A private foundation is a legal entity (a non-profit organisation) established by the founders of the foundation and managing the assets transferred into the ownership of the foundation for the benefit and in the interests of the beneficiaries of the foundation. Private foundations should not be confused with investment funds.
Popular Jurisdictions for Establishing Private Foundations
The most popular jurisdictions for establishing private foundations are:
- The Seychelles
- Panama
- Liechtenstein
- Austria
Purposes for Establishing and Using a Foundation
A foundation can be established and used:
- For the purposes of preserving, effectively managing, and/or ensuring the inheritance of various business assets, company shares, real estate and other property, family capital, and so on;
- To secure the property interests of a certain group of individuals (for example, family members) over a specific period of time;
- As an ownership instrument, including as the final element of a holding structure, thereby ensuring a high level of confidentiality.
General Characteristics of Foreign Private Foundations
- The foundation is subject to state registration in the country where it is established. The status of a legal entity and the presence of special legislative regulation make the foundation a more understandable instrument (than, for example, a trust) for countries of the civil law tradition (including Russia, most EU countries, and the CIS).
- The foundation has no shareholders and is not owned by anyone. It owns and manages the assets transferred to it in its own name, can engage with third parties on its own behalf, establish companies, and act as a plaintiff or defendant in court.
- The founder of the foundation, upon transferring property to the foundation, ceases to be the owner of that property.
- The management of the foundation is carried out by the foundation’s council, whose members are appointed by the founder. Other instruments of control by the founder over the actions of the foundation may also be provided (in particular, the appointment of a protector of the foundation).
- The beneficiaries of the foundation are not owners of the property transferred to the foundation and, as a rule, cannot influence the decisions made by the foundation’s council, but have the right to receive a certain portion of the profits resulting from the management of the property transferred to the foundation. Beneficiaries have this right solely on the basis of the will of the founder of the foundation, which is legally fixed in the foundation’s constitutional documents.
- Information about the beneficiaries of the foundation (or the method of their determination), the amounts and methods of distribution of the foundation’s income in their favour is contained in the internal documents of the foundation, is not disclosed to state authorities, and is not publicly accessible.
- The property of the foundation is separate from the property of its founder and cannot be used to settle the obligations of the founder or beneficiary.
- The foundation, being a non-profit organisation, as a rule, cannot independently carry out regular commercial activities (such activities can be undertaken by companies owned by the foundation).
- Foundations registered in offshore jurisdictions are typically not subject to taxation (provided certain conditions are met).
Since foundations are a highly flexible legal instrument, much depends on the content of the foundation’s constitutional and internal regulatory documents. Therefore, establishing a foundation in each case requires comprehensive legal work to not only ensure compliance with local legislation but also to effectively guarantee the interests of the founder of the foundation and its beneficiaries, taking into account tax and other possible risks associated with the laws of the countries of residence of the beneficiaries of the foundation.