Private Foundation

WHAT IS A PRIVATE FOUNDATION?

A private foundation (sometimes referred to as a “private interest foundation”) is a product of specific laws found mostly in civil law jurisdictions (although some common law offshore jurisdictions have recently added foundation laws) and are particularly useful as an alternative to the trust for those living in civil law jurisdictions where the concept of the Anglo-Saxon trust is less recognized.

It is a corporate entity, established with an objective, mainly to hold assets for the benefits of a class of beneficiaries pre-defined or defined at the time of asset distribution by the Foundation.

WHY IS A PRIVATE FOUNDATION USED?

Private foundations may be used for many purposes, but they are not intended to engage in commercial, for profit activities on a day to day basis. There are no restrictions on the legal activities of a company wholly or partly owned by a private foundation however. For this reason, many choose to incorporate an offshore company such as an international business company (IBC) which is wholly owned by the private foundation which will then engage in investing or trading/commercial activities.

OBJECTS OF PRIVATE FOUNDATIONS

It is also quite common for private foundations to be the ultimate holding entity for a number of different offshore companies established for various purposes (perhaps one or more offshore companies holding real estate, another offshore company holding an investment portfolio, one more offshore company engaged in trading/commercial activities, etc.). Objects of a private foundation may include (but are not necessarily limited to) any of the following:

i. Wealth protection
ii. Inheritance/succession planning
iii. Protection and management of assets
iv. Avoidance of forced heirship rules
v. Charitable purposes
vi. Pension funds
vii. Holding art collections
viii. Receive and manage capital
ix. Minimizing international income, capital gains and estate taxes

Private Foundation Assets

Private foundations are generally restricted from holding interests in property in the location of domicile of the foundation,
but may otherwise hold a variety of assets including:

  • Stocks, bonds and other securities in public or private companies
  • Intellectual property
  • Real estate/immovable property
  • Bank assets
  • Investment portfolios
  • Art
  • Jewelry
  • Most other assets

SEYCHELLES PRIVATE FOUNDATION

Regulated by the Foundations Act 2009.

Private Foundations may be created via a private or public instrument, by either an individual(s) or corporate entity/entities (the Founders). It is essential that there is an allocation or endowment of funds or assets by the Founder. This must meet the minimum statutory requirement. The Foundation becomes a corporate body by registering the Foundation Charter at the FSA thru a registered agent in Seychelles.

Should there be a legal dispute surrounding the foundation, unlike the trust (where trustee is sued) it is the foundation itself as the corporate body which will be sued.

Main elements and keys

Main elements and key individuals involved in the creation of a Seychelles private offshore foundation:

  • The Founder – the person (legal or natural) who has created wealth and who will be transmitting any property to the Foundation.
  • The Charter (Foundation Charter – is an official document that is required for registration of a foundation. It is also the main regulatory instrument of the assets endowed in the foundation.
  • The Council – the main executive body of the foundation which manages the asset/objects of the foundation;
  • The Beneficiaries – the persons in whose interest the foundation has been created and who benefit from its creation.
  • The Protector – the controller whose responsibilities include the control of the assets and its management in the interest of the beneficiary.

Foundation Council

The Council is made up of one or more councilors similar to a board of directors who act in a mixed capacity with some duties of a trustee and some duties of a company director. Depending on the jurisdiction of the private foundation, the Council can generally be made up of individuals and/or corporate bodies. ABC can provide professional councilors in order to ensure the privacy and confidentiality of the client as well as ensuring the tax residency of the foundation is not deemed to be in a high tax jurisdiction.

Protector Or Guardian

Private foundations usually have a supervisory person, usually referred to as a “Protector” or “Guardian” of the foundation. Depending on the foundation law, Charter and Regulations, this position can be appointed by the Founder or by the Foundation Council at the time of creation or at a later date. The Protector of the private foundation may be any individual or juridical entity (company, foundation, trust, etc.) and does not need to be publicly disclosed except in cases of opening bank and other financial accounts. A Protector is not required though and the Founder may choose not to appoint a Protector at all.

Beneficiaries

Unlike a corporation which issues shares to owners, private foundations have no shareholders and no owners. Instead they have beneficiaries. The beneficiaries may be named by the Founder, Foundation Council or even directly by the Protector depending on the exact structure of the private foundation. The beneficiaries may be named via a Letter of Wishes or in the Foundation Regulations.

Beneficiaries of private foundations typically have very limited rights regarding knowledge of the foundation activities or even of the fact that they are beneficiaries in many cases. The Protector or Foundation Council may be able to remove beneficiaries and name new beneficiaries as well or this may be reserved only for the Founder. Beneficiaries of private foundations are not considered the “beneficial owners”.

Foundation Charter

All private foundations must have a Foundation Charter which usually contains items such as the following:

  • The name of the private foundation
  • Its domicile (which may be anywhere but it is suggested that this either remain in the jurisdiction of registration or at least in another civil law jurisdiction)
  • The initial capital/estate which must meet a statutorily required minimum
  • The name(s) and address of the Member(s) of the Foundation Council which administers the estate
  • The name and domicile of the Foundation’s Resident Agent
  • The objectives and goals of the Foundation (these must be possible, reasonable, moral, and legal)
  • The manner in which the Beneficiaries (which may include the Founder), are selected
  • The duration of the Foundation
  • The use to be made of the Foundation’s assets and the manner in which its estate is to be liquidated in the event of dissolution

Foundation Regulations

Private foundations usually have a second document called its “Regulations” which is a private document generally drafted by the Founder detailing beneficiaries, assets of the foundation and any instructions as to how they are to be administered and distributed.

While it may be possible to file these Regulations, most prefer to keep the content of the Regulations private so that the Protector, if any, and Beneficiaries may remain out of the public domain.

Are you interested in creating a private foundation in Seychelles, please do not hesitate to seek advice from our team of professionals about how to structure the set up and additional services which you might find helpful.

Email us on info@abcmanagementservices.sc

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