A Foundation is often described as an incorporated trust. It is a legal entity which combines favourable attributes of both a company and a trust which are potentially advantageous for individuals in civil law jurisdictions as they do not recognise the autonomous legal status of a trust or follow the law of equity.
A foundation:
- has a separate legal personality, like a company
- has no shareholders
- holds assets in its own name
- can contract with third parties including finance transactions
- can sue in its own right
- can be charitable or non-charitable
A foundation consists of two documents – the Foundation Instrument and the Foundation Rules.
Foundation Instrument – this is a short document which is held on public record and states the reason for establishment of the Foundation – referred to as the Objects. The document also lists the name of the Foundation, the Foundation’s council members’ names and addresses and the name of the Isle of Man Registered Agent appointed to act on the Foundation.
Foundation Rules – this is the private set of rules detailing the internal governance of the Foundation. Isle of Man legislation dictates the minimum factors to be covered by the Foundation Instrument which includes the procedures for appointing and removing council members, remuneration of the Registered Agent and the Founder’s powers.
The individuals involved with an Isle of Man Foundation are:
- The Founder – this is the ‘person’ who requests that the Foundation be established. They do not need to be a Dedicator and the Founder can retain certain powers regarding the Foundation’s activities via the Foundation Rules, and these powers can also be assigned.
- The Dedicator – this is any ‘person’ who places asset(s) in to the Foundation. It is often the same person as the Founder but does not need to be.
- Foundation Council – this is similar to a board of directors. The Council must comprise of at least one member and that member may be a corporate entity. The member(s) must carry out the Foundation Object(s), act in good faith and within the scope of the Foundation Rules. Founders and/ or Dedicators can also be Council members but care must be taken on the number of non Isle of Man resident council members. There should always be a majority of Isle of Man Council members to avoid possible tax complications.
- Enforcer – the Enforcer may be an individual or a corporate entity and an Enforcer must be appointed, unless the Foundation is established for wholly charitable purposes. The Foundation Council is accountable to the Enforcer, who is responsible for ensuring that the Object(s) of the Foundation are being met.
- Beneficiary – this is an individual or a group or class who are permitted to benefit from the Foundation as per the Foundation Object(s). Beneficiaries have no legal automatic right to foundation income, unlike with trusts, but may have wider rights to information on the Foundation’s activities than is typically the case with trusts.
- Registered Agent – an Isle of Man Foundation must appoint an Isle of Man licensed Registered Agent which must be a Class 4 license-holder under the IOM Financial Services Act 2008. Cavendish Trust holds the required Class 4 license. The Registered Agent is responsible for arranging establishment of the Foundation and for undertaking certain administrative duties.
The advantages of an Isle of Man foundation include:
- The Foundation’s separate legal personality means all liabilities remain corporate liabilities of the Foundation and do not attach to Foundation members. This limitation of liability:
– provides the ability to hold potentially riskier assets, which trustees may be unwilling to hold.
– removes the complications of trustee indemnities on retirement or distribution of assets. - Unlike some other offshore jurisdictions, the Isle of Man Foundation does not require the Foundation Council to comprise local licensed individuals.
- The Founder can be a member of the Foundation Council and also the Enforcer and is thus able to retain an element of ‘control’ over the Foundation’s assets and activities.
- A Foundation does not have a perpetuity period, which trusts currently are required to include.
- Possible use with additional structures, i.e. Private Trust Companies to provide ‘orphan’ planning flexibility
- A Foundation has limited public filing requirements meaning there is limited information available to the public.
- Foundations are deemed to be more robust to the pitfalls of sham allegations, sometimes claimed with trust structures.
- Foundations possibly serve to cater for a number of commercial functions not typically associated with trusts, i.e. to hold or control assets of a trading nature.
- Foundations provide a more flexible solution to will planning where beneficiaries may reside in civil law and non civil law jurisdictions.
- Foundations therefore provide an attractive family planning and asset management structure.
Cavendish Trust is able to provide comprehensive services associated with all elements of the establishment and management of Isle of Man Foundations, to include acting as Registered Agent, Council Member and/or Enforcer.
Please contact the following members of our team with any Isle of Man Foundation enquiries:
James Cunningham-Davis – Email: jcd@cavendishtrust.com
