INGF1 - Guernsey Foundations

Background

On 25 July 2012 the States of Deliberation, Guernsey’s Parliament, approved the projet de loi The Foundations (Guernsey) Law, 2012 (the “Law”). The Law came into force on 7 January 2013.

The Law is divided into three parts - the substantive law and two schedules. The first schedule deals with administrative matters, such as the establishment of foundations and their registration. The second schedule deals with migration of foundations, their revocation, dissolution and termination.

The Key Difference Between a Trust and a Foundation

The main difference between a trust and a foundation is that in the case of a trust the Settlor gifts assets to a Trustee to hold for the benefit of the Beneficiaries under the terms of a Trust Deed. A foundation on the other hand creates a separate legal entity with its own legal personality, distinct from the Founder(s), Council or Beneficiaries. A foundation has a number of characteristics that are similar to those of a company as it has separate legal personality and a management board known as a Council. On the other hand it is entirely independent and has no shares and no members, nor any concept of share capital.

An important legal distinction is that with a foundation there is no separation of the legal and beneficial title of property; with a trust there is such separation.

Registration

A foundation comes into being on registration by the Registrar.

In order to register a foundation the following documents and information need to be provided:

  • The Charter
  • A declaration signed by the Founder (or his agent)
  • The names and addresses of the proposed Councillors and their consents to act
  • The name and address of the proposed Guardian (if any) and his consent to act
  • The address and telephone number of the registered office of the foundation in Guernsey
  • The registration fee.
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Provided that the name is not unlawful or already taken and the purpose is not contrary to the Law of Guernsey, the foundation will then be registered, given a number and a Certificate of Registration. At this point the foundation becomes a legal entity separate from its Founder, the foundation officials (the Councillors and any Guardian) or Beneficiaries. The Registrar has discretion regarding whether or not a foundation will be subject to an annual renewal process and, like a company, a foundation can have perpetual existence.

Key Features of a Guernsey Foundation

  • The Council

A Guernsey foundation is managed by a Council comprised of at least two Councillors, unless the constitution permits a single Councillor. If neither of the Councillors, nor the Guardian, is a Guernsey licensed fiduciary, the Foundation will require a Guernsey resident agent to hold the foundation’s records within the jurisdiction.

  • The Constitution: Charter and Rules

The core document by which a foundation is governed is its Constitution. The Constitution comprises two parts: the Charter and the Rules. The Charter must contain the name and purpose of the foundation, a description of its initial capital or endowment and, if it is a foundation with a limited duration, the duration must be stated. It may contain anything else that the Founder wishes to include.

The Rules set out the operating provisions of the Foundation and detail the functions of the Councillors, deal with the procedures for the appointment, retirement and remuneration of Councillors and any Guardian, and identify the default Beneficiary. The rules may also specify other matters, such as how the assets of the foundation should be applied and how Beneficiaries may be added or excluded. They may also impose obligations on a Beneficiary or contain protective measures to terminate a Beneficiaries’ interest, for example if he becomes insolvent.

  • The Founder

The Founder of a Guernsey foundation determines the purpose of the foundation, decides the foundation’s Constitution and provides it with initial capital. The Founder (or his agent) must also detail his name, as the Founder, to the Constitution of the Foundation by signing it. It is also the Founder’s role to appoint the initial Councillors and any Guardian and to have the foundation registered. The Founder can either be a Councillor or a Guardian (but not both simultaneously) in addition to being a beneficiary.

  • Guardian

In situations where there are disenfranchised Beneficiaries or where there is only a purpose but no individual Beneficiaries, a Guernsey foundation must have a Guardian. The Guardian’s function is to enforce the purposes of the foundation on behalf of disenfranchised Beneficiaries or, where there are no Beneficiaries, in substitution for them. Foundations that have Beneficiaries but no disenfranchised Beneficiaries are not required to have a Guardian. The Founder may act as Guardian. The Guardian will be named in the Register and may not serve on the Council at the same time. He must maintain accurate accounts and records during his guardianship.

Reservation of Powers by the Founder

The Founder can only reserve limited powers to himself, such as the power of amendment or revocation of the Constitution, or of the purposes of the foundation. Such powers can be reserved only for the duration of the Founder’s life (if he is a natural person) or for 50 years from the date of establishment, in the case of a legal person, after which point the reserved powers will automatically lapse. This does not preclude the Council from delegating certain functions to the Founder.

Duties Owed

The Council of a foundation owes its duties to the foundation itself. The Council does not owe any duties to the beneficiaries of the foundation.

Councillors have a duty to act in good faith. They also have a duty not to profit (otherwise than as permitted by the Constitution), to preserve the property of the foundation, to give information to the Guardian and enfranchised Beneficiaries, to maintain accounting records and to be impartial.

A Guardian also owes fiduciary duties to the Founder and the Beneficiaries to enforce the Constitution.

Types of Beneficiary

A Beneficiary of a foundation is someone who is entitled to benefit from that foundation. Beneficiaries must be identified by name or by their relationship to another person. The Law provides for enfranchised and disenfranchised Beneficiaries.

An enfranchised Beneficiary is entitled to a copy of the Constitution, records and accounts of the foundation and to apply to Court to change the purposes or revoke or dissolve a foundation.

Subject to the terms of the Constitution disenfranchised Beneficiaries are not entitled to any information. This is a novel feature of Guernsey foundations and is not found in any other jurisdiction. It may well be attractive for family arrangements where there is a desire to protect the younger generation from the potentially corrosive effects of the knowledge of substantial wealth. Once the reason for a disenfranchised Beneficiary’s classification (such as age) disappears they may then become an enfranchised Beneficiary.

Additional Information

If you require any additional information please contact John Nelson at the Dixcart office in Guernsey: advice.guernsey@dixcart.com.

Categories: Jurisdiction, Guernsey, Year, 2013