What are foundations?

Private foundations have existed in Europe since at least 1926. They were introduced to provide a civil law equivalent to common law trusts. Since the 1990s a number of common law jurisdictions enacted foundations legislation, for example Panama in 1991, the Bahamas in 2004, Jersey and the Seychelles in 2009.

There is no single legal definition of a foundation however it may be described as a legal entity which is created when a person provides assets for a specific purpose. The foundation holds the assets for purposes set out in its constitutive documents and is administered according to contractual rather than fiduciary principles – principles that make them acceptable to people who are uneasy with using trusts. The foundation is a distinct legal entity but unlike a company, it has no shareholders.

Foundations are structures that can be used in similar circumstances to traditional family trusts but are familiar to clients and intermediaries with a civil law background.

Foundations generally have the following common features:

• Have legal personality and in many jurisdictions are inscribed on a public register.
• Are formed by a founder who provides the initial assets of the foundation known as the endowment.
• Holds assets for the purposes set out in its constitutive documents and is administered according to contractual rather than fiduciary principles.
• Are run by a council (or board) which is responsible for fulfilling its purpose.
• Has no shareholders and may or may not have beneficiaries depending upon its purpose.
• Beneficiaries have contractual rights to enforce the operation of the foundation in accordance with its constitutive document – rather than propriety rights in its assets, or equitable rights such as are available to beneficiaries of trusts.
• May also have an advisor or protector if its rules so provide.