Family foundation – what is it? What opportunities does it create? Who can wear it?

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Krzysztof Bardel|
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Recently, President Andrzej Duda signed the act on family foundations, which determined its inevitable entry into legal circulation (in May 2023). This is a completely new and to some extent revolutionary institution that requires description in this article. What is a family foundation? Who will it be useful for? How to put it on? How does it work? The answers to these and other questions are below.

When will it be possible to establish family foundations?

A family foundation is an institution new to Polish law, but known to the legal systems of other countries. Analogous or similar solutions exist in Western countries, such as Austria or Germany. Recently, the law was adopted almost unanimously.

The Act on Family Foundations will enter into force 3 months after its announcement - precisely from May 22, 2023, it will be possible to establish the first family foundations and benefit from their benefits. It is therefore worth getting acquainted with the assumptions of this institution, because for many entrepreneurs - especially those running a business with their family - it may be extremely useful.

What is a family foundation? What does running a foundation involve?

A family foundation, in accordance with its statutory definition (Article 2 of the Act on Family Foundations), is a legal person established for the purpose of collecting property, managing it in the interest of the beneficiaries and providing benefits to the beneficiaries. Its specific purpose is chosen by the founder in the foundation's statute, i.e. a document specifying the basis of its operation. Put simply, a family foundation is an entity of the nature of a legal person, which is created for the purpose of protecting an enterprise (company) run by a family or at least a member of it. Its creation focused on securing the company and family assets in the inheritance process. The entire idea of the foundation is based on a strict separation of family business and assets from the family itself. It becomes an entity that functions to manage the assets of the company run by the family or part of it, as well as to provide funds for the beneficiaries, and therefore - most likely - family members.

What are the goals of establishing a family foundation?

There are two basic and main tasks of such a foundation. Firstly, it will be the possibility of accumulating assets and managing them by the founder, as well as maintaining the continuity of the family business activity. Secondly, it is worth mentioning the possibility of securing the future of members as beneficiaries of the foundation (or more precisely, the company's assets, which become the assets of the family foundation) and the possibility of providing them with continuous funds.

The most important advantage of a family foundation seems to be the ability to maintain the durability of the family business in the event of its succession. In practice, in the event of the death of an entrepreneur running a family business who had several heirs, taking over the business by them or one of them (either in the form of a company or a sole proprietorship) often requires a number of complicated actions and, moreover, exposes the family to internal conflicts. that may pose a threat to the company's operations. Creating a family foundation as a single entity managing the company and its assets will avoid these complications.

To sum up this part: a family foundation will be an independent entity (legal person) to which the founder will transfer the company and assets of the family enterprise to be managed professionally without any threat to the durability, profitability and efficiency of the business. A family foundation also provides security for the circle of beneficiaries indicated by the founder - this mainly concerns his family, who ran the company with him or were its real beneficiaries during his lifetime.

How to set up a family foundation?

The legislator distinguished two modes of establishing a family foundation. Regardless of the choice of one of them, certain universal formalities must be fulfilled, which are described below.

A family foundation can only be established by the founder. This, in turn, can only be a natural person who has full legal capacity. Another requirement is to submit a declaration of will to establish a family foundation. This can be done in two ways, which require the form of a notarial deed:

  1. Declaration made in the founding act;
  2. A declaration made in a will.

The key difference distinguished by the legislator between the above is that a foundation established by means of a founding act may have many founders, while a foundation whose "founding" declaration of will was submitted in a will may have only one founder. This results from the very structure of inheritance regulations (no "joint" wills), but is also highlighted in the Family Foundation Act.

The founder himself may entrust the performance of his duties to another person in the statute (specifying their scope precisely), and if there are more founders, they perform the rights and obligations jointly (although the statute may also introduce different provisions in this respect). What is also worth emphasizing is that the founder is not responsible for the obligations of the family foundation.

Next, after submitting the declaration of will described above, the establishment of a family foundation is required (Article 17 and Article 21 et seq. of the Act on Family Foundations):

  1. Establishing the statute;
  2. Preparation of an inventory of property;
  3. Establishment of foundation bodies
  4. Contribution by the founder of property to cover the founding fund with a value specified in the statute, but not less than PLN 100,000.00;
  5. Entering the foundation into the register of family foundations.

The foundation itself - similarly to capital companies before being entered into the National Court Register - becomes a family foundation "in organization" at the moment of preparing the founding act or announcing a will. It obtains legal personality and the possibility of "full" functioning only upon entry in the register.

All of the steps described above must be met for the foundation to function.

Statute and list of beneficiaries

The most important act related to the functioning of the foundation - apart from the founding act itself - is the foundation's statute. It is established by the founder and it determines the most important issues such as the name and registered office, the rights and obligations of the founder, the method of operation, the value of the founding fund, the rules for appointing and dismissing members or beneficiaries of the foundation with the scope of their rights, and many others. Detailed requirements regarding the statute are specified in Chapter 5 of the Family Foundation Act, i.e. Art. 26 et seq.

The Act also provides for beneficiary status. Who can be a beneficiary of a family foundation? It may be a natural person, the founder himself, but also, to some extent, a non-governmental organization conducting public benefit activities. Obtaining the status of a beneficiary requires placing a given person on the list of beneficiaries, the requirements for which are described in Art. 32 of the Act on Family Foundations. The rules for maintaining a list of beneficiaries, the method of determining them, and the scope of their rights should be specified in the statute.

