Foundations date back to ancient times. However, foundations with distinct legal personalities did not make their appearance until Christianity took hold in Europe during the Middle Ages. They were mainly used by churches, monasteries and hospitals.
Today, two types of foundation exist. They are classified according to their aims: private foundations, and those operating in the public interest. Public interest foundations include those created for ecclesiastical, charitable, scientific and humanitarian purposes. Strict rules govern their creation, and they generally operate under state supervision. Most private foundations are family foundations. The rules governing them are far less strict.
A family foundation can be described as a legal entity created using an incorporating document by way of which the founder transfers assets to be used for specific aims, to the benefit of beneficiaries who are members of a family.
The purpose of this type of foundation is to support and assist members of a single family to pay for education or training or to meet living expenses. A family foundation cannot exist simply to make a profit.
A foundation is different from a company in that it does not have shareholders or members. Consequently, ownership of a foundation cannot be transferred. However, in common with other legal entities, a foundation can exercise civil rights, meaning that it is personally responsible for its debts and its structures can sign contracts in the foundation’s name.
A family foundation has three or four main stakeholders:
- The founder, who may be a person or a legal entity, creates and organises the foundation. The founder decides the circle of beneficiaries, chooses the foundation council members and gives instructions on the way the foundation should be managed and how the assets are to be distributed.
- Beneficiaries are the people who benefit from the foundation. They receive resources from the foundation (income, capital, etc.) as set out in the foundation regulations. Should the need arise, the beneficiaries can take legal action to assert their rights. In general, the beneficiaries are named not in the foundation charter but in confidential documents such as additional by-laws or the regulations. The founder can be a beneficiary of the foundation.
- The foundation council is the foundation’s executive body. The council runs the foundation on a day-to-day basis. It is similar to the board of a company. It is bound by the founder’s wishes, and must work to achieve the goal set out in the incorporating document. More generally, it is required to act “en bon père de famille” (as a conscientious father would).
- The founder can also designate a protector to oversee the activities of the foundation council.
Two documents are normally drafted when a foundation is created. One is public and is lodged with a notary. This is the incorporating document or charter. The other document, known as the foundation regulations or by-laws, is confidential.
The charter generally includes:
- the name of the foundation,
- the initial assets,
- its registered office,
- the names and addresses of the foundation council members,
- how the beneficiaries are determined,
- the rules on amending the charter,
- the duration of the foundation,
- instructions on how it is to be dissolved.
The foundation regulations contain:
- a list of the property held within the structure,
- the powers of the foundation council and how it is remunerated,
- the list of beneficiaries,
- rules on distributions and rules on replacing beneficiaries or adding new ones,
- rules relating to the administration of the foundation,
- the choice of protector and the protector’s powers,
- instructions for presenting the foundation’s accounts.
Like trusts, when used intelligently and appropriately family foundations can offer substantial advantages for asset planning. Before forming a foundation it is vital to carry out a detailed review of the assets of the founder and beneficiaries, and to fully understand the goals of the foundation. The location of the assets to be placed in the foundation is also an important issue.
CROCE & Associés Trust assists its clients in creating family foundations, in particular in Panama, Malta, the Netherlands Antilles and Liechtenstein. We have all the capabilities and experience necessary to guarantee the foundation you create meets your requirements perfectly.
With our subsidiaries in Europe and Asia, we can offer you a comprehensive transferred asset management service through a single point of contact.
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