre-emption mechanic. Entrenchment prevents a future supermajority removing the family-only transfer discipline that the cascade enforces.
  • The variation-of-class-rights backstop. Section 630 already requires class consent for variation of class rights; entrenchment adds a second lock so that the section 630 mechanic itself cannot be amended without the founder's consent.

Three categories are worth leaving non-entrenched, because future flexibility matters more than founder-life protection:

  • The dividend-control wording. The clause needs to evolve with HMRC technical updates on settlements and ERS; entrenchment makes evolution expensive.
  • Board-composition rules. The right number and identity of directors should shift with the next generation taking on roles; entrenchment locks in an arrangement that may not fit the family in 20 years.
  • The year-end date and accounting reference period. These need to be amendable on the standard CA 2006 mechanic without a higher bar (see our year-end change page).

The Companies House filing point matters. Entrenched provisions are visible on the public Companies House record via the Form SH19 (or its successor notice). The founder-protection mechanic is therefore visible to anyone who searches the public record. For most property FICs this is not a problem; for FICs where the family wants the founder-protection arrangement private, the section 22 entrenchment is not the right tool and the shareholders' agreement carries the obligations contractually instead.

Articles versus shareholders' agreement: the two-document split

The articles of association are not the only document doing structural work for a FIC. The shareholders' agreement sits alongside the articles and carries obligations that the articles either cannot or should not. Three rules of thumb govern the split. Constitutional matters that bind shareholders to the company (share-class rights, voting mechanics, dividend procedure, pre-emption) go in the articles, which are public under section 18 and bind successors-in-title automatically. Contractual obligations between shareholders that do not need to bind the company (agreed conduct on specific events, exit obligations, side promises, the precise deadlock procedure, family-council membership rules) go in the agreement, which is private and binds only signatories. Anything that needs entrenchment goes in the articles, because section 22 entrenchment is an articles-only mechanic.

Some matters appear in both documents with a deliberate split of substance and procedure. The reserved-matters list typically sits in the articles (substantive entitlement, entrenched) and in the shareholders' agreement (procedural detail, signature mechanics). Transfer pre-emption sits in the articles (six-step cascade, the substantive right) with the timing, escrow, and professional fee detail in the agreement. Drag-along threshold in the articles; drag-along procedure in the agreement. Where confidentiality matters, the agreement is the right home because it is not filed publicly; where enforceability against future shareholders matters, the articles are the right home because anyone acquiring shares is bound by them automatically.

Articles are the slowest layer in a FIC's life to change and the most expensive to redraft retroactively. Getting the clause text right at incorporation is materially cheaper than restructuring after a class-rights dispute, an HMRC challenge on dividend mechanics, or a fragmented succession that exposes the founder-protection lock as too thin. The constitutional layer is where the share-class economics, the founder control, the dividend mechanic, the transfer discipline, and the entrenchment lock all operate through; the clause text is not a marketing exercise.

Articles are the slowest layer in a FIC's life to change and the most expensive to redraft retroactively. Getting the clause text right at incorporation is materially cheaper than restructuring after a class-rights dispute, an HMRC challenge on dividend mechanics, or a fragmented succession that exposes the founder-protection lock as too thin. The constitutional layer is where the share-class economics, the founder control, the dividend mechanic, the transfer discipline, and the entrenchment lock all operate through; the clause text is not a marketing exercise.