In 2023 after waiting for more than 10 years, the Polish legal regime will allow for the creation of a family foundation. The act was signed by the President on 6 February 2023.
Family foundations are to provide for mechanisms, which will allow to protect the family assets against division as a result of inheritance, manage the property efficiently and satisfy the family needs. They will be suitable for family companies and enterprises, which often after their founder's death face a threat of division between the heirs, sale and as a consequence takeover by people from outside of the family, such as the other founder's shareholders.
The legal regulations governing the foundations in general make the simple succession of a family company impossible, since they focus on the protection of rights of individuals, such as the heirs, partners/shareholders etc. To protect themselves and their assets, the entrepreneurs now often set up investment funds based on family assets or use institutions known in foreign legal regimes, such as trusts.
A family foundation will be a legal person set up by a founder in order to collect property, manage it on behalf of beneficiaries and make appropriate payments to them. It will operate based on the statutes adopted by the founder, which will stipulate detailed purpose for which the family foundation is established and the provisions of the act.
The family foundation will get legal personality once registered in the register of family foundations, which will be maintained by the Regional Court in Piotrków Trybunalski.
Family foundation and business activity
A family foundation can run business activity, but only in certain areas. It will be allowed to: (i) dispose of assets; (ii) lease, rent or otherwise make its assets available; (iii) join and participate in commercial companies, investment funds, cooperatives and similar entities both domestic and foreign; (iv) acquire and dispose of securities, derivatives and other similar rights; (v) grant loans to entities associated with the family foundation; (vi) trade in foreign means of payment owned by the family foundation to make payments related to its operations; (vii) produce agricultural and animal products processed otherwise than in an industrial way, provided that the volume of the agricultural or animal products from their own crops or breeding used in their production constitutes at least 50% of this product; (viii) manage forests.
A founder can be a natural person having full legal capacity. The founder's declaration of intent should be made in the form of a notarized deed of incorporation or in a notarized testament. In the first case, it is possible to have the foundation set up by more than one founder. What is more, the bill allows the founder to entrust their rights to another person. Unless the statutes stipulates otherwise, as long as the founder lives, he/she is authorized to appoint and dismiss members of the foundation's bodies.
The next step is writing statutes and making a list of assets.
In addition to general information such as: the foundation's name and registered office, the value of the founding capital, the duration of the foundation, information on how the statutes can be amended, the rules of operation of the family foundation's bodies and its representation, the notarized statutes needs to specify: the purpose of the foundation, the types of the beneficiaries, the scope of rights of the beneficiaries, the rules of maintaining the list of beneficiaries, the principles and procedure of waiving the rights by the beneficiaries, the beneficiaries authorized to participate in the meeting of beneficiaries and designation of the property after the foundation is dissolved. The statutes may also specify how the foundation's bodies can cooperate, the specific circumstances of dissolution of the foundation and the instructions concerning the investments of the assets of the family foundation.
The founding capital must be no less than PLN 100,000.00 (app. EUR 25,000.00). The assets to be used to cover the founding capital must be entered on the list of assets. As the foundation will operate, this list will be updated by the management board and should include all the property assets contributed to the foundation by the founder or other individuals. What is more, it should specify the type and the value of each contributed asset in the amount specified according to the status and prices on the moment of its contribution and their tax value.
The assets of the foundation are to be used to transfer monetary funds, items or rights to beneficiaries for use, in compliance with the provisions of the statutes and based on the list of beneficiaries. Payments may be made subject to specified conditions and on specified dates. They may also be paid to those who are not yet eighteen years old, and the statutes may stipulate that these amounts must not be administered by the underage's parents.
The nature of the family foundation allows to make payments of childcare maintenance or legitimate portion of the inheritance otherwise due from the founder to the beneficiaries. These obligations are satisfied by the foundation in the first place.
Who are the beneficiaries?
A beneficiary may be a natural person (including the very founder) or an NGO running a public cause activity. Beneficiaries are entered on the list of beneficiaries, which specifies: the name, tax ID number or number of passport or ID card for those who do not have the tax ID number, parents' names, address (of domicile or for deliveries), other data necessary to make the performance (for instance bank account number). According to the bill, if the beneficiary so wishes, they can give up the status of a beneficiary by a written statement with a notarized signature.
