The Code of Companies and Associations ('CCA') defines a foundation as "a legal person without members, established by a legal act by one or more persons, called founders". The asset that is contributed into the foundation must be used for a disinterested purpose within the framework of one or more specific activities that the foundation is intended to carry out.
The CCA recognises two types of foundations: the foundation of public utility and the private foundation.
It is the latter type that raises the attention, mainly because of the possibilities that the private foundation can offer in the field of asset management and inheritance planning. In this article we will discuss the most important characteristics of the private foundation and some interesting objectives for which the foundation can be used. We also take a look at the popular Dutch equivalent of the Belgian foundation, and the question whether the historical preference for the Dutch variant is still justified today.
Characteristics of the private foundation
The private foundation:
- does not require start-up capital;
- has a separate equity;
- is established by means of a notarial act;
- has only one body, I.e. an administrative body;
- can only be dissolved by judicial decision.
In the introduction of this article, we already mentioned that the asset contributed into the foundation must always pursue a disinterested purpose. The CCA stipulates that the foundation may not directly or indirectly distribute or provide any financial benefit to the founders, the directors or any other person, unless the payment to a third person exactly is the foundation’s objective in itself. Any transaction in violation of this prohibition is null and void.
If certain conditions are met, no gift tax or inheritance tax must be paid on the amounts that a foundation pays to its beneficiaries within the execution of its disinterested purposes.
Objectives of the private foundation
A common interpretation of the concept of disinterested purpose is the preservation of the family character of a company and the preservation of the patrimony within a family. However, there are other examples as well:
- Managing a valuable art collection
- Caring for children with disabilities
- Awarding study grants to (grand)children
When a foundation is set up as part of the asset management of an entrepreneur and with the objective of maintaining the continuity of a family business, the foundation is often used as an administratiekantoor (‘STAK’) by applying the technique of certification:
- The company’s shares will be contributed to the STAK;
- after which the share certificates will be given to the children;
- separating the legal ownership (control) and the economic ownership (income) of the shares.
Management remains in the hands of the current generation, while income is passed on to the certificate holders, as long as no usufruct is reserved.
On the one hand, it avoids inheritance tax, on the other hand it avoids an abrupt transfer of control to the next generation.
In the context of inheritance planning, a STAK can also be established by will. The will may include a clause stipulating that on decease of the pater familias, the shares of the family business will be transferred to a STAK, which should then be established. The intended successor-directors, for example the children active in the company, can also be nominated in the will.
Belgian vs. Dutch foundation
Until recently, the STAK under Dutch law was chosen en masse. However, the Belgian STAK has recently made its advance, probably thanks to a more flexible framework in the CCA: where previously at least three directors were required, today – as in the Netherlands – a one-man board is sufficient. There is also no substantial difference in terms of start-up costs.
The main differences today are as follows:
- Dissolution mandatory through court
- Extensive publication obligations, limited discretion
- Restricted statutory freedom by the requirement of 'disinterested purpose’
- Dissolution as provided for in the articles of association
- Limited publication obligations, greater discretion
- Greater statutory freedom in the absence of 'disinterested purpose’
However, the fact that the Dutch STAK builds on many years of tradition plays a role that should not be underestimated in the choice between the Dutch and Belgian variants. As a result, the competition from the Dutch STAK is likely to continue for some time, despite the Belgian legislator’s attempt to catch up.
Curious to find out whether the foundation can do something for you in the field of asset management and inheritance planning? Don’t hesitate to contact Lien Verhasselt.