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Foundations are easily understood by clients from civil law countries

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Tim Faries (Photograph supplied)

Despite the disruption and uncertainty caused by the Covid-19 pandemic, Appleby continues to advise on cross-border solutions to meet the ever-changing needs of our corporate and ultra-high net worth clients who use global financial centres like Bermuda to structure their affairs.

The island’s enviable reputation is undeniable and we continue to lead in the formation, management and administration of innovative solutions for our commercial and long-term insurance sectors, cross-border commercial transactions, fund administration, asset management, private equity, private wealth management and, most recently, the digital asset business sector.

From our regulated platforms in Bermuda, legal advisers and licensed service providers establish various structures that include exempted companies, segregated accounts companies, partnerships, trusts and private trust companies that are used for a variety of purposes and are also offered by many of our competing financial centres.

Jason Green (Photograph supplied)

Despite Bermuda not having a foundation law, our Bermuda-based team within Appleby Global Services continues to advise, manage client relationships, assist with the establishment and daily administration of foundations — and foundation companies — using our network of international offices in the Cayman Islands, Isle of Man, Jersey, Seychelles and Mauritius.

A foundation is a hybrid of a trust and a company. Like a company, it is incorporated and becomes an entity with its own separate legal personality, capable of exercising all the functions of a body corporate. However, in contrast to a company, a foundation does not have directors, shareholders or shares but instead acts through a foundation council that will administer the assets of the foundation and carry out its objects.

Once assets are settled into a foundation by a founder, the assets belong to the foundation and are used to further the objects of the foundation which may be a specific purpose(s), for the benefit of a person or a class of named beneficiaries, in perpetuity. In contrast with a trust, where a trust’s assets are legally owned by a trustee, all of a foundation’s assets belong to the foundation.

Foundations have a variety of key features.

Charter: a charter is similar to a company’s memorandum of association as it must contain certain basic information about the foundation including the name of the foundation, its lawful objects and information regarding the dissolution, winding-up and term of the foundation.

Regulations: these are not publicly available and are similar to a company’s bylaws (or articles) — they provide for the appointment, retirement, removal and remuneration of council members and essentially form the “inner” constitution of the foundation.

Founder: this is the natural legal person who initiates the formation of the foundation, donates assets to it and defines the framework for the distribution of the foundation’s assets and specifies the classes of beneficiaries. To ensure discretion for the founder, the formation of the foundation is normally undertaken by a licensed trustee.

Council: this can be compared to a board of directors in a company, as the council is required to act honestly and in good faith with a view to the best interests of the foundation. The council has the primary responsibility of fulfilling the foundation’s purpose and administering its assets, pursuant to the terms of the charter and regulations.

Guardian (or Protector): an important feature of foundations is the existence of a guardian, who has the role of ensuring that the council governs the foundation in accordance with the terms of its charter and regulations. The guardian’s role is essential to ensure that the foundation council is held to account given the absence of shareholders and the fact that a beneficiary under a foundation has no interest in the foundation’s assets and is not owed any fiduciary duties. Among other functions, the guardian must also take reasonable steps to ensure the council carries out its functions.

Beneficiaries or purposes: foundations can be drafted to allow flexibility to provide safety for family members, generational wealth transfer, fiscal or event-driven restructuring, commercial purposes or transactions and even charitable or artistic endeavours.

A key advantage of foundations is that they are conceptually far more easily understood by clients from civil law countries who are often not comfortable with the distinction between legal and equitable ownership, a key feature of trusts.

Similarly, clients who are not comfortable with the transfer of significant assets to a trustee take greater comfort from the fact that the foundation’s assets belong to the foundation.

With economic and political uncertainty around the world, our corporate and ultra-high net worth clients are relocating to the Americas, Switzerland, United Arab Emirates and Asia. Our ability to recommend and establish foundations, foundation companies and other structuring solutions has allowed us to provide significant value for our clients.

Tim Faries is the chairman and chief executive officer of Appleby Global Services, and a partner at Appleby (Bermuda) Limited and former office managing partner. Jason Green is a director, private wealth and advisory, in the Bermuda office of Appleby Global Services. A copy of this column can be obtained on the Appleby website at www.applebyglobal.com. This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult a lawyer.

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Published November 24, 2022 at 7:34 am (Updated November 24, 2022 at 7:34 am)

Foundations are easily understood by clients from civil law countries

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