One of the key advantages of a family foundation is the flexibility to shape its internal structure as required. The legislature has granted the founders considerable freedom in this respect, enabling the foundation to be adapted to specific financial, family and business needs.
The structure of a foundation can therefore be either simple or more complex:
- Simplified models are preferred for managing smaller assets with a limited number of beneficiaries
- More complex models with additional control mechanisms and the participation of several bodies allow for a better balance between the interests of beneficiaries and a more streamlined decision-making process
A properly designed structure is the bedrock that ensures the fulfilment of the founder’s objectives, the protection of accumulated capital and, ultimately, a smooth succession.
Planning the structure of a family foundation
Setting up a family foundation is a process that requires careful consideration of many elements. Key issues include defining its objectives and identifying beneficiaries.
- Examples of a foundation’s objectives:
- Protecting assets from fragmentation or unforeseen events
- Providing financial support to specific family members
- Funding education, medical treatment or other needs of beneficiaries
- Continuing the family business in the long term
- Carrying out other activities important to the founder
- Foundation beneficiaries:
- Who can be a beneficiary? The law provides considerable flexibility in this regard, allowing beneficiaries to include natural persons (both family members and individuals outside the family, including the founder) and public benefit organisations
- How can the circle of beneficiaries be defined precisely? Will it include all descendants, or only certain family lines? Will beneficiary status be hereditary?
- Will there be different categories of beneficiary with different rights?
The answers to these questions will determine subsequent decisions regarding the foundation’s bodies, disbursement rules, and control mechanisms.
Selection of family foundation bodies
The basic bodies on which the structure of a family foundation can be built are the Executive Committee, the Supervisory Board and the Beneficiaries’ Meeting.
Executive Committee
- Role: The executive body responsible for the day-to-day operations of the foundation, the management of its assets, and its representation towards third parties
- Composition: This may be a single person or a collegial body. The founder may appoint themselves, trusted family members, or professional managers to the Executive Board
- Selection criteria: Trust, expertise (in business, finance and law), experience, and commitment to the foundation’s goals are key
- The Articles of Association should clearly define the Executive Committee’s powers, decision-making rules and responsibilities
Supervisory Board
- Role: The supervisory body. This is a mandatory feature when the number of beneficiaries exceeds 25. In other situations, it is voluntary but often recommended as an additional supervisory mechanism for the Executive Committee’s activities, particularly where significant assets or complex family relationships are involved
- Composition: It is worth considering appointing independent individuals, experts or representatives from different branches of the family to ensure an objective and comprehensive assessment
Beneficiaries’ Meeting
- Role: This is a body in which the beneficiaries specified in the Articles of Association may participate. Its powers are defined in the Articles of Association
- Significance: This body may become particularly important after the death of the founder, as certain of the founder’s powers may subsequently be transferred to it via the Articles of Association
- Functions: It performs audit functions, such as approving financial statements and granting discharge to members of bodies, as well as decision-making functions, such as granting consent to specific strategic actions of the Executive Committee
Articles of Association of a family foundation
The Articles of Association are the most important document for a family foundation. In this document, the founder sets out the rules for how the foundation should be run. The key provisions that must or should be included are:
- The name, seat and precisely defined objectives of the foundation
- The amount of initial capital
- A detailed description of the rights and obligations of beneficiaries, including the conditions for obtaining and losing beneficiary status.
- Rules of procedure for the bodies:
- Method of appointment and dismissal of members
- Term of office and extension thereof
- The detailed scope of the powers of each body
- Procedure for adopting resolutions (required quorum and types of majority)
- The rules governing the management of the foundation’s assets, including the permissible scope of economic activity
- The procedures for amending the Articles of Association (who may initiate amendments and how)
- The rules for dissolving the foundation and disposing of its assets after liquidation
Tip: The Articles of Association allow you to adapt the foundation to your specific needs and expectations.
For example, the Articles of Association may stipulate that the Executive Committee acts independently when performing specific tasks. However, they may also introduce solutions whereby certain Executive Committee decisions require the prior consent or cooperation of the Beneficiaries’ Meeting.
Furthermore, the Articles of Association can be structured so that benefits can be paid to beneficiaries without involving other bodies of the foundation each time. These solutions allow the founder to create a governance system that best meets their expectations and objectives.
Mechanisms for supervising and controlling the foundation
The wide range of options for shaping the organisational structure of a family foundation is just one of the areas that the founder can explore when designing a foundation. Careful planning of decision-making and internal audit mechanisms is equally important, and this can be achieved through the careful distribution or combination of powers across the various bodies.
Effective control mechanisms may include:
- The Supervisory Board, whose powers may include, among others, the right to request information from the Executive Committee, inspect documents, approve annual business plans and budgets, and even initiate audits
- The Beneficiaries’ Meeting, which may have the right to approve reports from the Executive Committee, grant discharges and approve key decisions (such as the sale of significant assets)
- Other mechanisms, provided for in the Articles of Association, such as the appointment of a protector (a person who supervises the fulfilment of the founder’s will), the obligation to conduct periodic external audits, and detailed reporting rules for the Executive Committee
However, it is worth remembering that, while there is significant flexibility in designing the structure of a family foundation, this flexibility is not unlimited.
The Act establishes a framework that, if not adhered to, may render individual provisions of the Articles of Association invalid, while incompetent navigation of this framework may disrupt the functioning of the entire foundation.
For this reason, we strongly recommend using the knowledge and experience of professional legal and tax advisors when creating and planning the structure of a family foundation. With their support, solutions can be designed that comply with regulations and are also practical and effective in achieving the founder’s objectives.
Any questions? Contact us
Sławomir Wnuczek
Mirosław Malczeski
