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Foundations

In some locations such as Panama, Switzerland and Liechtenstein we form both corporations and foundations. For banking purposes, there is essentially very little difference between the two entities. All come with everything you need to open both bank and brokerage accounts. We usually advise clients that the best way to view the difference between the two entities is to keep in mind that although there is a lot of grey areas which would work with either a foundation or a corporation the best way to look at it is that corporations are used for profit ventures involving business activities such as trading, banking, international business, ownership of assets etc. We tend to find that most of our clients establish corporations although foundations have distinct benefits that might be very useful in certain specific situations. Where foundations differ from corporations is that they are generally used for non-profit activities such as charities, receiving or giving donations, grants or holding assets for the benefit of family members in future etc. They can also be used for holding purposes, examples could be holding ownership of corporations or any other type of asset such as a house, boat or car. Some of our clients use a combination of a corporation and a foundation. In this situation the foundation holds the shares in the corporation for additional confidentiality. Although Switzerland, Liechtenstein and Panama do not form trusts it is worth briefly looking at their uses too because clients considering forming a foundation might be ideal candidates for a trust or vice versa. Trusts are generally used for holding purposes such as owning corporations, or holding assets such as real estate although they can also be a route to discreetly receive payments. Although things can get confusing we think it is possible to define using general guidelines what each type of entity was initially created for although these guidelines do not have to strictly adhered to because there is no authority that specifically enforces the uses of each type of entity. One crucial difference between a foundation and a trust is that a foundation is formed in the same way as a corporation although the structuring is different. A Trust can be 100% anonymous and only the lawyer forming the trust, yourself and us would ever know the true details of who the various parties are.

If we form a self managed trust it is 100% secure unless anyone can find the trust deed but we will move onto that specific vehicle a little further on. They key is to keep in mind that a trust like a foundation is designed for maximum flexibility and can basically do anything legal from owning assets to controlling companies or signing contracts. In brief, if a person can sign something, own something or carry out transaction, so can the Trust. The complication with a Trust arises because an offshore trust is not a judicial person; it is merely a written agreement as to how assets are managed. In simple terms, a trust is a relationship in which a person, called a trustor or settlor, transfers something of value, called an asset, to another person, called a trustee. The trustee then manages and controls this asset for the benefit of a third person, called a beneficiary. Because Trusts only exist in English common law this is where the concept of an entity such as a Private Interest Foundation is different from any other legal entity in Anglo-Saxon law because it is not the legal personification of a person or group of persons (as with a corporation), rather it’s a legal entity that does not have owners (share-holders, participants, or partners), it traditionally has a specific purpose for the benefit of a general group of individuals. Complex and confusing I know but within this anomaly lies the great benefit inherent within this type of structure. Some clients combine trust, companies and foundations into a structure because the characteristics of these three entities when correctly combined are the key to maintaining privacy, creating impenetrable anonymity and the successful avoidance of tax. An example of this is a Panamanian Foundation, this is because under Panamanian law a foundation does not have an owner, in fact ownership is impossible and it is this characteristic which makes the foundation such an incredible structuring vehicle because you can posses it but not own it. This enables one to arrange for the Panama Foundation to own the shares of a Panama Bearer Share Corporation which creates a situation where the company is owned by whoever possesses the shares. It is this particular ingredient which makes it virtually impossible to figure out who is ultimately controlling the structure. Even serving a court order won't do much good because there is virtually no way to confirm the position with 100% certainty which makes any action extremely risk and the outcome very uncertain.

Elements of a Private Interest Foundation

To understand a foundation it is vital to understand the roles of the parties who bring it into existence and play a role once it is formed. Basically the foundation has a founder, a council, a protector, and beneficiaries. Below we have explained what role each of them plays:

Founder: The founder is the person or entity that establishes the foundation and arranges for it to be entered in the Public Registry if you decide to opt for a registered foundation. Please note that in Panama all foundations are registered. In Liechtenstein foundations are not obliged to be entered in the public register, but the foundation deed must merely be deposited (so-called non-registered foundation). Our agent is generally the founder of each foundation that we establish, the reason for this is that in Panama he goes to the public registry to incorporate the foundation and in Liechtenstein drafts the documents. The founder has no influence or control over the foundation; he is only recognised as the individual who drafted the documents or presented the foundation articles in the public registry when the entity was originally registered.

