Basics
Embedded family office: run from within the family business
Updated: · Leutrim Miftaraj, FLIORE · Editorial standards · Deutsche Fassung
Short answer
An embedded family office sits inside the family business: company employees – often from finance or the executive office – handle the family's private wealth alongside their main job. This is cheap and familiar but carries risks for confidentiality, conflicts of interest and tax, because services to the family must be charged at arm's length. A sale or generational change raises the question of a spin-off.
How it arises
Many single family offices start inside the company: the CFO also looks after the entrepreneur's properties, the executive assistant manages private insurance, the accounting team also books the holding. Over the years this grows into a de facto family office that was never consciously organised.
Benefits
- Low costs because existing infrastructure and staff are used.
- High trust in familiar employees.
- Short distances between the business and the family's wealth.
- Finance, legal and tax expertise is already in-house.
Risks
Confidentiality: company employees gain insight into private wealth that does not concern them. Conflicts of interest: the finance department works for the company and its minority shareholders, not for the family. Tax: if the company provides services to the family without charging market terms, adjustments may follow – in Germany as a hidden profit distribution, in Switzerland as a constructive dividend, and in Austria likewise as a hidden distribution. Dependence: if the company is sold, the family loses its family office overnight.
Organising it properly
- Record activities for the family and separate them from company business.
- Agree services in writing and charge them at arm's length.
- Set access rights so that private data is seen only by those responsible.
- Keep private documents and data separate from the company's systems.
- Check early whether and when a spin-off into a separate company makes sense.
The path to a spin-off
Triggers for a spin-off include a planned sale of the company, the entry of non-family investors, a generational change or growing complexity of private wealth. It is much easier if the family's data is already separate and structured – then only the organisation changes, not the data foundation.
In FLIORE
FLIORE separates the family's wealth organisationally from the company: its own organisation, roles, rights and documents. This makes clean management within the company easier, as well as a later spin-off without data migration.
At a glance
| Characteristic | Family office tasks handled by staff of the family business |
|---|---|
| Main risks | Confidentiality, conflicts of interest, tax, dependence |
| Typical turning point | Sale of the company or generational change |
Frequently asked questions
Is an embedded family office legally problematic?
Not in itself. It becomes problematic if services to the family are provided free of charge, confidential data is not protected or the interests of minority shareholders are harmed.
How are services to the family charged?
With a written agreement and an arm's-length fee, for example based on recorded time or a flat fee. Documentation protects the company in a tax audit.
When should it be spun out?
At the latest before a sale of the company, ideally when private wealth becomes more complex or the next generation joins.
May company employees see the private wealth?
Only those who need it for their task and are bound to confidentiality. A clear access concept is particularly important here.
Sources
- German Corporation Tax Act (KStG), section 8 – hidden profit distribution
- Swiss Federal Tax Administration (ESTV) – constructive dividends
- STEP – Society of Trust and Estate Practitioners
This page provides orientation and does not replace legal or tax advice. The cited legal sources in their applicable version are authoritative.
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