Types of Foundations

No unified Foundations Code

The law of foundations is not a separate, unified legal field. There is no “foundations code” or similar regulation; instead, the regulations that govern foundations are distributed among various state and federal laws. Thus, it should come as no surprise that there are a number of different types of foundations. We will be glad to help you find the type of foundation that best suits your requirements.

Charitable Foundation – Family Foundation – Business Foundation

The most frequently encountered form of a foundation is the charitable foundation. These generally pursue community-welfare goals. For many years, such foundations have enjoyed tax advantages of various different kinds. The founder determines the specific charitable goals that the foundation shall pursue. Once the goals have been established, the foundation is required to pursue them even after the founder's death.

The idea of placing one's wealth, or a part of it, at society's service resonates with more and more people every day. Often, the founder is motivated to give something back to society, after profiting from it for decades, for instance as a successful businessperson. Many businesspeople are able, by founding a charitable foundation, to make a successful transition into retirement. During the founder's business career, the company profited from his expertise and experience; now, in retirement, the foundation benefits from it. The maximization of personal and company profits is no longer the primary goal. Rather, founder's current activity is oriented to the maximization of benefit to the community, and the personal satisfaction gained from good works. Frequently, the recognition the founder (rightly) enjoys for his good works is also an important motivation.

A minority of German foundations advance not community, but private-welfare goals. A sub-class of private foundations is the family foundation, which is essentially designed to serve the interests of one or more families. Further, various mixed forms are provided for by the law of foundations. Thus, even for a charitable foundation, the purpose of providing for family members can also be taken into account. Provided legal requirements are met, this can be done without endangering the foundation's favorable tax treatment. Business foundations are also permitted. These involve foundations that are organized to conduct the business of a company or which possess shares of a company. Whether they are charitable or private foundations varies from case to case.

The tax law and foundations law aspects of non-charitable foundations are many and complex. The law of foundations cannot be adequately captured by generalities. In each case, it is necessary to determine which form is most advantageous to the founder, given his or her particular life situation.

Independent Foundation – Trust Foundation

Unlike an independent foundation, which is a legal person itself subject to rights and duties, the trust foundation is not an independent legal entity. A trust foundation is created when the founder's assets are conveyed to a trustee or an existing foundation, which then invest them and use them for a purpose to be determined by the founder. A trust foundation, unlike an independent foundation, can be founded with a very small amount of capital. Further, it is not subject to government oversight. Of course, even for independent foundations, there is no set minimum contribution that the founder must deposit at the beginning. However, in most cases, it is generally only sensible to consider creating a foundation with assets of at least Euro 100,000. Another possibility is to make a small initial deposit to the foundation while the founder is alive, and then convey the larger portion of the assets at the time of death.

However, there is an exception to every rule: The so-called “community foundation” that has been well-established in the USA since long and that has become very popular in recent years in Germany as well can generally be founded with a smaller initial capital deposit. In contrast to an ordinary independent foundation, a community foundation is usually created not just by one or a few initial founders, but – as the name implies – from a larger number of citizens.

The creation of a trust foundation is usually faster and easier than an independent foundation. However, when large asset amounts are involved, an independent foundation may make more sense. In the case of trust foundations, it's necessary to carefully evaluate the interests of the trustee: Is it possible that he specializes exclusively in the administration of trust foundations, and is therefore incorrectly advising against the establishment of an independent foundation? Is the administrative cost structure transparent? Can the trust foundation realize all of the founder's goals, or will the trustee have to amend the charter or seek the assistance of another trustee?

Revenue-Generating Foundation – Principal-Depleting Foundation

A foundation is generally intended to exist forever. Some foundations are already hundreds of years old. The goals of a typical foundation are usually realized through revenue generated by the foundation's principal. Lately, however, more and more state foundations laws have opened up the possibility of principal-depleting foundations, that is, foundations that do not rely solely on their revenues, but also use up their principal, so that after a certain point of time, the foundation will cease to exist when its assets are fully used. The decision whether a principal-depleting foundation is the right vehicle for the founder's goals, and whether it is permitted by local state law, is a matter for case-by-case analysis.

German Foundation – Foundation in a Foreign Country

Unless a foundation is being considered for illegal purposes, a German citizen who wishes to establish a foundation will generally prefer to do so under German law. However, the establishment of a foreign foundation can also be appropriate – and legal – in certain cases. Foundations created according to Swiss or Austrian law, or the law of Liechtenstein, would be the most common options here. The decision whether to go beyond Germany's borders and, if so, which country to choose, requires a careful weighing of all benefits and disadvantages. In particular, tax consequences must be carefully analyzed when considering a foreign foundation.

Alternatives to Foundations

Not all foundations are the same. In addition to the legal form of an ordinary foundation, there are other forms which can operate in the form of a German GmbH (limited liability company foundation, or GmbH foundation) or in the form of a membership group (group foundation, or association foundation). One advantage of such legal entities, of which there are many prominent examples, is the lack of regulation by government agencies. Neither GmbH foundations nor group foundations are subject to official regulation by relevant charity-oversight agencies.

Your German Foundation Attorneys

German Foundation Attorney

If you are looking for advice regarding which foundation best suits your intentions,

are here to help. You can reach them via e-mail (info@winheller.com) and by phone (+49 (0)69 76 75 77 80). Please do not hesitate to contact us.


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

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




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