A double foundation is a design construct consisting of a charitable foundation and a family foundation. Both foundations are involved in a holding company. However, their participation is regulated differently than their voting rights (disquotal distribution of voting rights). Thus, the family foundation can have sufficient voting rights for a qualified majority in order to continue exercising entrepreneurial influence on the operating company of the holding company on this basis. However, it is also important that the charitable foundation receives more than just a symbolic participation. It is also essential that it actually promotes charitable goals.

1st Double Foundation with Foresight – Introduction

The aim of the design model presented here is to establish a double foundation in which a family foundation and a charitable foundation exist independently alongside each other. In this way, the general public can be supported by the charitable foundation and at the same time a safeguarding and promotion of the entrepreneurial family can be implemented.

The two foundations act jointly as shareholder foundations of a holding GmbH, which in turn holds the shares in operative GmbH, in which the operating company is managed. As part of the double foundation structure, the charitable foundation holds a larger share of the holding, but the voting rights are limited. In mirror image of this, the family foundation has little participation in the capital, but has the largest part of the voting rights. In addition, you can agree on a disquotal profit distribution, which has tax consequences.

This design model offers advantages above all because tax breaks and tax exemptions apply to the charitable foundation, but the family of the family business can continue to exercise its entrepreneurial influence on both foundations through the disquotal distribution of voting rights.

It must be noted, however, that the charitable foundation also effectively pursues a charitable, charitable or ecclesiastical purpose. Otherwise, there will be no recognition of the charitable nature, so that the double foundation model will not lead to success.

2. How to Build a Double Foundation

A foundation under German law is a legal entity under private law, which is established by granting assets for a specific purpose. The purpose of a foundation can be both in the non-profit sector and in the private sector. The foundation is based on §§ 80 ff. BGB, which defines the essential characteristics of a foundation.

2.1. Step 1: Establishment of a Family Foundation

First of all, a family foundation is established according to civil law. According to § 80 BGB, the purpose of the family foundation can in principle be freely chosen, but it must be clearly and unambiguously formulated. The family foundation serves the long-term security of family assets and the financial security of family members.

The establishment of the foundation as part of the double foundation takes place through a donation of assets to the family foundation. The tax base of the gift tax depends on the nature and value of the transferred assets. The amount of the gift tax rate depends, among other things, on the tax class (§ 15 ErbStG). In the case of the family foundation, the exception of § 15 paragraph 2 ErbStG applies. According to this, the taxation is based on the kinship of the most distant beneficiary to the donor according to the foundation deed.

statutory contributions to the beneficiaries of a family foundation are classified according to § 20 (1) no. 9 EStG as income from capital assets. They are subject to the withholding tax of 25 % plus solidarity surcharge (§§ 32d (1) sentence 1, 44 (1) sentence 3, 43 (5) sentence 1 EStG). Since statutory grants do not have a liberal character within the meaning of § 7 (1) no. 1 ErbStG, there is no gift tax in this case.

Unlike the charitable foundation, the family foundation incurs the so-called inheritance tax every 30 years, § 1 no. 4 ErbStG. The reason for this is that the family foundation can not “depart” and the legislature considers it to be systemically contrary if assets tied up in family foundations remain free of inheritance tax over generations. According to § 15 paragraph 2 sentence 3 ErbStG, the double allowance according to § 16 paragraph 1 no. 2 ErbStG (EUR 800,000) is granted for the calculation of the gift at the fictitious generation change and the tax is calculated according to the percentage of tax class I, which would apply to half of the taxable property (§ 19 ErbStG).

2.2. Step 2: Establishment of a charitable foundation

The double foundation also includes a charitable foundation. They are set up quite regularly according to civil law. The charitable foundation must pursue a charitable, charitable or ecclesiastical purpose.

Here, too, the foundation is established by donation of assets. Grants to a domestic corporation which pursues exclusively charitable purposes after the endowment business are exempt from the gift tax according to § 13 (1) number 16 letter b ErbStG if it serves tax-favoured purposes at the time of taxation. The donation must be generous and must not be in return.

Inheritance substitute tax does not apply to a charitable foundation. The establishment and ongoing operation of the charitable foundation can therefore be tax-neutral if all requirements are met.

2.3 Step 3: Participation of foundations in the holding company

Both foundations are then involved in the holding company. The charitable foundation, for example, holds 90% of the capital and the family foundation 10% of the capital. This step must continue to ensure that the charitable foundation pursues its charitable purpose.

Within the framework of the double foundation structure, the family foundation should hold at least 75% of the voting rights, so that it also has, for example, the qualified majority according to § 53 paragraph 2 GmbHG. Since the family foundation holds at least 10 % of the holding company, there is no merely symbolic participation. In the internal relationship, the shareholders are therefore free to grant majority voting rights to individual shareholders or to create non-voting shares in relation to the charitable foundation. Both civil and tax law, there are no objections to a disquotal distribution of voting rights. This triggers neither income taxes nor gift tax.

3rd Use of the Benefits of a Double Foundation – Conclusion

In summary, the establishment of a double foundation, consisting of a charitable foundation and a family foundation, requires precise legal and tax planning. Despite the different purposes and tax treatments of the two types of foundation, they can successfully coexist. However, all requirements of civil law and tax law must be observed. The dual foundation is an effective way both to safeguard long-term private interests of the family and to achieve social benefit.