With the introduction of the Foundations (Jersey) Law 2008, which comes into force as soon as Privy Council approval is obtained, Jersey is set to build on its position as one of the world’s leading jurisdictions for the provision of offshore financial services. Alongside existing vehicles such as companies, trusts and limited partnerships, the new law will introduce the concept of foundations. Long a part of the civil law system, it is anticipated that foundations will particularly appeal to clients based in continental Europe and the Middle East.
What is a Foundation?
A foundation can be thought of as sharing some of the characteristics of both a company and a trust. Like a company, it will have a separate legal personality meaning that it will hold assets in its own name, will be able to enter directly into contracts and will be able to sue and be sued. This will have obvious benefits for any third parties wishing to contract with a foundation since that third party will easily be able to ascertain the existence and status of the foundation and be comfortable that it has full power to deal with its own assets.
As with a trust, however, virtually anybody may be eligible to benefit from a foundation. A foundation must be established with one or more ‘objects’. With the sole caveat that the objects must be lawful, they can be charitable, non-charitable or a mixture of both. Permissible objects might include, for example, benefiting a particular person or class of persons or carrying out a specific purpose. A foundation could, therefore, be used to manage family wealth, to retain and preserve specific assets, to further particular causes (whether or not such causes are charitable) or for any of the other functions to which trusts are typically put.
Operation of a Foundation
Essentially, the powers of a foundation will be exercised by its council, which will be broadly analogous to a company’s board of directors. The council can be made up of any number of persons (with a minimum of one) and there will be no statutory restrictions on who may become a member of the council. One of the attractive aspects of a foundation to prospective clients, in fact, is that the founder of the foundation (analogous to the settlor of a trust) may remain actively involved in the management of the foundation by becoming a member of the council.
The only absolute requirement that the new law will impose is that one of the members of the council must be a person who is registered under the Financial Services (Jersey) Law 1998 to carry on financial services business of this type. This person will be referred to as the ‘qualified member’ and will be, effectively, the route via which the proper regulation of the foundation will be ensured.
Unlike a company, a foundation will have no shareholders to hold the council to account. This supervisory role will be filled in relation to Jersey foundations by the holder of another post who will be known as the ‘guardian’. The main job of the guardian will be to ensure that the council carries out its functions. The new law will expressly permit either the founder himself (whether or not he is also a member of the council) or the qualified member of the council also to be the guardian. This requirement distinguishes Jersey from foundations in many other jurisdictions to ensure that Jersey foundations are property administered.
Establishment of a Foundation
An application to incorporate a foundation will be made on behalf of a founder by a person who is registered under the Financial Services (Jersey) Law 1998 to do so (and who may well, therefore, go on to become the qualified member of that foundation’s council). The application will, together with the relevant fee, be accompanied by a copy of the foundation’s charter. The charter will be the sole document relating to the constitution of the foundation, which is a matter of public record and which will be available for inspection by the public. The charter may contain as much information in relation to the constitution of the foundation as the founder desires, but the only issues which will have to be stated in the charter are:
(i)the foundation’s name (but not the founder’s name);
(ii)the foundation’s objects (although where an object is to benefit a particular person or class of persons, the identity of those persons or of that class of persons need not be stated in the charter);
(iii)the names and addresses of the first members of the foundation’s council;
(iv)the initial endowment of the foundation (if any) and whether the foundation will be able subsequently to receive further endowments;
(v)details about how the foundation can be wound up.
All other details relating to the foundation (including, for instance, the mechanisms by which the council will make their decisions) are to be included in a separate document known as the regulations of the foundation. The regulations are a private document and a foundation will not be obliged to provide information about itself to any person other than as specifically required by the new law or as set out in its own regulations.
Advantages of a Foundation
Foundations will offer all of the flexibility of trusts to financial planners with some of the benefits of a corporate structure. The separate legal entity status that foundations will enjoy will be particularly important in this regard. The fact that, as a concept, they will also be familiar to prospective clients from civil law backgrounds (in a way that trusts frequently are not) should also boost their popularity in markets that have previously been more difficult for the Jersey industry to access.
Steve Meiklejohn Partner and Head of Private Clients and Trust
Ogier British Virgin Islands, Cayman Islands, Guernsey, Hong Kong, Jersey, London, Luxembourg, Shanghai and Tokyo.