date | theme

16. April 2021 | Foundations: Types and prerequisites for founding (this contribution)

11. February 2021 | Establishing a foundation in Liechtenstein: Requirements & Procedure

17. February 2021 | Foundation in Liechtenstein: 6 advantages over a German foundation

30. October 2020 | Avoid travel tax: set up a family foundation and transfer GmbH shares

12. December 2019 | Family Foundation for Real Estate Assets: Secure Tax Benefits Now!

A foundation in the legal sense is considered a legally competent organization which has the task of continuously pursuing the established purpose of the foundation with the help of the assets dedicated by the founder. The foundation is a memberless, independent asset with its own legal personality. It can also have different purposes. Certain prerequisites must be met for the establishment.

Important components of a foundation under private law with legal capacity are the purpose of the foundation, the foundation assets and the foundation organization. A foundation in the legal sense is considered a legally competent organisation which has the task of continuously pursuing the specified purpose of the foundation with the help of the assets dedicated to it. The purpose determined by the founders is in principle not amendable (§ 87 BGB). Founders can be legal persons, collective associations with their own identity or associations with no legal capacity. Through the foundation, the foundation becomes independent from the founder. Beneficiaries are called destinataries. They have no membership rights, but are pure beneficiaries. In the prevailing view, the free donations to the destinataries are not gifts. This is justified by the fact that the purpose of the foundation is the legal reason for the grants. Therefore, the grant serves the fulfilment of the purpose of the foundation.

The purpose of the foundation is mandatory content of the foundation statutes (§ 81 (1) sentence 3 number 3 BGB). Several foundation purposes may be agreed upon. For example, in addition to the main purpose, a secondary purpose can be determined. This allows the board to have some leeway in fulfilling its tasks. It can therefore be advantageous to define a plurality of purposes.

For example, destinataries have no influence on the foundation. It is therefore necessary that the Foundation be supervised. For this reason, it is possible to contact the foundation supervisory authority and stimulate control. Due to this, there is the state foundation supervision. This only provides legal supervision. Therefore, its auditing competence is essentially limited to the compatibility of the actions of the foundation with the purpose of the foundation.

A foundation can be set up to promote ideal goals. As a rule, these are also charitable foundations within the meaning of § 52 AO, so that tax benefits are considered here. Therefore, the exemption from inheritance, corporate, business and property tax or the reduction of sales tax is conceivable. However, these requirements are examined in a separate procedure by the tax office.

In addition, economic foundations are also possible if they are in conformity with the public interest (§ 80 paragraph 2 BGB). Therefore, the foundation must not violate a legal prohibition or morality. In addition, the pursuit of the purpose of the foundation must not lead to an impairment of constitutionally protected rights and legal interests.

The foundation must not be an end in itself. It is therefore necessary that the foundation assets are dedicated to a purpose outside the foundation. Therefore, no foundation is possible against the founder himself. This is justified by the fact that otherwise the property of the founder is immune from creditor access.

A species regularly used in Germany is the Family Foundation. This is especially due to the fact that the company succession can be secured. The company can therefore also be retained if the descendants of the founder do not wish to continue the company. The benefits of the foundation are either granted to the beneficiary family members without conditions or made dependent on certain factual criteria. A family foundation can also be charitable. The prerequisite for this is that a maximum of one third of the property serves private purposes and the circle of beneficiaries is limited to the founder himself and his closest relatives. Nevertheless, the foundation can also be subject to the inheritance tax in this case.

Company-affiliated foundations are those whose assets include a company or a participation in a company. The Corporate Funding Foundation itself operates a company as a sole trader. The Beteiligungträgerstiftung holds the investments in a partnership or corporation. The company succession can also be regulated with the company-affiliated foundation. The Foundation is independent of a specific person. Therefore, a depersonalized, resourceless company can be created. The entrepreneur can align the management of the company after his death on his ideas. So fate is not left to the relatives.

On the combination of a foundation with a company, especially a holding company, we have now written an article in which cases this can also be a favorable constellation.

For the establishment of a foundation, the foundation business, the official recognition, as well as the equipment with a foundation assets is required. Recognition by the authority is to be granted if the sustainable and lasting fulfilment of the purpose of the foundation appears to be guaranteed and the purpose of the foundation does not endanger the common good.

The foundation process itself is called foundation business. The foundation business determines the purpose of the foundation, the foundation assets and the foundation organization. The foundation can be established as a legal transaction among living persons (§ 81 BGB) or by means of a will as a disposition of property upon death (§ 83 BGB).

The statutes must contain provisions on the name of the foundation, its seat and purpose, the assets and the formation of the board. The statutes are therefore the constitution of the foundation and can make further regulations via these minimum regulations. For example, regulations on rights and obligations of destinataries also seem expedient.

Only through recognition does the foundation and thus a legal entity emerge. The recognition is unconditional and recognition leads to a claim of the foundation against the founder to transfer the assets guaranteed in the foundation business (§ 82 sentence 1 BGB). On the other hand, if the business of the foundation constitutes the final disposal, the assets are transferred to the foundation by way of universal succession (§ 1922 BGB). There is a legal right to the recognition of a foundation. Revocation shall not be envisaged with retroactive effect. Therefore, the foundation supervisory authority can only cancel the foundation ex-nunc for the future in accordance with § 87 (1) BGB if the foundation business is contestable or void.

The foundation must have assets so that the permanent and sustainable fulfillment of the purpose of the foundation is secured (§ 80 paragraph 2 BGB). In this context, a distinction must be made between basic assets, income, grants and other grants. The real estate contains the assets turned by the founder during the construction and must in principle be maintained undiminished. Therefore, inflation-related changes must also be compensated. The income is generated from the basic assets and serves to fulfill the actual purpose of the foundation. Within very narrow limits, income may be transferred to the basic assets. Grants are any amounts paid by third parties or donors over time and are allocated to the basic assets. Donations and donations are intended for consumption.

The legal representative is the foundation board (§§ 86 sentence 1, 26 paragraph 1 sentence 2 BGB). There may also be several boards. The power of representation of the Executive Board may be limited in accordance with § 26 (1) sentence 3 BGB. Something else should only apply to corporate foundations. It is argued that there is no federal foundation register and that legal traffic should also be protected. No other organs are required by law. However, it seems sensible to control, appoint or recall the board through another body. Furthermore, the statutes can give the destinataries a say. But this is only possible if it does not contradict the founding will.

The foundation is permanent. However, the statutes can grant the foundation bodies the competence to dissolve them. This requires that the resolution is justified by a substantial change in circumstances. When assessing the substantial change, however, the founding will must also be taken into account. Therefore, a reason justifying the dissolution lies, for example, in the fact that the purpose of the foundation has been achieved. The foundation is subject to liquidation if the dissolution is permitted and has been approved by the foundation supervision. Consequently, the assets of the Foundation belong to the persons specified in the Statute or, if this arrangement is absent from the Statute, to the Treasury of the country in which it had its seat. Furthermore, a dissolution is also possible upon opening of the insolvency proceedings concerning the assets of the foundation (§§ 86 sentence 1, 42 paragraph 1 sentence 1 BGB).

According to § 124 UmwG, the foundation is a divisive legal entity. Therefore, it may separate an undertaking it operates into a partnership or corporation by universal succession. This requires a spin-off decision by the foundation body responsible for amending the statutes (§ 163 UmwG). Furthermore, the approval of the foundation authority is required (§ 164 paragraph 1 BGB).

A foundation is also terminated by merging it with others. According to § 87 BGB, however, this is only possible on the basis of state merger.