Foundations - General Principles

To be a valid Private Interest Foundation it is essential that there are licensed Foundation Council Members

There is little doubt that the best locations are Liechtenstein, Switzerland and Panama

A ‘foundation’ is a  separate legal entity without traditional share or equity holders i.e. a self-owning legal structure. In effect, the lack of direct ownership provides for a unique stand alone structure with, once assets have been correctly transferred, no reference back to the creator of the applicable undertaking. An advantage of such structures is that their governing legislation often allow for a much greater degree of control than can be afforded to the settlor of a trust. The main difference between most foundations and establishments is that the former generally does not engage directly in commercial activities (acting as a de facto holding of investment vehicle), whilst the latter can make direct investments. In addition, an establishment can transfer ‘control’ (but not ownership, which always rests with the undertaking itself) to another transferable unit. Foundations and establishments are generally only available in civil law jurisdictions.

Who should use a Foundation?

The corollary to the argument that trusts should not be used in common law jurisdictions such as the United States and the United Kingdom (because of the well-developed trust anti-avoidance provisions) is that foundations should. In fact, in the British House of Lords case of Carl Zeiss Stiftung (‘Stiftung’ is German for a foundation) v. Rayner & Keeler (1967) App. Cas. 853 PC 1967 it was clearly stated that: “... questions relating to the constitution of a foreign corporation should be decided according to the law of the place where it was incorporated (its lex situs)”. In effect, which is very favourable, this means that an English court will use in this case Liechtenstein law to interpret the validity of a foundation and not English law. Even better, the British Inland Revenue Company Taxation Manual (part 14 sec. 8300 Controlled Foreign Companies) appears to accept that foundations/establishments should be treated as analogous to companies and hence, by definition, not trusts. The result being that much of the anti-avoidance legislation will probably not be applicable (see also the case of Westland Helicopters limited v. The Arab Organization for Industrialization (1940) 2db.282)

Where should a Foundation be registered?