The Foundations (Jersey) Law 2009 (the "Law") came into force on 17 July 2009, allowing for the incorporation of foundations in Jersey.
Key features of the Jersey foundation are as follows:
- Incorporated vehicle: A Jersey foundation (like a company but unlike a trust) comes into existence following the completion of an incorporation process, and an entry made by the registrar of companies (the "Registrar") in the register of foundations is a matter of public record and conclusive evidence that a foundation has been incorporated and that the requirements of the Law in that regard have been complied with.
As an incorporated entity, a foundation has its own legal personality and is able to transact, hold assets and to sue (and be sued) in its own name. Subject only to the qualifications that a foundation cannot directly acquire, hold or dispose of immovable property in Jersey, nor directly engage in commercial trading that is not incidental to the attainment of its objects, a Jersey foundation is able to exercise all the functions of an incorporated body, and is not subject to the ultra vires doctrine.
- Orphaned structure: A foundation is incorporated on the instruction of a founder, but is not owned by the founder, nor by anyone else.
- Founder's rights: A founder has such rights (if any) in respect of the foundation and its assets as are provided for in the charter and regulations.
- Name: A foundation's name must end with the word "Foundation" or the foreign language equivalent.
- Breadth of objects: The objects for which a foundation is established must be lawful, but (subject only to that limitation) can be charitable or non-charitable (or a combination of both) and can be to benefit a person or class of persons, or to carry out a purpose (or to do both).
- No initial endowment: Unlike a trust, a foundation can be incorporated without any initial endowment.
- Unlimited duration: A foundation (like a trust) need not have any limited period of existence.
- Constitutional documents: A foundation's constitutional documents are its charter (which is registered with the Registrar and open to inspection) and its regulations (which are not registered).
- Council: A foundation has a council, which is similar to the board of directors of a company. The function of the council is to administer the foundation's assets and to carry out its objects. The council can have one or more members, and one member must be a "qualified person" with the appropriate regulatory licence pursuant to the Financial Services (Jersey) Law 1998: this member is known as the qualified member. Council members are required to act honestly and in good faith with a view to the foundation's best interests, and to exercise the care, diligence and skill that reasonably prudent persons would exercise in comparable circumstances.
- Guardian: A foundation must have a guardian whose role is to take such steps as are reasonable in all the circumstances to ensure that the council carries out its functions. The founder and the qualified member (although not others) are permitted to fulfil a dual role as both council member and guardian. A guardian can be given the power, in certain circumstances, to sanction or authorize actions taken or to be taken by the council that would not otherwise be permitted by the foundation's constitutional documents.
- Beneficiaries: Where a foundation's objects are to benefit a person or class of persons (either exclusively or in conjunction with the carrying out of a purpose), the beneficiaries have no interest in the foundation's assets and are not owed a duty (by the foundation, the council or the guardian) that is, or is analogous to, a fiduciary duty. Nevertheless, where a beneficiary becomes entitled to a benefit pursuant to the foundation's constitutional documents, and that benefit is not provided, the beneficiary can apply to the courts in Jersey for an order that the foundation should provide the benefit.
- Information: Save to the extent expressly required by the Law or by its constitutional documents, a foundation is not required to provide anyone (whether or not a beneficiary) with any information about the foundation. With regard to express statutory requirements, the Law provides for copies of the regulations to be supplied to those appointed under the regulations (viz. council members, the guardian and anyone else appointed under the regulations to carry out a function in relation to the foundation).
- Register: The register of foundations contains a foundation's name and registered number, the qualified member's name and business address in Jersey (which address is also the business address of the foundation and, unless the charter provides otherwise, will additionally constitute the place of administration of its activities and assets), and its charter.
It should be noted that the information required to be included in the charter is very limited and that it does not need to include the names of the founder, the council members and the guardian. Accordingly, the identities of the founder and of these office-holders (other than the qualified member) need not be a matter of public record. It should also be noted that, where a foundation is established with objects to benefit a person or class of persons, the charter does not have to name the individuals concerned, but can simply provide that the relevant person or class of persons is or are to be determined in accordance with the regulations.
In view of the above key features, and of the very considerable degree of flexibility in structuring that the Law allows, a variety of uses for (and reasons for establishing) a Jersey foundation can readily be identified:
- Foundation concept: With its roots in civil law, the foundation is familiar to clients based in locations such as the Middle East, Russia and continental Europe. The Jersey foundation is of particular interest to such clients who might prefer to use a foundation structure rather than a trust.
