In first episode of Foundations 101 Podcast, Legal Director Kath Zagatti and Managing Partner Yann Mrazek discuss foundations’ basics.
What is a foundation
A foundation is an independent legal entity that holds assets separately from the founder’s personal wealth. It shares similarities of functions and mechanisms with both company and trust, while not strictly considered a hybrid of the two.
It is similar to a company in that it has its own legal personality. However, it does not issue shares or any other legal title of ownership – it is an “orphan” structure. A foundation must further have one or more objects, which may be a purpose and/or serve for the benefit of beneficiaries, just like a trust.
A foundation is governed by its charter and by-laws, which together reflect the desires of the founder. It is managed by a foundation council and may be supervised by a guardian.
The assets of a foundation are owned by the foundation in its own name and maybe held directly by the foundation or consist of shares in an underlying company.
When is it used?
Foundations are being used for a variety of reasons, chief among which are:
- Wealth structuring, succession and estate planning
- Asset protection (forced heirship rules, creditors and hostile takeovers)
- Long term holding structure for businesses
- Charity and/or philanthropic purposes
Foundation and trust
Generally speaking, foundation regimes provide more flexibility with regards to the powers of the founder. Foundations having their own legal personality offer advantages in the management of operations and are more widely accepted in civil law jurisdictions like the UAE where trusts often face ownership restrictions.
- Distinct legal entity:A trust is a contractual agreement; a foundation forms a distinct legal entity. Ownership of assets: Foundation legally owns assets in its own name and can enter into contracts, in a trust relationship; trustee legally owns the assets and enters into contracts on behalf of the beneficiaries.
- Registration:Foundation must be registered. Trusts are not registered
Compatible with all asset classes (Dubai Real estate, shares, portfolios), foundations enable both Muslims and non-Muslims to consolidate and protect their assets against attacks as well as exclude these assets from probate.
Kath Zagatti I. De Moura