Andrew Pinel, Partner
Overview
A Jersey foundation is a hybrid vehicle which borrows interesting characteristics from both a company and a trust. Like a company it is an incorporated entity having its own legal personality, which means it can hold assets, transact and sue in its own name.
The Foundations (Jersey) Law 2009 has been carefully drafted to ensure that the Jersey foundation is a highly modern and flexible vehicle which can have many different uses.
Uses
The foundation has proved popular for philanthropic, family wealth planning and succession and tax planning purposes.
It is of appeal to private clients who wish to retain a level of overview and control of the management of their private wealth structure, whilst not retaining any direct ownership or interest (unlike holding shares or being a beneficiary under a trust).
The Jersey foundation is also starting to replace the trust in commercial transactions and investment fund structures.
The Participants
The Founder and the Qualified Person
Unlike a trust, a foundation does not require any initial contribution to come into existence. Whilst the Founder is free to donate assets to the foundation, there is no requirement under the Law that he must do so.
The role of the Founder is to instruct the Qualified Person to incorporate the foundation. A Qualified Person is a business regulated in Jersey by the Jersey Financial Services Commission to carry on trust company business.
There is no requirement to disclose the identity of the Founder in the Charter (see below). The Founder may be both a member of the Council and the Guardian and may reserve certain rights in relation to the foundation and its assets.
The Council
The Council is similar in many ways to the board of directors of a company, with members of the Council being viewed as directors. It is responsible for administering the assets of the foundation and carrying out its objects (to benefit a person(s) or carry out a specific purpose which does not need to be charitable). Whilst the personal liability of the Council members can be limited there can be no exoneration for fraud, wilful misconduct or gross negligence.
Provided that one Qualified Person is a member of the Council other members can be individuals or companies. There is no limit on the number of members.
The Guardian
A foundation must have a Guardian. The Guardian could be the Founder, the Qualified Person or a committee of individuals. The Guardian is responsible for ensuring that the Council carries out its functions and, in doing so, may require the Council to account for its administration of the foundation and furtherance of the foundation’s objects. It is often the case in private wealth foundations that the client chooses to be the Guardian.
The Regulations (see below) may provide the Guardian with the power to approve or disapprove specified actions of the Council. Where an action is not permitted by the Regulations the Guardian may sanction or authorise such action be taken by the Council provided that it is in the best interests of the foundation to do so.
The Beneficiaries
A beneficiary has no interest in the foundation’s assets and is not owed a fiduciary duty by the Council. However, if the beneficiary becomes entitled to a benefit under the Charter or the Regulations and the benefit is not provided then within 3 years of the date of becoming aware of the entitlement the beneficiary may apply to the Royal Court for an order ordering the foundation to provide the benefit.
The foundation has attracted much interest as, unlike a trust, a foundation is not obliged to provide any information unless specifically required by the Law, a court, the Charter or the Regulations.
Documentation
The Charter is the public document which is submitted by the Qualified Person when making an application for incorporation. It is a simple document listing basic information required by the Law which does not need to include the name of the Founder or the Beneficiaries.
The Regulations is a private document which is not filed with the incorporation application. It is comparable to the articles of association for a company but will deal with, amongst other matters, the establishment of the Council and the appointment of the Guardian.
The application fee is £200 but there is a same day ‘fast-track’ process costing £400.
Taxation
In Jersey, the foundation is chargeable to tax at the rate of 0%. For all other jurisdictions the tax treatment will depend upon whether the particular foundation is treated by the relevant tax authority as a trust or a company. A foundation’s flexibility means it can be prepared to behave more like a company than a trust or vice versa, as shall determined by the needs of the client.
Legal support
Pinel Advocates can assist by drafting the Charter and Regulations for the Charter and we can generally agree a fixed fee.