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Definition and Scope

What is a Foundation?

A Foundation is a separate legal entity (similar to Limited company) but with beneficiaries instead of shareholders. Assets (both movable and immoveable such as property, shares and money) can be donated to the Foundation by its Founder and becomes the legal property of the Foundation.

Foundations can be set up for a number of reasons such as charitable, specific purpose or to protect assets as part of succession/estate planning. Many jurisdictions allow the formation of Foundation companies.

Structure of a Foundation

There are 3 primary parties required to structure a foundation. These are:

The Founder

The Founder is an individual or corporate body, who will assign ownership of the assets to the Foundation.

Councillor

A minimum of 1 councillor is required. The councillor may be an individual/s (but not a sole individual if also the founder) or a corporate body (which may be owned or managed by the Founder). The Councillor is appointed by the Founder to manage the business and affairs of the Foundation. Councillors are often referred to as the Foundation Board.

Beneficiary

This may be an individual, organisation or corporate body (and may be the Founder) that benefits from the proceeds of the foundations assets. When incorporating the Foundation, the Founder must outline its purpose and objects. This will include the management and distribution of its assets and income to the beneficiaries and the purpose of the foundation (does not have to be charitable).

The Foundation must also outline its Charter. This charter will contain the purpose and objects of the Foundation and may be publically filed as a constitutional document in the incorporating jurisdiction’s Business Registry. Details of the Charter are stored securely within the Foundation Office.

What is the difference between a Foundation and a Trust Company?

What is a Foundation and its purpose?

A Foundation is a separate legal entity (similar to Limited company) but with beneficiaries instead of shareholders. Assets (both movable and immoveable, such as property, shares and money) can be donated to the Foundation by its Founder and becomes the legal property of the Foundation.

Foundations are commonly used as an alternative to Trusts; however, there are several key differences. These are, most primarily, the legal structure, asset ownership and governing laws.

Below is an outline of the key differences between a Trust and a Foundation.

 

LEGAL STRUCTURE AND OWNERSHIP

TRUST

FOUNDATION

A Trust is created as an agreement to transfer the assets of one party to another party for the benefit of a third party.

A Foundation is a corporate entity whereby assets are transferred for ownership and management for the benefit of specific beneficiaries.

This is a Private Agreement that need not be registered

This is a legal entity governed by statutory laws in the jurisdiction

Legal ownership of the assets are split where the Trustee legally owns the asset but for the sole benefit of the individuals or institutions detailed in the Trust Deed.

Assets are donated by the Founder to the Foundation and become legally owned by the Foundation. The beneficiaries receive proceeds based upon on the purpose of the Foundation and its management obligations.

 

CONTROL AND OWNERSHIP

TRUST

FOUNDATION

Control and administration of trust assets is exercised by one or more trustees in accordance of the trust deed.

Control and administration under the power of the foundation board, as appointed by the founder. The board may comprise of individuals or corporate bodies and maybe be the Councillor.

After the trust is settled, the settlor no longer has any rights in respect of the trust unless clearly expressed in the Trust Deed.

The founder may maintain control of the Foundation via a written mandate. This mandate may state the Founder as a principal to instruct the foundation board. However, the foundation board must still act in the interests of the founder and the beneficiaries.

The trustee, as the legal owner of the assets, has a fiduciary duty to act in the best interests of the beneficiaries

A foundation may grant a proxy to any person.

 

ASSETS

TRUST

FOUNDATION

The trustee is legally responsible for the management of the assets and must act in the best interests of the beneficiary. This includes investments and commercial activities, which affect the underlying value of the assets. The trustee is liable to the beneficiaries and if it fails to carry out it duties, this is typically deemed as gross negligence, or wilful default.

Management of the foundation assets is restricted to those on the foundation board (the Councillors). Directors of the foundation do not own a direct fiduciary duty to the beneficiaries, but must act in accordance with the by-laws.

Distributions made by the trustees must comply with the conditions set by the trust deed and take into account the wishes of the settlor.

Distributions are made in accordance with the management instructions set by the founder and regulated through the by-laws.

 

ANONYMITY

TRUST

FOUNDATION

A trust is a private arrangement between the settlor and the trustee and the trustee may be subject to a duty of confidentiality. Beneficiaries are only known internally through the Trust Deed. Commonly, the assets are held in the name of an underlying company owned by the trustees.

Foundation companies guarantee complete confidentiality and anonymity for the Founder and its beneficiaries. Although the statutes are registered, the regulations and Foundation Charter need only to be maintained internally.

The beneficiaries’ typically have the right to the view the trusts, documents and accounts.

The beneficiaries’ rights to information can be limited, or in some case excluded.

 

 

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