Each beneficiary of a family foundation has non-transferable rights and obligations, such as for instance: (i) the right to obtain information on the operations of the foundation, in particular to have access to the documents, including financial documents and to demand that the management present explanations; (ii) the right to make comments, express opinions and formulate instructions for the foundation bodies; (iii) to participate in the beneficiaries meeting, (iv) to cancel the beneficiaries meeting called thereby, (v) the right to obtain extracts, certified copies and certificates from the register of family foundations.
Beneficiaries meeting is one of the main bodies of the family foundation established in the statutes by the founder. It is composed of all beneficiaries who have been granted that right in the statutes. This body is a managing and supervisory body in the family foundation. This managing element is important in particular after the death of the founder, when the meeting is authorized to appoint and dismiss members of the management board and supervisory board (if any). The supervisory element is in turn implemented by the beneficiaries meeting by adoption of resolutions on: (i) consideration and approval of the financial statement for the previous financial year; (ii) granting the vote of approval to members of the foundation's bodies; (iii) distribution or coverage of the net financial result, (iv) selection of the audit company in the event of an obligatory audit of the financial statement; (v) other matters provided for in the act or statutes. In principle the validity of the beneficiaries meeting is not conditional upon the number of the represented votes. Nevertheless, resolutions concerning the appointment or dismissal of members of the foundation's bodies need to be adopted at a meeting, in writing or via means of distance communication, with the participation of at least a half of its members.
Let me just mention that the foundation also has the management board and may have a non-mandatory supervisory board. However, since these are typical corporate bodies of legal entities and the family foundations bill does not contain any special or other regulations concerning them, they are not covered by this article.
Liability for obligations
The family foundation and the founder are liable jointly and severally for the obligations of the founder (including the child support obligations/alimonies) that were incurred before it was established, as well as for the child support obligations of the founder that occurred after the foundation was established. The liability of the family foundation is however limited to the value of the contributed assets according to their status as at the moment of their contribution but based on the prices thereof applicable as at the moment of satisfaction of the creditor. However, at the same time the founder is not liable for the obligations of the foundation.
Finally, it should be pointed out that the family foundation will be terminated in the following 5 circumstances: (i) the lapse of time for which it was established, implementation of the purpose or the impossibility to implement the purpose; (ii) if the foundation is managed in the way contrary to its purpose or interest of the beneficiaries; (iii) continuation of the operation of the foundation is groundless for other material reasons; (iv) the end of the bankruptcy procedure; (v) there have been circumstances referred to in Art. 105 of the act which concern the negative financial situation of the foundation or the failure to perform obligations related to the registration of the foundation and filing of the financial statements.
Is it still a foundation?
Even though the legislator uses the term "family foundation", this institution seems to have more in common with the commercial companies rather than the foundation known in the Polish legal regime. The activity of a "traditional" foundation is regulated and specified mainly by the statutes adopted for it by the founder, who gives the foundation measures to implement the purpose. To implement this purpose, the foundation may but does not have to conduct business activity. The operations of the foundation are supervised by the respective state bodies, while statutory provisions of law merely create frames for its operations.
The family foundation, as it was pointed out above, is specifically governed by the act, and there are not many issues left to be governed by the statutes and they follow mainly from its family nature. The main purpose of its operation constitutes the collecting and managing the assets through business activity run in order to guarantee funds to satisfy the beneficiaries. In order to implement this purpose, it is supervised by the beneficiaries or supervisory board, which will be supported by audit company if the provisions of law so require.
Is the family foundation going to meet the hopes of entrepreneurs and the legislator to keep the assets of Polish, family companies in Poland? We have to wait with the answer to this question until it starts to operate in practice. However, already at the very stage we may speculate that the high founding capital necessary to set up a family foundation may constitute a kind of an obstacle for some interested parties. What remains an open question are also the organization and administrative issues and the fact how a single court going to deal with setting up and maintaining a register of family foundations.
Another question I would like to ask is whether we are really dealing with a foundation? Or maybe it is already a company? This issue seems to be a starting point for further discussions.
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.
