How to secure the functioning of a family foundation and the interests of family members?
A family foundation is an institution aimed at facilitating succession for many generations and protecting both family assets and the needs of its members. The belief that creating a family foundation on your own is enough to protect the family and its assets against the risks associated with the succession process may be wrong. The statute of a family foundation should result from a carefully considered process, taking into account not only current circumstances well known to the founder, but also potential future scenarios, including undesirable ones.
Beneficiaries of a family foundation: definition and challenges
The beneficiary of a family foundation may be both natural persons and non-governmental organizations working for the public good. The statute should precisely define the beneficiaries or how they may be determined. It is also worth keeping in mind potential scenarios in which key people – beneficiaries may be unreachable.
Governance in a family foundation: the key to continuity
The process of maintaining continuity of management is the basis for the functioning of a family foundation, both in the event of a potential lack of beneficiaries and in the event of an excess of people belonging to this group. The regulations provide mechanisms for dealing with these situations – it is worth considering the possibility of temporarily suspending the right to participate and vote for those beneficiaries who systematically do not participate in the meetings. As with the identification of beneficiaries, it is also important to consider substitutability procedures to avoid a situation where no beneficiary meets the conditions for participation in the meeting.
The decision-making competences of the founder and the smooth functioning of the foundation
Issues of maintaining the smooth operation of the foundation may also result from excessive decision-making powers being granted to the founder. Although the founder often has the dominant influence in the early years of a family foundation, this situation may change due to advanced age, limited cognitive abilities, or even serious health problems. Therefore, it is important that the statute takes into account situations in which the founder is unable to make a decision, providing appropriate temporary mechanisms, for example, entrusting key powers to collective bodies.
Management continuity and key decisions in a family foundation
It is important that a family foundation is capable of continuing operation because it often includes shares in a family business, requiring ongoing management to maintain influence over the business. The management board of a family foundation plays a key role in managing the foundation’s affairs, representing it at shareholders’ meetings, concluding contracts and managing financial resources. Securing the continuity of management and establishing the rules for appointing management board members and making decisions are key to achieving the goals of the family foundation.
Permanence of succession and flexibility of the family foundation statute
Sustainability of succession is a key aspect of the functioning of a family foundation, enabling the founder to influence the long-term future. Therefore, it is necessary that the foundation’s statute is flexible and can be adapted to possible changes in circumstances, both now and in the perspective of several generations. At the same time, it is important that the statute is stable and guarantees the permanence of certain provisions, especially regarding the rights of beneficiaries. It is worth noting that not all beneficiaries have an influence on the foundation’s decisions, and they are often children, i.e. people without legal capacity. It is therefore necessary to consider how to effectively protect the interests of these people, especially at the beneficiaries’ meeting. Creating a statute for a family foundation that will be effective both now and in the future is a challenge for both the founder and his advisors. This requires many decisions to be made to take into account the interests of all concerned.
Author:
Dr Artur Oleś
Attorney, Tax Advisor, EMBA
Advocate, Tax Advisor, Doctor of Juridical Science. He specializes in issues related to tax optimizations, mergers and acquisitions, as well as criminal and fiscal penal law. Author of scientific publications devoted to, among others. tax ordinance, VAT and income earned through incentive plans in the form of shares and stock options. He has extensive experience and knowledge of law and taxation.
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