The distinctive feature of a corporate foundation in Germany is its asset structure. The central part of the assets consists of a business company, i.e. an entity engaging in a commercial activity. The corporate foundation either runs the company itself (company-operating foundation, Unternehmensträgerstiftung) or holds substantial shares in the company, which exists as a separate legal entity (shareholding foundation, Beteiligungsträgerstiftung).
The intent of a corporate foundation is the preservation of that company and the distribution of profits in accordance with the foundation's purposes which can be either charitable in nature or non-charitable, depending on the will of the founder and the organizational documents and bylaws of the foundation.
As the company-operating foundation itself conducts the activities associated with the company's business, it is the owner of all related rights and obligations and, thus, forms the legal framework of the company, just like other legal forms under German law (e.g. GmbH or AG). However, as foundations have no members or shareholders of their own, they are subject to state supervision. The responsible foundation supervisory authority will carry out annual reviews in order to verify whether the company's activities still comply with the purpose of the foundation, which has to be strictly observed. The authority also needs to be involved in case of any important decisions like restructuring the foundation's assets. As the company is an integral part of the foundation, the foundation authority ultimately supervises the commercial enterprise. This supervision does not only limit the freedom of action of the foundation's decision-makers but it also slows decision-making processes. Hence, today, companies are rarely operated by a foundation.
In contrast to the model of the company-operating foundation, the shareholding foundation only holds shares in one or more companies having a different legal form. In most cases, the company itself has the legal form of a GmbH (German limited liability company), although other legal forms (e.g. the AG, German stock corporation) are also conceivable.
Holding individual shares in publicly traded companies does not make a foundation a corporate foundation. The nature of a corporate foundation, on the contrary, is to own the sole or at least a majority control of a company. By holding the shares in the company, the foundation has a corresponding influence on the company, which means that direct instructions may be given to the managing directors especially in case of a GmbH. The final entrepreneurial decision-making powers remain with the foundation's bodies, and this is perfectly in line with the intent and purpose of a corporate foundation.
Often corporate foundations are established within the context of succession plans for medium-sized companies. If the descendants are designated as beneficiaries, the foundation is also called a family foundation. If, however, the company's profits are intended for the benefit of the general public, a charitable status is also possible.
Are you considering a foundation in planning your company succession? If so, you should take care of the necessary preparations early on. In addition to the establishment of the foundation, which in itself can be a complex undertaking, in most cases restructuring of the company will have to be implemented beforehand.
In this context, besides the mere foundation law, aspects of corporate law, labor law, tax law, and inheritance law will also have to be taken into account. Most foundations are intended for eternity – hence, you should thoroughly think about the desired structure and design and we should take our time to discuss your needs. Our attorneys specializing in foundation law will be very pleased to assist you in your reflections and in implementing your plans.
Do you have questions relating to corporate foundations or do you wish to set up a corporate foundation? Do you have urgent questions in your capacity as a foundation director?
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