27.01.2023

Family foundation – a new institution in the Polish legal system

The act on family foundations – the stage of legislative work

The bill is currently awaiting another reading in the Sejm, after the Senate submitted its amendments on 13 January this year. The bill was submitted by the Minister of Development, Labour and Technology.

Grounds for the novum

The legislator justified the introduction of the institution of a family foundation with the need to provide entrepreneurs being natural persons with the possibility to carry out an effective succession, which will give protection against the fragmentation of property created in connection with the conducted business activity and will enable its further use in the perspective of more than two generations.

It is crucial for the legislator to secure the continuity of private enterprises, in particular for the purpose of safeguarding families.

Although the institution of a family foundation is dedicated to the above-mentioned purposes, the founder does not have to be an entrepreneur and the foundation beneficiaries do not have to be in a family relationship with the founder.

General characteristics

A family foundation is to be a legal person created by the founder to accumulate property, manage the property in the interest of the beneficiaries and provide benefits to the beneficiaries. The benefit to the beneficiaries may consist of transferring to them, or giving them the use of, money, property or rights, this in particular may include the payment of their living expenses or education.

A foundation may only be established by a natural person, while the beneficiary may be either a natural person or a non-governmental organisation involved in public benefit activities. A foundation will be established either by making a declaration in a foundation deed (in which case there may be several founders) or in a will (with only one founder). The rights and obligations of the founder and the beneficiary will be non-transferable, unlike the beneficiary’s liabilities.

Organisational structure

The most important internal document of the foundation will be its articles of association to be determined by the founder. The articles of association will contain the essential regulations concerning the foundation’s organisation and manner of operation, inter alia, its specific purpose of operation, identification of the beneficiary and the scope of his/her powers, the duration of the foundation, if specified, and the rules for the appointment, scope of duties and the manner of operation of the foundation’s bodies. Optional elements of the articles of association will include, inter alia, guidelines for investing the family foundation’s assets.

A foundation will acquire legal personality upon registration in the registry of family foundations kept by the District Court in Piotrków Trybunalski. The regulations concerning the register are largely modelled on the solutions adopted for the National Court Register.

The governing body of a family foundation will be the management board, which may be composed of one or more persons. The management board’s tasks will include, inter alia, taking actions related to ensuring the foundation’s liquidity and solvency.

The articles of association will be able to provide for the establishment of a supervisory body – the supervisory board. If the number of beneficiaries exceeds 25, the establishment of the supervisory board will be mandatory.

Another necessary body of a family foundation, besides the board, will be the beneficiaries’ assembly formed by the beneficiaries whom the articles of association grant the right to participate in it.

Under the provisions of the articles of association, individual members of a foundation’s bodies, in particular members of the beneficiaries’ assembly, may be granted more than one vote.

The rules for the internal organisation of foundations and their bodies are largely based on the solutions adopted for commercial companies, with the majority of these regulations being of a dispositive nature – they will apply unless the founder decides otherwise in the articles of association. Also the mechanisms for the termination of a foundation’s activity and its liquidation are similar to the solutions known in the company law.

Property of a foundation

The founder will be obliged to endow the foundation with property whose value is at least PLN 100,000 (the founding capital). A foundation will also be able to receive donations and inheritances. As a rule, a foundation will not be allowed to carry out business activity, with the exception of activities specified in the act, which mostly boil down to property management and making capital investments.

An inventory of property will be kept at a foundation, including a list of the property rights contributed to the foundation by the founder or persons other than the founder, indicating the person contributing the property and specifying the type and value of each of the contributed items of property, in an amount determined according to the state and prices at the time of their contribution and their tax value. The founder will be obliged to keep the inventory of the property contributed to the foundation to cover the founding capital. The management board will be responsible for keeping the inventory up to date.

At least once every four years, an audit firm or a team of auditors appointed by the beneficiaries’ assembly should audit the management of the family foundation’s assets, the incurring and fulfilment of obligations and public law liabilities, in terms of correctness, fairness and compliance with the law, the purpose and the documents of the family foundation.

Liability of a foundation

A family foundation will be jointly and severally liable with the founder for its obligations incurred prior to its establishment, including maintenance obligations. This liability will not be able to be excluded or limited without the consent of the creditor. A family foundation will also be liable for the fulfilment of the maintenance obligation incurred by the founder after its establishment.

A foundation’s liability described above will be limited to the value of the property contributed by the founder as at the time of acquisition and according to the prices at the time of satisfying the creditor.

Tax issues

A family foundation will not benefit from any extraordinary tax preferences. The income tax rate for the foundation and its beneficiaries in respect of benefits received from the foundation is to be 15%.

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