Jersey is the first of the British Crown Dependencies to enact legislation permitting the establishment of foundations. The Foundations (Jersey) Law 200- (Foundations Law) was passed by the States of Jersey on 22 October 2008 and is expected to become law in Jersey in the first half of 2009.
Foundations are rooted in Roman law, which has meant that foundations are more familiar to inhabitants of civil law jurisdictions than those of common law jurisdictions.
Liechtenstein was the first jurisdiction to introduce the modern foundation in 1926 and has built a whole economy on the principle. Other jurisdictions, such as Panama and the Bahamas, have enacted their own legislation for the same reasons. There has been pressure to introduce foundations in Jersey for several years, not as a replacement for trusts, which are well-established in the island, but as a new vehicle for wealth management, particularly for those for whom the trust is an unfamiliar concept; where transparency is necessary; or where a degree of control that is not permitted with trusts is required.
A Jersey foundation is a legal entity without owners, which has all of the powers of a natural person. The concept of ultra vires does not apply to a foundation, which can hold assets in its own name although it may not directly acquire, hold or dispose of immovable property in Jersey or engage in commercial trading unless it is incidental to the objects of the foundation. The foundation has features of both trust and companies, but must be seen for what it is – a new legal entity, with concepts that have no comparison in existing Jersey law.
A foundation is incorporated by a ‘qualified person’, meaning a person registered under the Financial Services (Jersey) Law 1998 to carry on trust company business and is registered in the Register of Companies in Jersey. There will be no separate register of foundations. The foundation is governed by the Foundations Law, its charter and its regulations.
The charter is filed with the Register of Companies on incorporation and becomes a public document. The Registrar of Companies must be advised of any amendments to the charter. The charter must specify the name of the foundation, the objects for which it is established, any initial endowment, the term of the foundation, if any, details of the any rights of any person to have the foundation wound up and what will happen to the assets of the foundation on dissolution. The objects must be lawful, may be charitable or non-charitable, or both, and may be to benefit a person or a class of person, carry out a specified purpose, or do both. A foundation need not have an initial endowment, unlike a trust, which cannot come in to effect until the trustees receive the trust fund to satisfy the requirements of Article 2 of the Trusts (Jersey) Law 1984 as amended (Trust Law).
The regulations are not filed with the Registrar of Companies and remain confidential. The regulations must establish a council to administer the assets of the foundation and carry out its objects, and make provision for the appointment and removal of council members. One member of the council must be a ‘qualified person’ and will have additional obligations as a person regulated in Jersey by the Jersey Financial Services Commission.
The members of the council must conduct the foundation in accordance with its charter, its regulations and the Foundations Law. The duties of the council members are largely the same as the duties of directors of Jersey companies, which are to act honestly and in good faith, and to exercise the care due diligence and skill of a reasonable person. The Foundations Law provides that nothing in the terms of the charter or regulations will relieve a council member from liability for that person’s fraud, wilful misconduct or gross negligence. However, no person appointed under the regulations or the foundation itself owes any fiduciary duty to any beneficiary of the foundation.
A particular feature of the Jersey foundation is the requirement for the regulations to provide for the appointment of a guardian to ensure that the council carries out its functions. The guardian may require the council to account to the guardian for the way that it administered the foundation’s assets or acted to further its objects – not unlike the enforcer of a Jersey trust. The guardian can have power to approve or disapprove any specified actions of the council and sanction or authorise action that is not permitted by the charter or regulations if he considers that it is in the best interests of the foundation to do so, and the council are acting in good faith. The regulations must provide for the appointment and retirement of a guardian and for his remuneration.
Information that can be included in the regulations may be included in the charter instead and the purpose for which the foundation is established will dictate which provisions are made public in the charter, and which remain confidential in the regulations. A purely charitable foundation may choose to include the information that can be included in the regulations in the charter. A foundation created for private family wealth management will include in the charter only the information required by the Foundations Law. On questions of international law, the Foundations Law contains similar provisions to the Trust Law, confirming that Jersey law will prevail on any question on a foundation or the endowment of a foundation.
The founder of the foundation is defined as the person who instructed the qualified person to apply for the incorporation of the foundation and has the rights provided in the charter and the regulations. However, the Foundations Law specifically provides that endowing the foundation does not make a person a founder or vest founder’s rights in such a person, so the founder cannot be considered to be equivalent to the settlor of a trust.
A beneficiary has no rights in the assets of the foundation, but may approach the Royal Court if he or she is entitled to a benefit from the foundation that has not been provided. A foundation is not obliged to provide information on the foundation to any person unless required by the Foundations Law, an order of the court, or by the charter or regulations of the Foundation.
Foundations and trusts
There has been considerable discussion on the difference between trusts and foundations. Although there are similarities between the two structures, there are also marked differences and it is likely that persons establishing either a foundation or a trust will have specific reasons for using one vehicle or the other. The main differences are as follows:
- The foundation must be incorporated, and its charter, no matter how limited, will become a public document.
- There is no mechanism for registering a trust whose existence and terms can remain confidential.
- The foundation is a separate legal entity, unlike a trust, where the rights and obligations are vested in the trustees.
- A trust must have beneficiaries (unless it is a purpose trust) who have rights to enable them to enforce the trust against the trustees (which are given to the enforcer in a purpose trust).
- The beneficiaries of a foundation, if there are any, have very limited rights and it is the role of the guardian to ensure that the council are administering the foundation in accordance with its objects.
- The founder of the trust has the rights given to him by the charter and the regulations, which can be extensive, but he need not provide any funds to the foundation, which comes into existence on incorporation.
- The settlor of a trust can reserve certain rights to himself or grant them to another in the trust instrument, but the initial trust assets must be given to the trustees to establish the trust.
The foundation is neither trust nor company, but a brand new concept for Jersey offering a new product for those requiring the benefits that a foundation can give. Many civil law jurisdictions do not recognise the concept of a trust, but are happy with the foundation. It is expected that foundations will be used by those who require transparency, wish to control assets, or who prefer a structure with which they, and their advisors or the authorities in their home jurisdiction, are familiar. It is hoped that this new product will keep Jersey at the leading edge in the provision of international financial services.
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