Act XIII of 2007 introduced a Second Schedule to the Maltese Civil Code (Chapter 16 of the Laws of Malta) whereby the law governing foundations, formerly marked by its absence in the legislative framework despite being recognized in Maltese Court judgements dating back to the early nineteenth century, was elaborated and laid down in such a manner as to clarify the legal position governing these institutes. Since 2007, Malta boasts of sophisticated legislation governing foundations in the same manner as it has laid down a detailed framework regulating trusts way back in 2004- both institutes are regulated in a similar manner in many respects, although it is clearly fallacious to consider both institutes as one and the same.
The Maltese legal system boasts of a unique concoction of common law and civil law ingredients, very clearly illustrated in the presence of institutes of trusts and foundations respectively. Each institute plays a particular role in the Maltese legal system, and they offer innumerable advantages to clients/ investors seeking to find the best way to provide for their private needs. It is the tenor of this paper to illustrate the particular elements of these institutes, with focus on foundations, and the options these offer for the regulation of patrimonial effects.
In terms of Maltese law, foundations can be of two types, namely, 'private foundations' and 'purpose foundations'. A foundation is defined as an organization which consists of a patrimony that is constituted by the founder with the assets being destined to fulfill a scope that can be either for the benefit of a named person or class of persons (in the case of private foundations) or for the fulfillment of a specified purpose (charitable, philanthropic, or other social purpose or a non-profit scope). The scope of the foundation cannot, however, be of a commercial nature, that is, the foundation is not an institute that can trade or carry out commercial activities. The Maltese foundation thus varies from the commercial foundation as it exists under Swiss or Danish legislation, by way of example. The only exceptions to this rule are the provisions legislatively laid down to the effect that it is possible for a foundation to conduct any of the following:
- The foundation may be the passive owner of commercial property
or a shareholding in a profit making enterprise, a franchise, a
trademark or an income-producing asset, as well as a ship;
- The foundation may operate as a collective investment vehicle
and issue units to investors therein for the passive holding of a
common pool of assets;
- The foundation may be employed as a vehicle for securitization
purposes.
Maltese law requires the foundation to be established in writing, by public deed in the case of inter vivos setting up of foundations, or else by a will published according to Maltese law requirements whenever the founder intends the foundation to operate causa mortis. Legislation establishes the requisites that are to be included in the deed of foundation. As a juridical tool, the foundation differs from the trust concept insofar as, once the legal requirements for its valid constitution are satisfied and it is registered according to law with the Registrar of Legal Persons, it is imbued with separate juridical personality, benefitting also from the limited liability concept which is oftenmost associated with corporate legislation. The founder who establishes the foundation, must appoint an administrator/s empowered with the management and safeguarding of trust property and compliance with the statute of the organization. In terms of the Maltese legislation governing foundations, the founder may opt to establish a supervisory council which is empowered to supervise the actions of administrators, thereby overseeing the conduct of administrators in the management of foundation patrimony.
This cursory overview highlights some of the salient features of foundations which differentiate this institute from the trust. Whereas in terms of trusts legislation, the trustee is vested with trust property and becomes the fiduciary owner thereof, foundation law vests the ownership of the patrimony in the foundation itself which is vested with separate juridical personality. The Administrators are fiduciaries in the conduct of their administration/management role. It is possible for the founder of a foundation to exercise a more active role in the administration of the foundation than it would be possible for the settlor to exercise in terms of trust legislation. Thus, the founder may exercise powers specifically indicated in the foundation deed, as well as being possible in terms of foundation legislation, for the founder to be an administrator of the foundation. This would not be possible under trust law, as the over-involvement of the settlor would likely lead to the trust being considered as a sham.
Individuals considering setting up a trust under Maltese legislation are advised to take into consideration the legal advantages offered by the kindred institute of foundations, and to base the ultimate decision in terms of which institute to opt for, on a proper understanding of the characteristics of either institute that render each specifically suited for the requirements of the case at hand. This is not to say that the decision to set up a foundation or a trust is merely arbitrary but rather, the selection of the proper instrument to suit the needs of the case at hand requires a reasoned decision based on the advantages that result from one institute in the particular case. The varied plethora of options is indeed an invaluable feature of the Maltese legal system.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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