Member Article

In 2004, the Bahamas adopted the figure of the private foundation in what became the first attempt by a Common Law jurisdiction to integrate the vehicle, which has been traditionally associated with civil law jurisdictions.

A foundation is the endowment of a patrimony for a specific purpose (object), which is set forth in the document that creates and internally organizes the foundation, called the foundation charter.

The entity(ies) in charge of advancing the purposes of the foundation is (are) called the Foundation Council (the “Council”) and/or the Officers. The role of the council is fiduciary in nature and they are charged with the supervision of the officers, who have an administrative role. However, if a single body is appointed, both the administrative and the fiduciary duties will be vested upon it. The person(s) who creates the foundation is called the Founder(s) and those benefiting from the endowment, traditionally the founder(s) and/or his or her (their) family members are the Beneficiaries.

The private foundation acquires juridical personality once the corresponding extract of the foundation charter is filed with the Registrar of the Bahamas. Consequently, the property given- or to be given to the vehicle becomes an estate separate and apart from the founder.

Beneficiaries are designated in the foundation charter, which is not required to be filed with the Registrar, and is therefore confidential. The founder may be more specific, if so desired, by issuing a private document called “by-laws”, which must be brought before a notary public and copy kept at the registered office of the foundation.

The foundation has no owners per se. Unlike a corporation, it issues no shares and therefore recognizes no shareholders. The founder acquires no rights regarding the foundation’s patrimony except for those expressly provided for in the Law, the foundation charter and/or the by-laws. The Law recognizes the beneficiaries or persons in whose benefit the foundation was created, which may include the founder, and grants them certain rights such as receiving information under specific circumstances.

The possible applications of the foundation are so broad that we are certain that any purpose that may be achieved through a trust may also be achieved through a properly structured private foundation.

 

In most cases, private foundations are used as the ultimate holder of a specific patrimony, which is managed by professionals for the benefit of the founder and/or other beneficiaries. This instrument allows for the founder to establish a coherent plan for the transfer of property or the disposition of his or her patrimony, in an orderly fashion, in case a specific event, established in advance, were to occur.

Characteristics of the Private Foundation

Among the characteristics of the private foundation, we can mention:

 

Juridical personality

As explained before, once the relevant documents have been registered, the foundation becomes an entity separate from its creator, with its own rights and obligations.

 

Transfer of property

The foundation’s property constitutes a separate patrimony from that of the founder.

After a valid transfer of assets to the foundation has been made by the founder; creditors are precluded from attacking such assets because of debts subsequently incurred by him or her. This is expressly stated in articles (3) and (4) of the Law[1] which additionally provides that the assets of the foundation shall not become property of the beneficiaries until a transfer, in accordance to the foundation charter, the by-laws and the law, has taken place. Consequently, except in case of creditors’ fraud, once the foundation is created, it may only be attacked for its own debts.

 

Anonymity

The designation of the beneficiaries is confidential. However, the notarization of by-laws is required. This may present a problem in certain jurisdictions. Furthermore, the law requires that the by-laws and the foundation charter be kept at the registered office of the foundation, thus subjecting this information to review by the relevant authority in the Bahamas under certain circumstances.

 

Irrevocability

As a general rule, the foundation is irrevocable unless otherwise provided for.

 

Forced Heirship

It is expressly stipulated that provisions on forced heirship existing at the domicile of the founder are not enforceable vis-à-vis the foundation.

 

Purpose and Objects of the Foundation

 

The Bahamas’ private foundations may be created for private, charitable or even commercial purposes, as it is not barred from engaging in business activities in a habitual fashion.

 

Nonetheless, private foundations are used mostly as holdings. They occasionally perform some business transactions when deemed convenient or advantageous for advancing the purposes the foundation. Income from such activities is used to fulfill its objects or purposes.

The purpose of the private foundation may be to contribute to educational expenses; financial assistance and support of one or several members of one or several families. Furthermore, a private foundation may benefit other natural or juridical persons, including charitable institutions of any kind. To achieve its objectives, the foundation is authorized to preserve, manage and invest in proper form its assets, as well as to engage in any business and legal transactions which may be deemed appropriate.

 

Parts of a Private Foundation

The internal governance of a private foundation is entrusted to the following entities:

 

A)      the Founder:

Creator of the structure

 

B)      the Foundation Council and/or Officers:

In the Bahamas, if officers are appointed, the council adopts a supervisory role. The role of the council will encompass administrative functions if no officers are appointed.[2]

The powers and responsibilities of the foundation council are set forth in the foundation charter and the by-laws, in addition to those established in the law.

Unless otherwise provided for in the foundation charter and/or by-laws, the general obligations of the foundation council/officers are as follows:

1.      To manage the property of the foundation in accordance with the foundation charter or the by-laws.

2.      To enter into any acts or agreements deemed convenient to fulfill the objectives of the foundation.

3.      To inform the beneficiaries of the financial situation as set forth the in the foundation charter, the by-laws and the Law.

