Structures for Family Offices

On July 3, 2019, we published the first in a series of articles that explore the value of family offices for high-net-worth Chinese families.  In this second article, we will give a brief overview of the three most common structures for a family office: corporations, limited partnerships, and trusts.


A corporation is a legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities of a natural person: they can enter contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes.

Scope of liability

A corporation’s most important feature is its limited liability. This means that its shareholders are shielded from the corporation’s liabilities, and creditors are unable to pursue the shareholders’ personal assets in asserting their rights against the corporation. Except under certain circumstances (such as personal guarantees), shareholders are able to participate in corporate decision-making and profit from the business, while risking only the amount that they had invested in the corporation.

Tax implications

Though the limited liability of a corporation is an important benefit to a family office, this structure suffers from certain tax shortfalls.  Of particular import is the potential for double taxation.  This occurs because corporations are considered separate legal entities.  As such, they pay taxes on their annual earnings, just like individuals.  When corporations later pay out dividends, those dividends are taxed again in the hands of the shareholders.  Therefore, a corporation may incur higher taxation compared to other structures, though the net tax benefit should be assessed on a case-by-case basis.

Other considerations

Corporations can be expensive and complicated to form and maintain.  The day-to-day operation of a corporation is generally overseen and managed by a board of directors elected by the shareholders.  A family office could enhance its decision-making by bringing in professionals with requisite expertise as directors.[1]  The family may also wish to place younger family members on the board to ensure early investment training during succession planning.[2]

Limited Partnership

Unlike a corporation, a partnership is not a distinct legal entity from its owners.  It is by definition merely a relationship between two or more people where they carry on business together with a common view to profit.  A limited partnership is a form of partnership that offers limited liability to certain partners.

Scope of liability

While in a general partnership all partners are liable for the partnership’s liabilities, a limited partnership is operated by a single general partner with unlimited liability, supported by one or more limited partners with limited liabilities, similar to the shareholders of a corporation.  However, limited partners are prohibited from participating in the management of the limited partnership and may lose their limited liability protection if they become too involved in the operation of the limited partnership.[3]  

Tax implications

A limited partnership is a flow-through entity. This means that a limited partnership is not itself subject to tax, but passes all of its income or loss on to the partners.[4]  This is a major advantage compared to a corporate structure which is subject to double taxation.

Other considerations

A limited partnership could be a good vehicle to transfer a family’s wealth by establishing the family members as limited partners, while hiring professionals (or corporate bodies) as the general partner.  In this set-up, the professionals could be remunerated rather than sharing in the profits generated by the partnership.[5]


Trusts are commonly used in estate planning for families.  Similar to a partnership, a trust is not a separate legal entity but a relationship between parties. The relationship is composed of a settlor who establishes the trust by transferring property to the trustee to hold for the beneficiaries of the trust. The trustee is then to manage this property for the beneficiaries, who are entitled to the benefit of the property. The use of a trust does not preclude the use of corporations and limited partnerships, in which the trust can have an interest.

Obligations of the trustee

The trustee has the power and discretion to make decisions regarding the payment of income on the property to the beneficiaries. The trust document lists the obligations of the trustee, wherein the distributions and management of the trust are customized according to the family’s specific needs.

The trustee also owes a fiduciary duty to the beneficiaries. This means that the trustee must act according to the beneficiaries’ best interests.[6]  If the trustee breaches the trust document or his or her duties to the beneficiaries, he or she would be personally liable for the damage resulting from such a breach.[7]

Tax implications

Inter vivos trusts (those used for estate planning while the settlor is still living) in Canada are taxed at the highest marginal tax rate of the province of residence.  To avoid this, it is a common strategy to pass the trust property income to the beneficiaries rather than for the income to stay in the hands of the trust, as the beneficiaries would likely be taxed at a lower rate.[8]

Other considerations

The trustee of a trust set up as a family office can be a non-family professional individual or company, while the beneficiaries are presumably the family members.[9] Another less common option is to establish a private trust company if the family office intends to provide professional trustee services to the family.[10]

Although a trust structure is less commonly used for family offices, family trusts are useful tools for families whose net worth does not warrant the expenses of setting up a family office.  If you are interested in learning more about family trusts, we will be posting an introductory article on the subject in the near future.

[1] Ernst & Young, “EY Family Office Guide” (2016) 22 [EY].

[2] Barbara R Hauser, “Family Offices: Insights into their Development in the United States” (2001) 26:3 Int’l Leg Practitioner 102.

[3] Partnership Act, RSBC 1996, c 348, s. 55(1) [BCPA].

[4] Elizabeth J Johnson and Genevieve C Lille, “The Taxation of Partnerships in Canada” (2009) Bulletin for International Taxation 381.

[5] EY at 56.

[6] Craig Ferris, “Liability and the Trustee” (Paper delivered at the 3rd Pension Law & Litigation Course, Federated Press Course, 20 April 2009) 2.

[7] Ibid at 1.

[8] Melvin Pasternak, “Estate Planning for Canadians” (2019), online: Investopedia <>.

[9] EY at 56.

[10] Ibid at 65.

  • Jack  Yong
    Partner, Leader - Asia Pacific Group

    Jack Yong is a partner and leader of the Asia Pacific Group with Lawson Lundell's Vancouver office, practising corporate and commercial law and providing clients with strategic counsel in diverse areas of business law. 

    In all of his ...










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