A private foundation is nonprofit organization that manages capital created for charitable, social or other activities serving the public good.
Today there are numerous successfully functioning and world renowned foundations, such as the Nobel Foundation that provides cash awards to Nobel Prize winners; the Bill & Melinda Gates Foundation with the estimated fund of USD 38.7 billion, which is the richest foundation in the world. Today it sponsors all kinds of initiatives, from educational programs in the USA to support for the improvement of health systems in the third world countries.
In addition to the above foundations that have global goals, private family foundations are being established, which serve to resolve various issues related, for example, to the old age insurance or heritage distribution. Unlike charitable foundations, the family foundation has the goal to provide support and assistance to specific individuals, who are the beneficiaries of the foundation.
State pension funds, which now exist in many countries of the world, are less able to ensure a worry-free retirement due to the growing number of pensioners and the shrinking working population.
The establishment of a family foundation for wealthy people can be a good way of providing for their families in the future, with a certain amount of cash being withdrawn from business risks and preserved for the future generations.
In contrast to a trust, the private foundation is a legal entity which can own assets, sign agreements etc. on its behalf. In spite of the fact that a private foundation is a full legal entity, it does not have shareholders or capital. A private foundation, as well as a charitable fund, has the right to dispose of its funds in accordance with its charter and internal procedures.
In addition to one-time or regular contributions to the family foundation, the revenues from interest income and dividends and investment income also contribute to the asset growth over the years.
Statutory documents of the family foundation can be drawn up in such a manner that in case of death of an immediate beneficiary, his or her spouse or significant other can become a beneficiary. This means that the family foundation can become an expedient method to plan the issues of heritage.
What is a “Private (Family) Foundation”? Foundation Establishment and Management
The diagram below describes key concepts of a private (family) foundation:
In order to establish the private (family) foundation, the wealth (property of the foundation) should be dedicated to a specific purpose.
The property owner has the right to define the goal for the establishment of a private (family) foundation. This goal should be clearly defined, feasible, reasonable and should not be contradictory or immoral.
Here are some examples of possible goals:
- To pay certain amounts to family members for the purposes of their provision, upbringing, education or support;
- To make regular payments to individuals, clearly specified beneficiaries and, in case of closure of the foundation, to distribute its funds among these beneficiaries.
The founder of the private foundation shall sign the so-called letter of agreement with the Interis AG Company, which should clearly specify obligations of both parties to the agreement and conditions of their further cooperation. To establish the foundation, in addition to the foundation property there is a need to develop the charter of the family foundation, in which the client shall define such key concepts and rules of the foundation, as its name, goal and duration of operation, and names of the foundation council members, while the procedures for the distribution of the foundation property in case of its termination, description of the methods and amounts of payments, as well as the range of beneficiaries shall be specified in the regulations. Statutory documents or other instruments of incorporation shall also specify the procedures for the implementation of decisions on changes in the foundation charter. In principle, the founder can reserve the right in the charter to close the foundation. In such cases the founder has the right to close the private (family) foundation at any time. In this case the foundation property shall be returned to its owner. Such foundations are classified as ‘transparent’ and guarantee the lesser level of protection in comparison with irrevocable foundations.
As a rule, the Foundation Council is its principal management body. Authorities of the council (administration of the foundation, responsible persons, as well as a decision making process) shall be described in the foundation charter in detail. The Foundation Council can include both legal and physical entities that reside either in the country of registration, or beyond its borders. The Foundation Council is responsible for adherence to the charter conditions. In case of violations, the Foundation Council shall be responsible for the amount of its own assets before the foundation, its founder and beneficiary.
A beneficiary is an individual, who, according to the statutory documents, benefits from the foundation currently or in the future (in the form of a share of profit or share of the foundation property).
Private Foundation in Lichtenstein or Panama
Lichtenstein and Panama are countries that allow the establishing of private foundations in their pure form. Private (family) foundations can be established and managed without surveillance of the government bodies. The Lichtenstein and Panama foundations differ from other foundations, because the foundation founder reserves the right to make changes in the foundation charter. The legislation comes into force only in cases when the statutory documents do not specify other procedures to resolve the issue. The Foundation’s assets in Lichtenstein should be at least CHF 30,000 and in Panama – at least USD 10,000. The foundation is only liable for its obligations with the foundation assets. Neither the foundation founder, nor other bodies of the foundation incur individual liability. The foundation founder is responsible only for the investment in kind in the foundation – without any other further liability.
Managing bodies of the foundation, such as the Foundation Council and Control Body are specified in the statutory documents. With regard to the Foundation Council the place of residence or nationalities of its members do not matter.
Any physical or legal entity can become the founder of the foundation. The founder can also specify his or her legal rights in the foundation charter. Hence, he or she can appoint or revoke the Foundation Council, terminate the foundation and make changes in the statutory documents at any time.
Until the foundation does not perform its own commercial activities, it can be viewed as a holding or a domicile company and enjoy certain tax privileges due to this fact.
The foundation is only required to keep accounting records when the fund is performing commercial activities. If it only administers assets, the accounting records are not obligatory.
Interis AG Company provides the following services to its clients:
- Consulting on selection of the most appropriate jurisdiction and form of the company to regulate the issues of legal succession.
- Development of possible variants of a private (family) foundation structure.
- Establishment of a private (family) foundation and the foundation council.
- Preparation of all necessary documents.