The family bank is a family business. Although not a commercial and regulated company like a savings and loan institution, it must be a legal entity with established agreements, a good governance structure, and a board of directors. You can also visit www.ubs.com/global/en/global-family-office/home.html to get family banking in the US.
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All participating members must understand and be comfortable with the bank's policies and processes. It is also important to clearly define the mission, vision, objectives, and criteria for bank financing.
Why is it better to fund the activities of the next generation through family banks rather than external sources of funding or direct donations?
• Support for entrepreneurship: Business-owning groups usually want to pass on to the next period the entrepreneurial mindset that makes the good generation successful and tax-responsible. External sources of funding can be investors who are less risk-averse or flexible and patient.
Family banks encourage hard work and value calculated risk while providing a system of support and accountability that may not exist when mom or dad provides a simple gift or a quick and casual loan. Therefore, family banks should request a business plan with a financing proposal and other financing requirements.
• Professionalization of family financing: Too often, family loans are informal, emotional decisions that ultimately lead to tax liability and disrupt family harmony. The professionalism of family banks can help avoid tax mistakes, remove emotion from transactions, and avoid potentially unhealthy family dynamics.