Council: The foundations council serves the same purpose as the board of directors on a corporation or the trustees on a trust. We usually appoint a ‘Nominee Foundation Council’ to fill the council positions, so to provide additional privacy and confidentiality for our clients. When we appoint a nominee council, we provide our client with pre-signed, undated letters of resignation from each nominee council member so that our clients can replace the entire council at any time should they so wish. The nominee council has no control over the foundation or any of its assets; they are only there to appear on the foundations documents.

Protector: The protector is the person or entity who actually controls the foundation and the assets held by it. The protector is appointed by the foundation council at the time the foundation is created, once the protector is empowered he can then remove the council members at any time without the consent of anyone else. The protector can be appointed privately through a private protectorate document, signed by the foundation council. Hence, the protector can maintain this position entirely free of public knowledge meaning he has the power to act as he sees fit but is to all intents and purposes invisible.

We generally appoint our client as the protector of the foundation, this is done through a notarised private protectorate document enabling our client to maintain complete control over the foundation in a totally anonymous manner. Once a protector is appointed they can always be changed according to the protector’s wishes. A protector is not obligatory and if you prefer, you can choose not to use a protector, or even to use a nominee protector.

Beneficiaries: Where a corporation has share certificates to confirm who the owners are a private interest foundation does not have owners instead it has beneficiaries. The foundations beneficiaries are appointed by the protector through either a simple, privately written letter of wishes, or through a more formal set of foundation by-laws (foundation by-laws should be written with the assistance of an Attorney). Either way, the privacy and confidentiality of the beneficiaries can be protected through the appointment in the letter of wishes, or by-laws of the foundation, since the contents of the letter of wishes or by-laws may remain private and need only be known to interested parties. Also, a Foundation may be set up so that the protector is the sole beneficiary until his or her death, at which time the foundation continues for the benefit of other beneficiaries.

Letter of Wishes: The letter of wishes is exactly what it says a simple letter, written by the protector, which specifies exactly how the foundation assets should be handled or distributed in the event of a specific event such as the death or incapacity of the protector. The letter of wishes should state whether the foundation should continue to exist, and have a new protector appointed, or if the foundation should be dissolved upon the death of the protector. There is no specific format that the letter of wishes must be written, and it can be written or changed at any time after the foundation is incorporated, as per the protector’s wishes. The letter of wishes can be held privately, or can be registered publicly. Generally, most people prefer to maintain the letter of wishes privately, so that the beneficiaries and protector remain completely anonymous and private.

Foundation By-Laws: The foundation does actually not need to have by-laws, this is because a letter of wishes is legally sufficient for expressing the protector’s instructions in the event of their death. However, if one wishes to have a more formal foundation testamentary document, written and signed by an Attorney, and notarised by a notary, then one can request the assistance of an Attorney to draft the foundations by-laws. The foundation by-laws essentially fulfil the same function as a letter of wishes for this reason the by-laws should specify exactly how the foundations assets should be handled or distributed upon a triggering event such as the death or incapacity of the protector. The by-laws should also state whether the foundation should continue existing, and have a new protector appointed, or if the foundation should be dissolved upon the specified event(s) arising.

There is a specific format as to how the by-laws must be written, yet the contents of the by-laws can be changed at any time after the foundation is formed, as per the protector’s wishes. The by-laws can be held privately, or can be registered publicly. Generally, most people prefer to maintain the by-laws privately, so that the beneficiaries and protector remain anonymous.

Panama vs Liechtenstein




Panama City Skyline by Night

Overall Panama is a better choice if only because it is a fraction of the price. It does however go far beyond this because a Liechtenstein foundation whether registered or non-registered has a minimum capital requirement of 30,000 CHF; investment in kind is possible; donations are also possible after incorporation but it imposes a serious burden if the foundation is simply a structuring vehicle. In Panama there is no such requirement. Another requirement is that at least 1 member of the foundation board must be resident in Liechtenstein. There is no such requirement in Panama. Another issue in Liechtenstein is that an audit is obligatory for registered foundations whereas in Panama there is no such requirement. In our opinion unless there is a specific reason to use Liechtenstein Panama wins hands down.

As far as costs are concerned we have set out the basic details of the most popular structures below:

Panama Formation Fee Including Council: $1600.00 / €1250.00 / £995.00

Panama Annual Fees: $1300.00 / €725.00 / £850.00

Liechtenstein Formation Fee Including Council: $4950.00 / €3900.00 / £3250.00

Liechtenstein Annual Fees: $8950.00 / €6995.00 / £5950.00

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