4.      To perform any acts or enter into any agreements allowed by the Law, the charter and the by-laws of the foundation.

The foundation charter and/or by-laws may also restrict or expand the powers of the council/officers to comply with the wishes of the founder. 

C)     Protector – Supervisory Body(ies):

The existence of a person or group with the ability to supervise the acts of the council/officers is allowed.

 

Initial Capital

 

The Law expressly provides that the initial capital of the foundation shall not be less than ten thousand Bahamian Dollars[3]. The foundation may receive other donations from the Founder or third parties.

Principal Documents of the Foundation

  A.      The Foundation Charter:

The Law requires an extract of the foundation charter to be filed with the Registrar and the totality of the charter’s content must be kept at the registered office of the Foundation. The following is among the basic information that must be included in the foundation charter:

 

1.      The name of the foundation.

2.      A statement that the foundation’s patrimony is no less than an amount equivalent to ten thousand Bahamian dollars ($10,000.00).

3.      The complete and clear appointment of the members of the foundation council/officers.

4.      The domicile of the foundation (registered office).

5.      The name and address of the resident agent or secretary of the foundation. The resident agent must be a bank duly registered at the Bahamas, a duly licensed trust company or financial services provider.

6.      The purposes of the foundation.

7.      The manner in which the Beneficiaries of the foundation are to be appointed.

8.      The reservation of the right to amend the foundation charter when deemed convenient.

9.      The duration of the foundation. Unlike trusts in this jurisdiction, there are no anti-perpetuity provisions.

10.  The destination of the foundation’s property and form to liquidate such patrimony in case of dissolution.

11.  Any other licit clause that the founder deems appropriate.

  

B.      By-laws:

 

1.      Any information that the Law does not require to be included in the foundation charter and that the founder wishes to list regarding the property or operation of the foundation may be included in the by-laws. By-laws are private documents and as such, are not required to be filed with the Registrar or any other government authority or entity.

 

2.      Copy of the by-laws must be kept at the registered office of the foundation.

 

3.      Confidentiality is expressly provided for under Bahamian laws, which establish severe penalties for persons failing to fulfill their duty of keeping privileged information confidential.

 

The private foundation has been called the perfect living will. In the event of the founder’s demise, a properly structured foundation will help family members and/or beneficiaries bypass public proceedings and the founder’s wishes concerning the use, transfer and final distribution of his or her patrimony may be carried out privately by the relevant body of the foundation.

 

Obtaining Juridical Personality

 

As with other legal entities, a foundation may acquire and own property of any kind, undertake obligations and be a party to administrative and/or judicial proceedings.

 

The Law allows for fiduciary founders when setting up the structure, thus achieving additional confidentiality.

 

Drafters of the Law considered that filing an extract of the foundation charter with the Registrar provided an additional safety measure for third parties (e.g. banking institutions) involved in transactions with the foundation.

 

Continuation: fast and flexible

Foundations constituted in other jurisdictions may continue their legal existence as Bahamian private foundations and therefore, become subject to the provisions of the Law:

A)      Effects of the continuation:

 

1.      Legal existence is attained in a jurisdiction where there is no income tax.

2.      The foundation will continue its legal existence. It will not be regarded as a new foundation.

3.      The Foundation may continue with the same name if the original is available.

 

4.      All rights and obligations acquired prior to the change will remain in force. Likewise, any legal proceedings affecting the foundation – as defendant or plaintiff – will also continue.

 

Although it is a relatively new concept, the figure of “continuation” to a different country has been widely accepted under Trust Law. The laws governing International Business Companies of the British Virgin Islands, the Bahamas and Belize have all adopted this figure. Family or mixed foundations of Liechtenstein also contain an “escape clause” similar to the one in the Bahamas and Panama.

 

Registration Fees and Taxes, Low Organization and Maintenance Costs

Private foundations are required to pay only registration fees and there is no income tax in the Bahamas. Therefore, users of a private foundation will not have to worry about paying taxes within the territory of the Bahamas, except for the annual franchise tax.

 

Forced Heirship Provisions

Following the modality adopted by Anglo-Saxon jurisdictions, the Private Foundations’ Law of the Bahamas expressly provides that forced heirship laws from other countries will not affect the foundation or its validity, nor will they prevent the achievement of its purposes in the manner set forth in the foundation charter or its by-laws.

Since the property of the foundation is not a part of the founder’s patrimony – as it is legally autonomous – legal provisions applicable to the founder will not restrict or limit in any manner the rights of the foundation’s beneficiaries.

 

Footnotes: [1] References to the Law are references to the Foundations Act 2004 and amendments thereto. [2] Officers must be resident in the Bahamas. [3] Ten thousand Dollars, currency of the United States of America, are the equivalent of ten thousand Bahamian Dollars