An introduction to Guernsey Foundations

Published 25 Nov 2014

The Foundations (Guernsey) Law, 2012 (the Law) was approved by the States of Guernsey on 25 July 2012 and came into force with effect from 7 January 2013.

 

What is a Guernsey foundation?

A Guernsey foundation has some of the characteristics of a company (such as separate legal personality) and some of the characteristics of a trust (such as the ability to hold assets for the benefit of others). It must, however, be considered as a separate type of entity in its own right which cannot be fully defined by reference to a traditional trust or company structure.

 

Formation of a Guernsey foundation

A Guernsey foundation is formed by one or more founders, who could be one or more individuals or bodies corporate, who provide assets to the foundation. 

Initial capital

The initial capital endowment may comprise almost any type of asset wherever it is situated. There is no minimum initial endowment required to establish the foundation. A foundation can be therefore set up without transferring much capital or significant assets, which might be useful under certain circumstances.

Purpose and benefit

A foundation can be established for either a purpose/s or to benefit beneficiaries or both. The purpose/s can be charitable or non-charitable. This may be desirable for those founders wishing to set up a company structure but with the flexibility of a trust.

Separate legal personalities 

Foundations have a separate legal personality, like a company, and therefore can contract, sue and be sued, in their own capacity. 

 

Components of a Guernsey foundation

A Guernsey foundation has the following component parts: 

  • A constitution made up of a charter and a set of rules.
  • A council to administer the foundation.
  • A founder to provide the initial endownment. 
  • Depending on the terms of the foundation, a guardian. 

A Guernsey foundation will be administered in accordance with its constitution which is made up of a charter and rules (if any), much like a memorandum and articles of a company.

Charter 

A Guernsey foundation must have a charter which will state: (a) its name; (b) its purpose; (c) its initial endowment; and (d) its duration (but only if it is to have a limited duration). The charter may also contain other matters which the founder wishes to include. 

Rules 

The rules must: (a) prescribe the functions of the council; (b) detail the procedure for the appointment, resignation and removal of councillors and the guardian (if any); and (c) if the councillors or guardian are to be remunerated, make provision for such remuneration. If the obligatory aspects in the rules are instead included in the charter, it is not necessary to have separate rules for the foundation. 

The rules may provide for such other matters as the founder thinks fit, such as the addition or removal of beneficiaries and the manner in which the property of the foundation may be distributed or applied. 

 

Administration

Council 

The council administers the foundation. The councillors have a duty to the foundation to act in good faith in the exercise of their functions. This contrasts with a trust where the trustee's duties are to the beneficiaries. It is permitted for a Guernsey foundation to have a sole council member provided this is specified in the constitution. Whilst it is not necessary for there to be a licensed fiduciary in Guernsey on the council, if there is no such person, it will be necessary for the foundation to appoint a Guernsey resident agent to hold copies of the foundation's documents and records in Guernsey. 

Founder 

The founder provides the initial endowment to the foundation and must (either personally or through an agent) sign the charter. It is possible for the founder to reserve the power to amend, revoke, vary or terminate the foundation (provided that such power is set out in the charter) but such powers may only be reserved during his/her lifetime (if a natural person) or for a period of up to 50 years from the date of establishment of the foundation (if the founder is not a natural person). The founder may be a councillor or the guardian (but not both) of the foundation and may also be a beneficiary.

Beneficiaries 

A foundation must have a purpose but need not have beneficiaries. Perhaps the most innovative feature of the Law is the distinction between ‘enfranchised’ and ‘disenfranchised’ beneficiaries. The former are entitled to certain information about the foundation (such as copies of the constitution and its records and accounts) and have standing to apply to the Royal Court to enforce its terms. In contrast, disenfranchised beneficiaries have no such rights and accordingly the Law requires that a guardian be appointed to supervise the council and to represent them.

Guardian 

A Guernsey foundation is only required to have a guardian if it either has ‘disenfranchised’ beneficiaries or has been established for a purpose without beneficiaries. The guardian's function is to enforce the purpose of the foundation. The guardian may not be a councillor.

 

Registration

Resident agent 

A Guernsey foundation must appoint a resident agent in Guernsey if none of the foundation officials are licensed fiduciaries in Guernsey. The resident agent must be a Guernsey licensed fiduciary and has the right to obtain copies of the foundations' records. The foundation is also required to have a registered office in Guernsey at which all of its records are to be kept.

Registration 

To establish a foundation in Guernsey, an application must be made by a Guernsey licensed fiduciary to the Registrar in Guernsey. The application must include (a) the charter; (b) a declaration signed by the founder or resident agent that the details in the charter are correct; (c) a declaration as to whether there are to be any disenfranchised beneficiaries; (d) the names and addresses of the first councillors; (e) the name and address of the proposed guardian (if any); (f) the name and address of the resident agent (if any); (g) the address of the foundation's registered office; and (h) the registration fee. Once a foundation has been registered, its name will be inscribed in the register of foundations and it will be issued with a registration number.

The register 

The register of foundations is divided into Part A, which is open to the public, and Part B, which is not. The information which will be publicly available in Part A of the register is limited to: (a) the name and registered number of the foundation; (b) the name and address of the councillors; (c) the name and address of any guardian; and (d) the details of the registered office. 

 

Migration of foreign foundations

It is possible for individuals who have foreign foundations from civil law based jurisdictions which are outside of the law of Guernsey to apply to the Registrar to be registered as a Guernsey foundation. This may offer benefits to those individuals who seek a white list status jurisdiction for their foundation as Guernsey provides.

 

Why a Guernsey foundation? 

It is anticipated that foundations in Guernsey will principally appeal to clients from civil law jurisdictions that are uncomfortable or unfamiliar with trusts. The flexibility that is afforded by the Law will permit foundations to be used for a myriad of purposes ranging from the traditional private client wealth structures to commercial and finance transactions. The advent of the new Law should permit fiduciary companies in Guernsey to provide innovative wealth management and asset holding structures.

 

This publication is intended to provide an overview of the subject matter and is not comprehensive in nature or to be construed as legal or tax advice. We recommend that clients seek professional advice on any particular matter. 

 

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