What is a foundation?
A foundation is a legal entity without members. It is established by a Founder (who can be an individual or legal person) and has features of both a company and a trust. The Foundation is managed by a Council, which is similar to a board of directors. The Councillors can include family members if desired.
The foundation itself owns its assets – there is no separation of legal and beneficial ownership, as with a trust. A foundation does not issue shares.
A foundation has separate legal personality and will enter into contracts in its own right.
Foundations can also be used in governance roles – such as to act as a protector or a trustee. They are also an alternative to using a Private Trust Company, as no shareholder is required.
Advantages of a Foundation
- Attractive to clients from civil law jurisdictions as an alternative to Trusts, where clients may wish to exercise a greater degree of influence.
- Whilst a separate legal entity, a foundation is less formal than a company, with few public filing obligations.
- Foundations are more easily recognised in non-common law jurisdictions, and may be deemed to have greater substance as they are registered entities.
- Foundations can be used to hold higher-risk or depreciating assets (e.g. a yacht) – which might not sit easily in traditional trust structures.
Some uses of a Foundation
- Wealth protection and management of family assets.
- Inheritance and succession planning.
- Charitable and non-charitable purposes.
- An “orphan” vehicle for funds, off-market securitisations etc.
- Pension funds, to include executive schemes holding higher risk assets or employer’s company stock alone.
- To act as a trustee (instead of a private trust company).
- To act in other governance roles e.g. Protector, or to hold specific powers.
Establishment and governing documents
The establishment and governing documents for a Guernsey foundation consist of the Charter and Rules.
The Charter contains the foundation’s name, purpose, description of initial capital, duration (usually perpetual) and a declaration by the Founder (or resident agent on their behalf) that the Founder wishes the Councillors to comply with the terms of the Charter. The Charter is filed with the Guernsey Registry, but is not available for public inspection. The names and addresses of the Councillors, Guardian and Resident Agent are publically available for inspection, along with the registered office address of the Foundation.
The Rules are not filed. They set out details of the Council’s functions, the appointment and removal of Councillors, beneficiaries and any Guardian. The Rules also deal with investment matters and the accumulation and distribution of assets to beneficiaries.