A Trust Owning Family Business Shares: Seat and Reserved Matters

A trust owning family business shares is one of the most common reasons an owner-manager looks at trusts at all, and one of the easiest to get wrong. The trustee becomes the registered shareholder, yet the founder usually still runs the company day to day. Where the trust is seated, and which law governs it, decides how those two facts coexist.

Example: a founder in Zurich owns an engineering group and wants the shares to stay together after a generation change. The question is rarely "trust or no trust" alone. It is which seat can hold a controlling stake, tolerate an active founder and still be recognized by the banks, courts and regulators the group deals with.

What actually changes when shares move into a trust

Under the Hague Convention, a trust is a legal relationship in which assets are placed under the control of a trustee for a beneficiary or a specified purpose. The assets form a separate fund, title stands in the trustee's name, and the trustee must manage and account for them. The same text states that powers reserved by the settlor are not inconsistent with a trust existing. That sentence matters most for business owners, because it is the legal basis for keeping a say in the company.

In practice, the shareholder register changes. The company, its lenders and its minority partners now deal with the trustee. Shareholder agreements, pre-emption clauses and transfer restrictions in the articles all have to be read against that change. Check them before anything is signed, because a clause that blocks transfers to a "non-family" holder can catch a trustee.

Why the seat matters more for shares than for cash

A portfolio of listed securities can be held almost anywhere. A trading company is different: it has employees, licences, contracts and a board. Three seat questions follow.

• Who votes the shares? The trustee is the legal holder. Whether a deed can direct the trustee on how to vote, and how far that direction binds, varies by legal system.
• How much can the settlor reserve? Some regimes accept broad reserved powers; others treat heavy reservation as a sign the trust is a sham or that the settlor never really parted with the assets.
• What does the trustee owe the company? Holding a controlling stake can bring duties of oversight. A regulated trustee will want to understand the business before accepting it.

A trustee will often accept the shares only after a review of the company's accounts, contracts and ownership history. Expect questions you may not welcome, particularly on source of wealth and on any minority holders.

Governing law and seat are separate choices

The Convention provides that a trust is governed by the law the settlor chose, expressly or by implication. If no law is chosen, the trust follows the law with which it has the closest links, looking at the designated place of administration, the location of the assets, the residence of the trustee and the purposes of the trust. If the chosen law does not know the trust, the choice has no effect and the closest-links test applies instead. The distinction is developed in governing law versus seat of administration.

For a business trust this has a practical consequence. A founder might choose a common-law governing law for its flexible reserved-powers rules while the trustee sits in Geneva. That can work, but the closer the real links point to Switzerland, the less comfortable a court will be treating the foreign choice as the whole story. Match the paperwork to where the trust is genuinely run.

How a Swiss seat compares for a share-holding trust

Switzerland has no domestic trust statute of its own, but it ratified the Hague Trusts Convention on 26 April 2007, and the Convention entered into force for Switzerland on 1 July 2007. Swiss trust questions fall under art. 149c of the Private International Law Act, which refers to the Convention. A Swiss-seated trustee can therefore administer a trust governed by a foreign law that the Convention recognizes. For more on that position, see Switzerland as a trust seat.

For a company owner the attractions and limits are fairly concrete:

The detailed pairings are in Switzerland versus Jersey and Switzerland versus Guernsey. A table cannot settle the choice for an individual family; the answer depends on residence, the countries of the beneficiaries and the nature of the company.

Reserved matters: what the founder can keep

Reserved matters are decisions the deed leaves with someone other than the trustee. For a share-holding trust, the usual candidates are:

• appointing and removing directors of the underlying company;
• approving a sale of the business or a listing;
• consenting to changes in the articles or to new share classes;
• approving dividend policy above or below an agreed line;
• naming or replacing a protector.

The Convention does not cap these powers, but the governing law and the seat's courts will. A deed that reserves everything may leave the trustee as a nominee in all but name. A deed that reserves nothing may leave the founder unable to run the company. The reasoning behind the middle path is covered in protector and reserved powers law by jurisdiction.

One useful structure is to put a holding company between the trust and the operating business. The trustee then owns the holding, and board-level decisions for the operating company sit with directors rather than with the trust. The next diagram shows the layers.

The holding layer separates the trust's concerns from the business's. It also gives lenders and buyers one identifiable seller if the group is ever sold. The trade-off is another entity to administer, with its own accounts and filings. How the vehicle compares with the alternatives is set out in trust, foundation or company.

Forced heirship and the limits of a trust

A trust does not remove a founder from the rules on compulsory shares. Swiss law reserves a share of the estate for descendants, a spouse or a registered partner. Under art. 471 of the Civil Code the reserved portion is half of the statutory inheritance entitlement, and under art. 470 para. 1 it applies to a person leaving descendants, a spouse or a registered partner; parents are no longer reserved heirs. The revised succession law took effect on 1 January 2023, and the Federal Office of Justice describes it as intended to let people dispose freely of a larger part of their assets.

The Convention itself preserves mandatory rules on succession rights in art. 15. So when the founder is, or becomes, subject to Swiss succession law, shares placed in a trust at death or shortly before it can still be challenged by a reserved heir. A further amendment to the Private International Law Act on international successions takes effect on 1 January 2025 under a Federal Council decision of 26 June 2024. Whether a particular transfer holds up depends on residence, nationality, the timing of the transfer and the other assets in the estate. See forced heirship and trusts for the broader pattern across seats.

A trust is therefore not absolute protection for a family company. It is a structure with limits that vary by seat, and those limits should be mapped before the shares are moved.

Alternatives worth weighing

Owners who want continuity often compare several tools:

• A shareholders' agreement or family holding company with no trust, which is simpler and sits entirely under local company law.
• A foundation, which has legal personality and no trustee, suited to civil-law families. See Switzerland versus Liechtenstein.
• A VISTA-style trust, designed for a trustee that holds shares without a duty to diversify or intervene. The structure appears in the VISTA trust glossary entry and in a fictional BVI VISTA case.

Each answers a slightly different worry: control, succession, creditor exposure or reputation. A trust is often not the right fit when the founder wants full control and no external trustee.

Points to check before transferring shares

• Read the articles and any shareholder agreement for transfer restrictions.
• Confirm whether lenders must consent to a change of registered holder.
• Decide which matters the founder reserves and which pass to the trustee.
• Identify the governing law and test it against the real place of administration.
• Map the heirs who could invoke mandatory succession rules.
• Check what the seat's supervisory regime expects of a trustee holding an operating company.
• Review banking arrangements for the company and the holding.

A fuller sequence is in how to choose a trust jurisdiction. Honoraires for setting up and administering a structure depend on its complexity and are indicated after the confidential assessment.