Foundation bodies

The legislator also listed the basic bodies through which the family foundation operates. These are: the management board, the supervisory board and the meeting of beneficiaries. Each of them has statutory, separate functions.

The main organ is, of course management. He is responsible for running and representing the foundation. He is also obliged to implement the goals set by the founder in the foundation's statute, but also, for example, to maintain a list of beneficiaries or to take care of the financial liquidity and solvency of the company.

Board of directors, as specified in Art. 64 of the Act on Family Foundations, is an optional body - it is the founder who decides whether to establish it, unless the number of beneficiaries exceeds 25 people, then a supervisory board must be established. Its members are generally appointed for a 5-year term of office, although the statute may provide otherwise. The basic tasks of the supervisory board are to exercise supervisory functions for the management board in terms of compliance with the law and statutory provisions. The statute may, of course, extend these powers, in particular by specifying that the management board is obliged to obtain the council's consent before taking a specific action.

Beneficiary Assembly it is an obligatory body under all conditions. It is composed of all beneficiaries who have been granted the right to participate in it in the statute. As a rule, they are convened by the management board, unless the founder provides separate provisions in this respect in the statute. Its main task is - similarly to similar bodies in commercial law companies - to adopt the most important resolutions regarding the foundation's current activities.

Can a family foundation conduct business activities?

The answer to this question results directly from the Act. Article 5 stipulates that a family foundation may conduct business activities, but only to a limited extent. This means that the foundation cannot operate in an unlimited manner as an entrepreneur, but only within the scope of the catalog of activities listed in the Act. These are activities directly related to the goals of the foundation, and preventing it from conducting them - which was initially considered at the stage of legislative work - would, to a certain extent, distort the sense of establishing the institution itself.

The most important areas of economic activity of a family foundation permitted by law include: disposal of property, unless the property was acquired solely for the purpose of further sale; rental, tenancy or similar legal relationships, joining commercial companies, investment funds, cooperatives and entities of a similar nature. Primarily for those based in the country but also abroad, as well as participation in these companies, funds, cooperatives and entities, purchasing and selling securities and similar financial instruments, and granting loans to specific entities.

The legislator decided on an interesting solution that would mobilize the founder and the foundation's bodies to comply with the above regulations. It introduced a higher than general corporate income tax (25%), which the foundation will pay only on income obtained from business activities other than those described in the Act. The institution of a family foundation is therefore introduced for a clear purpose and the act is constructed in such a way as to achieve this purpose. It is not a broad business activity as such, because commercial law companies operate for this purpose, including: through tax solutions - the legislator wants to discourage future founders of the foundation from using it as an entity essentially conducting business activity.

Taxation of a family foundation – basic issues

Analyzing individual tax issues one by one, we should start from the moment the foundation was established. Both the establishment and payment of the estate will not be taxed in any way - not only will we avoid corporate income tax, but also tax on civil transactions, and the founder will not pay PIT. Similarly - as indicated above - the economic activity of a family foundation carried out to the extent permitted by law will not be subject to taxation. Other business activities will be taxed with increased CIT of 25%.

In the case of liquidation, however, the situation is not so rosy - the distribution of assets will be subject to CIT taxation 15%.

The same CIT rate will apply in the event of a benefit to the beneficiary.

These are basically three basic situations in which the foundation will be obliged to pay tax (other business activities 25% CIT, distribution of assets after liquidation 15% CIT and benefits to beneficiaries - 15% CIT.

Finally, it is also worth describing the situation of beneficiaries who are natural persons who receive benefits from the foundation. As a rule, they are obliged to pay 15% PIT tax. Taxation is therefore double - firstly towards the foundation 15% CIT from the distribution of assets, and then 15% PIT towards the beneficiary. However, the legislator provided exemption from personal income tax for people with the so-called "group zero", i.e. for the group of beneficiaries constituting the founder's immediate family. This refers specifically to: the founder's spouse, the founder's ascendant, the founder's descendants, the founder's siblings, the founder's stepchild, the founder's stepfather or the founder's stepmother. They will not be liable to pay income tax on benefits received from the foundation.

Is it worth establishing a family foundation?

A family foundation is undoubtedly an interesting, effectively functioning abroad and development option for many entrepreneurs. It is difficult to clearly decide at this stage how it will be accepted in our country and how it will find its place in legal transactions. In its theoretical form, it can be a great help for all entrepreneurs who run family businesses and who want their continuity to be maintained and unwavering. So far, individual entrepreneurs have had to be creative in their approach to securing succession by creating external entities or appropriately constructing wills, which still did not provide 100% with a guarantee of security.

A family foundation, however, allows for the full implementation of the founder's interests and the protection of both the property and the interests of individual heirs. We are talking here about both the strictly property sphere and the personal sphere, after all, in the event of inheritance of a business, there may be a test of strength and ambition between the heirs. What is also important, the institution of a family foundation is so simple that it should be available not only to large companies with extensive resources, but also to small or medium-sized entrepreneurs managing family businesses.

Since, as part of the Law Firm's activities, we follow the legislative and implementation process regarding a family foundation, we will be happy to take on further orders regarding it. This is not only about preparing the necessary documents, but also advising on the need to create a foundation in a specific case, determining appropriate asset management and assessing all business and legal options that would determine its establishment and shape.

We therefore encourage you to contact directly through the channels available on the Law Firm's website, but also by phone or e-mail!

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