FOUNDATIONS: CIVIL LAW AND COMMON LAW FOUNDATIONS

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FOUNDATIONSCIVIL LAW AND COMMON LAW FOUNDATIONS
Christel Sands-Feaste
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Civil Law Foundations

• Liechtenstein
• Panama

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Common Law Foundations

• St. Kitts The Foundations Act, 2003
• Nevis Nevis Multiform Ordinance, 2004
• The Bahamas The Foundations Act, 2004
• Jersey
• This jurisdiction will not be the focus of this
  presentation

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Common Features

• Separate legal personality
• Capable of holding assets donated by the founder,
  suing and being sued in its own name
  
• Management board/foundation board/ board of
  councilors
  
• Established to achieve specified purposes

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Common Law v Civil Law?

• Purposes
• Management and reservation of powers by the
  founder
  
• Assignment of founders rights

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• Beneficiaries right to information
• Confidentiality
• Forced Heirship
• Minimum capital
• Taxation
• Audit

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Legal Personality

• Key characteristic of foundations in civil and
  common law jurisdictions
  
• Generally comes into existence after some
  registration or deposit process with a public
  Registrar

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Purposes

• Purpose must not contravene the law of the
  jurisdiction of formation
  
• Commercial activities must be ancillary to the
  main purpose
  
• In The Bahamas and St. Kitts, must include
  management of its assets

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Management and Reservation of powers by the
Founder

• Management responsibility generally rests with a
  foundation board (Liechtenstein), the officers or
  foundation council (The Bahamas), board of
  councilors (St. Kitts)
• Generally a requirement for a licensed trust or
  corporate services professional to be secretary
  or foundation agent
  
• In Liechtenstein
• Founders powers end upon formation
• founder cannot reserve management control and can
  only intervene in revocation or amendment as a
  member of the foundation board

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Management and Reservation of powers by the
Founder

• The Bahamas no restriction on powers founder
  can reserve to himself must be set out in the
  charter
  
• St. Kitts articles can include provisions for
  the reservation of powers to the founder
  

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Assignment of founders rights

• Liechtenstein founders rights (to amend,
  revoke or change purposes) non-assignable
  
• Bahamas founder free to assign any of its
  rights and powers but must give notice to the
  secretary
  
• St. Kitts Foundation Act is silent on this

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Beneficiaries right to information

• Liechtenstein more favorable to beneficiaries
  than The Bahamas or St. Kitts
  
• Liechtenstein
• entitled to receive information on the foundation
  assets vis-à-vis their beneficial share
  
• Cannot be excluded and restrictions must be
  reasonable
  

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• St. Kitts and Nevis
• If no restriction in the articles, beneficiaries
  can request information regarding foundation
  assets and conduct of administration and the
  management of the foundation must provide the
  information within a reasonable time of receiving
  the request
• The Bahamas
• only vested beneficiaries have the right to
  request information or documents (charter, audit
  reports, financial statements) relating to his
  interest
• Confidentiality of other beneficiaries must be
  protected

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Confidentiality

• Bylaws and information about beneficiaries
  generally confidential in Liechtenstein, The
  Bahamas and St. Kitts
  
• KYC information collected by the licensed
  secretary or foundation agent
  
• Liechtenstein
• Registered foundations (those carrying out a
  commercial activity or with non-definable
  beneficiaries) required to deposit certain
  documents (does not include beneficiary details)
  with the Public Register which are available for
  inspection by members of the public with a
  legitimate interest
• Inspection would only reveal name, domicile,
  capital, purpose, board members and legal
  representatives
  

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• deposited foundations (include family
  foundations or foundations with definable
  beneficiaries)
  
• Required to deposit their foundation deed with
  the Public Register
  
• Deposited documents not publicly accessible
• Query recent debacle re whistleblower to German
  authorities
  
• St. Kitts
• Only name, registered office, initial assets,
  secretary and articles (includes foundation name,
  founder, purposes, initial assets, manner of
  designation of beneficiaries, period of
  establishment) publicly available
• The Bahamas
• Only foundation name, charter date, purposes,
  names of officers, registered office, period of
  establishment and value of initial assets
  publicly available
• No requirement for charter to be filed

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Forced heirship

• Liechtenstein
• Forced heirship rules in the founders home
  country will generally be acknowledged
  
• The Bahamas, St. Kitts and Nevis
• Non-recognition of forced heirship claims

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Taxation

• The Bahamas, St. Kitts, Nevis
• Foundations doing business with non-residents
  only, their founders and beneficiaries are
  generally exempt from taxes
  
• Nevis
• can apply to be designated tax resident
• St. Kitts
• ordinary foundations (doing business with
  residents) pay taxes
  

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• Liechtenstein
• Formation duty on formation of 0.2 (0.1 for
  capital over CHF5MM and 0.06 for capital over
  CHF10MM)
  
• Annual capital tax based on the capital
• Tax on foundations engaging in commercial
  activities
  
• Certain exemptions for charitable foundations
• No tax on founder and beneficiaries outside the
  fiscal jurisdiction of Liechtenstein
  

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Minimum capital

• St Kitts
• None
• The Bahamas
• US10K
• Liechtenstein
• CHF 30K

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Audit

• Liechtenstein
• if carrying out a commercial activity must
  submit annual audited statements to the tax
  authorities
  
• The Bahamas
• No audit requirement
• Officers or foundation council keep accounts they
  consider appropriate
  
• St. Kitts
• Foundations required to keep proper accounting
  records
  
• No requirement to appoint an auditor unless the
  articles or by-laws provide

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Trust v Foundation - Foundation

• Separate legal personality
• Foundation is a separate legal entity
• trust no separate legal personality
• Limited liability
• Foundation liability of the founder limited to
  his pledge to transfer certain assets to the
  foundation
  
• Liability of the foundation limited to its assets
  
  
• Trust potentially unlimited liability for the
  trustee
  
• Definitive date of commencement
• Foundation comes into existence from the date of
  registration generally signified by a
  certificate of registration
  
• In some circumstances could be uncertainty as to
  when the trust comes into existence
  

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Trust v Foundation - Foundation

• Control
• If the founder wishes to be heavily involved in
  the administration of the foundation and to
  reserve certain powers to himself can sit on
  the foundation council/foundation board
• Trust retention of too much control could
  undermine the integrity of the trust
  
• Familiarity
• Clients from civil law jurisdictions generally
  not familiar with the trust concept
  
• Restriction of beneficiaries right to
  information
  
• Where founder concerned about beneficiaries
  knowing about the scope of the foundations
  assets common law foundation may be more
  appropriate than an trust
• No restriction on duration

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Trust v Foundation Trust

• Established jurisprudence/Certainty
• Trust - established body of jurisprudence and
  many trust rules apply notwithstanding the
  absence of express language in the trust
  instrument
• Foundations in common law jurisdictions are new
  products limited case law the exception is
  civil law foundations in Liechtenstein
  
• 279 foundations in St. Kitts and 221 in The
  Bahamas
  
• Familiarity
• Certain private wealth practitioners and clients
  from common law jurisdictions are more familiar
  with trusts
  
• Commercial venture
• Trusts - if assets comprise commercial businesses
  trust more appropriate
  
• Foundations commercial activities can only be
  ancillary to the primary purposes