THE FOUNDATION COMPANIES LAW 2017

Published 27 Mar 2018

ADVANTAGES

  • Separate legal personality
  • Limited liability
  • Offers the same benefits and advantages as a trust
  • Purpose of the Foundation Company can be hybrid and allow a philanthropic element
  • By-laws have more relevance than Letter of Wishes
  • Hybrid between a company whilst also giving room for succession planning
  • Ideally suited for higher risk assets such as shares in a family business, as no duty of care is owed to any potential beneficiaries, but to the Foundation Company itself
  • No accountability to the beneficiaries
  • Existing company and trust governing laws
  • More relevant and better understood for clients resident in civil law jurisdictions who might have concerns about the tax treatment of trusts
  • Protection against claims in foreign courts due to the "firewall" feature in the Trusts Law (Revised)

CHARACTERISTICS

  • It is a company under Cayman Islands' law
  • It has a separate legal personality
  • It has a certificate of incorporation, and Memorandum and Articles of Association
  • It has a board of directors and a company secretary
  • It can be limited by shares or guarantee
  • It has members, whose liability will be limited
  • It is exempt from any Cayman Islands' taxation

DISTINGUISHING FEATURES FROM A COMPANY:

  • It can exist without members after incorporation
  • May have by-laws dealing with the governance of the foundation and distribution of assets to beneficiaries
  • May have a supervisor to oversee the board of directors
  • May grant another interested persons (founder) rights and powers
  • Cannot distribute dividends or assets to its members

FORMATION

The formation process for a Foundation is exactly the same as that for a traditional exempted Cayman company. It must fulfil the following criteria:

  • Limited by shares or by guarantee, with or without share capital;
  • Has a memorandum that states the following:
    • That the company is a Foundation
    • Generally or specifically describes its objects
    • Provides for whom and how the surplus assets or profits will be disposed of on winding up
    • Prohibits dividends or distributions of profit to its members
  • Has adopted articles
  • Has a qualified person as secretary

BY-LAWS

This is the main document that will govern the business of the Foundation.

  • It is issued by the Founder
  • Similar to a Letter of Wishes for a trust, but can be legally enforced
  • Private and confidential - not part of the Foundations constitution
  • Can be easily amended by the Founder or any other person entitled to do so as per the Constitution

The Founder could include in the by-laws:

  • Entitlement of the beneficiaries to receive capital and income
  • Investment strategies to be adopted and any preferred investment advisors
  • Purchases of assets and who is entitled to benefit from them
  • Rules regarding the make-up of the Board of Directors and the management of the Foundation
  • Remuneration for connected parties

An existing company can also be converted into a Foundation. The Registrar of Companies will issue a special certificate declaring that the company is now a foundation.

PARTIES

A Foundation Company must have the following:

  • Board of Directors and Officers (this can be anyone and there must be at least one Director - that individual doesn't have to be resident in Cayman)
  • A Cayman qualified Company Secretary (responsible for performing and recording all anti-money laundering investigation on assets held in the Foundation Company and is subject to criminal penalties for failing to do so)
  • Members (no financial interest in the Foundation Company but rights to attend general meetings)

It may choose to also have, but there is no requirement to have:

  • A Founder
  • A supervisor (has to be granted right to become a Supervisor in the articles) has rights of enforcements against Directors to enforce the Foundation Company's constitution and by-laws; this can be the same person as the Director
  • Interested Persons
  • Beneficiaries

CONSTITUTION

The constitution of a Foundation can be incredibly flexible. It can allow for how the Foundation will be managed, give rights, powers and duties to any type of members, directors, officers, supervisors, founders or others concerning the Foundation. If the Constitution is silent on how the powers are to be exercised, the law contains default positions as to how the powers will apply.

A foundation must have one or more members at the time of incorporation, but after the Foundation has been incorporated, it can cease to have members, as long as it has one or more supervisors. A supervisor is a person, other than a member, who has voting rights at general meetings or rights of access to some of the accounts, records or Foundations information.

The Foundation can be altered if the Constitution allows for it. If it is silent in this regard, the Foundation, its secretary, an interested or authorised person under the constitution, or a liquidator, can apply to the Court for an order to alter the Constitution.

OPERATION AND MANAGEMENT

The registered office of the Foundation must be at its secretary's business address. The secretary can be changed at any time by the appointment of another qualified person and giving notice and payment to the Registrar.

A Foundation must maintain a register of supervisors at its registered office. Any changes must be notified to the Registrar within 60 days.

POSSIBLE USES

  • Family provision acting as Private Trust Company for a Trust
  • Single assets ownership for a house or a yacht
  • Business succession planning
  • Philanthropy
  • Family Office
  • As Protector or Enforcer of a Trust

FEES

Registration fees for incorporating a new Foundation are US$609.75.

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