winheller.com

German Corporate Foundations

What is a corporate foundation?

The distinctive feature of corporate foundations is – especially in comparison with community foundations – their asset structure and the purpose of the foundation. The central part is a company, i.e. an entity engaging in a commercial activity having its own name (company name).

The purpose of the foundation is the preservation of that company and the appropriation of profits in accordance with the foundation's purpose. This is the reason, why the internal bodies of the foundation generally have the decision-making authority in respect of all fundamental entrepreneurial decisions. There are two forms of corporate foundations, the so-called Unternehmensträgerstiftung (company-operating foundation) which is a foundation organized to conduct the business of a company, and the so-called Beteiligungsträgerstiftung (shareholding foundation) which is a foundation organized to hold shares in a company.

The company-operating foundation as a legal framework

German Corporate Foundations

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 competent 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 foundation's company consists of individual parts of the foundation's assets, the foundation authority, ultimately supervises the commercial enterprise. This supervision does not only limit the freedom of action of the company's decision-makers but it also slows decision-making processes. Hence, today, companies are rarely exclusively operated by a foundation.

Advantages of the shareholding foundation

In contrast to the model of the company-operating foundation, the shareholding foundation only holds shares in 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 are also conceivable.

Holding individual shares in companies (for instance, shares of a large group of companies) does not make a foundation a corporate foundation. Rather, the shares held in companies contribute to a diversified investment of assets.

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 rest with the foundation's bodies, and this is perfectly in line with the intent and purpose of a corporate foundation.

Can corporate foundations be charitable?

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. As, in most cases, the company's profits are also intended for the benefit of the general public, a possible "charitable status" is also conceivable. In such case, the purpose of the foundation would have to be aimed at pursuing charitable, religious, altruistic or public-benefit purposes. By the way, even charitable foundations are allowed to distribute one third of their proceeds to the founder and his closest relatives without losing their "charitable status". The so-called "double foundation" model provides for the splitting of control and distribution rights into two foundations: While the charitable foundation receives the major part of the profits and pursues public-benefit aims, the family foundation holds the majority of voting rights and thereby retains control of the corporate strategy.

Advice necessary even beyond foundation law

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 already requires quite a lot of time, in most cases, a 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. Our attorneys specializing in foundation law will be very pleased to assist you in your reflections and in implementing your plans.

Your attorney for corporate foundations

Your attorney for corporate foundations

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? Your competent contact partner is Attorney Boris Piekarek. Please feel free to contact us at any time. The easiest way to reach us is by e-mail (info@winheller.com) or by phone (+49 (0)69 76 75 77 80).

News

References

1563715294 >

Advising the nonprofit foundation (Germany's first crypto foundation) on its establishment as a hybrid foundation and equipping it with IOTA tokens.

1563715294 >

Advising the nonprofit foundation (Germany's first crypto foundation) on its establishment as a hybrid foundation and equipping it with IOTA tokens.

Contact

Contact

Awards

Juve Award Legal 500 Germany 2019 azur100: Top Employer for Lawyers 2018
Focus Top Law Firm 2018