Foundations have existed in civil law countries for many years, where the concept of a trust may not have been recognised. A number of common law countries have now enacted Foundations legislation including Guernsey where the Foundations (Guernsey) Law, 2012 came into force on 8 January 2013.
Foundations have characteristics of both a company and a trust, providing sufficient corporate characteristics for civil law jurisdictions to recognise them, and characteristics of trusts to make them an attractive option for succession and estate planning purposes.
A foundation is an incorporated entity, and therefore can contract, sue and be sued, in its own capacity, but does not have any shareholders. Instead, it holds assets in its own name, either on behalf of beneficiaries or for particular purposes. The purpose(s) can be charitable or non-charitable. It operates in accordance with its constitution and rules. Once a foundation is incorporated at the request of the founder, a foundation will act through its board (or council) which will govern the foundation in accordance with the terms of its constitution. The board members perform much the same role as trustees and can be an individual or a body corporate. Board members must act in good faith in the exercise of their functions and have other duties, similar to those of a company director, such as duty not to profit, duty to provide information, duty to preserve assets, maintain records and act impartially. Their duties are owed to the foundation as a whole, and not specifically to the beneficiaries, similar to the duties owed by a company’s director to a company.