- Philanthropy: Jersey foundations can be particularly useful for those interested in philanthropy. The Law allows for the creation of foundations for purposes which are charitable, non charitable, or a combination of the two. It is therefore possible to establish a foundation for a particular purpose which, although philanthropic, may not qualify as being strictly charitable. Also, a foundation's existence and its charter (including details of its objects) are registered and a matter of public record: this can be important for those keen to maintain an open profile with regard to their giving initiatives.
- Single, "family silver" or "wasting" assets: As a foundation can be established with the sole object of holding a particular asset, and its beneficiaries do not have an interest in the foundation's assets and are not owed a fiduciary duty, Jersey foundations can be of particular interest to service providers when considering the appropriate structure to hold a single, "family silver" and/or "wasting" asset such as a family business, an aeroplane or a boat. In the case of a family business, for example, tensions may exist or develop between different branches of the family, with those closely involved in the business wishing to retain the "family silver" business, whilst those not involved in the day-to-day running of the business may be keen to maximise investment returns by taking advantage of disposal or other suitable opportunities which might arise. Such competing interests may present difficulties for a trustee with fiduciary duties to discharge and obligations to have regard to the interests of the beneficial class as a whole. In such circumstances, a foundation may well be a more suitable vehicle, being incorporated for the express purpose of holding the ownership rights, and running the family business, thereby removing the potential for such tensions.
- Beneficiary rights and information: For those concerned at the prospect of information regarding the existence of a trust established for succession planning purposes being made available to certain beneficiaries (such as minor children or those beyond the immediate family circle), the Jersey foundation can be of particular interest in view of the Law's specific provisions in relation to beneficiaries' rights and the availability of information (see above). In this regard, the foundation might also be of interest to those wishing to consider asset planning in the context of the possibility of a future divorce.
- Reservation of powers: For those clients wishing to retain a significant degree of control in any structure being created, the foundation (allowing for a founder to be both a council member and a guardian) can be an option to consider as an alternative to a trust with settlor-reserved powers.
- Ownership of PTCs: Where a PTC (private trust company) is incorporated to act as trustee for one or more family trusts, a question which often arises is as to the appropriate ownership of the shares in the PTC. Frequently, a charitable or non-charitable purpose trust will be established in this context, but an alternative possibility is for the shares in the PTC to be held by a Jersey foundation. It should also be noted that certain clients might wish to incorporate a foundation to act as the trustee itself in the place of the PTC, as the private trust company business exemption from registration under the Financial Services (Jersey) Law 1998 (pursuant to which PTCs are able to operate) is equally available to Jersey foundations.
- Contracting party: As a foundation, unlike a trust, is able to contract and transact business in its own name, some clients prefer to establish a foundation rather than a trust for this reason.
- Migration: Regulations allow for existing foreign-law structures (such as foundations established in Panama, the Bahamas or Liechtenstein) to be migrated to the Island so that they can thereafter continue as Jersey foundations. This possibility can be of particular interest to those clients who wish to keep in place their existing structures, with their attendant contractual and other rights, together with their existing debts and obligations, but who would nevertheless like to benefit from the opportunity to have those structures incorporated under the Law as Jersey foundations.
- Merger: Regulations also allow for Jersey foundations to merge with certain foreign law structures so that they can, thereafter, continue either as the existing Jersey foundation or, alternatively, as a new Jersey foundation.
- Flexibility: Although a familiar concept, the Jersey foundation is not identical to foundations seen in other jurisdictions and a key feature is its flexibility, allowing focus to be placed on those aspects which enable a foundation to look more like a trust, or conversely more like a company, as appropriate in the light of the client's particular structuring requirements.
As at the date of this Briefing, more than 100 foundations have been incorporated. Of these, significant numbers have been established (i) for the benefit of individuals; (ii) for charitable or other philanthropic purposes; and (iii) to hold particular property for specified non-charitable purposes.
The variety of uses seen to date shows that the Jersey foundation adds significantly to the structuring opportunities available to clients selecting Jersey as a jurisdiction. It is clear that the Jersey foundation is of particular interest to clients wishing to take advantage of the flexibilities offered by the Law and also of the other established factors (such as reputational profile - including the Island's categorisation by the London G20 summit in April 2009 as an international financial centre in the top "white" list of jurisdictions which have substantially implemented the internationally agreed tax standard - robust regulatory environment, respected court system, proximity to London's financial markets and convenient time zone) which combine to make Jersey an attractive choice of jurisdiction for private wealth management purposes.