Introduction to Guernsey
Guernsey, a picturesque island located in the English Channel, is renowned for its robust and innovative financial services sector. One of the key offerings in this jurisdiction is the Guernsey Foundation, a flexible and powerful wealth management tool that combines elements of trusts and companies. With its unique features and benefits, Guernsey Foundations have gained popularity among high-net-worth individuals, families and institutions seeking effective asset protection, succession planning, and charitable endeavours. In this article, we will delve into the concept of Guernsey Foundations, exploring their structure, advantages, and potential applications.
Guernsey has a mixed legal system. The Anglo-Saxon Common Law system has a major influence, but the core source of law is Norman Customary Law. The legislation pertaining to Guernsey Foundations is the Foundations (Guernsey) Law 2012, which has enabled the creation of Foundations since 8 January 2013.
What is a Foundation?
A Guernsey Foundation is a legal entity that holds assets and carries out specific purposes under the control of a Council. It combines elements of common law trusts and civil law foundations, providing a versatile structure that accommodates various objectives. Guernsey Foundations are established by a Founder who contributes assets to the foundation and defines its Purposes and Rules through the establishment Charter.
Uses of a Foundation
Wealth Management and Succession Planning
One of the primary uses of a Guernsey Foundation is wealth management. It offers a secure and efficient vehicle for protecting and preserving assets for future generations. The Foundation can own and manage a wide range of assets, including properties, investments and trading- and non-trading companies, allowing individuals to maintain control while separating ownership from the day-to-day management of assets.
Additionally, a Guernsey Foundation can be an effective tool for succession planning, ensuring a smooth transition of wealth to beneficiaries after the Founder's passing. By establishing a Foundation, families can consolidate their assets, streamline governance, and facilitate efficient decision-making. The Foundation can act as a focal point for co-ordinating various family affairs, ensuring long-term sustainability and wealth preservation.
Guernsey Foundations provide robust asset protection features. By transferring assets to a Foundation, individuals can shield them from potential risks such as lawsuits, creditors, or other unforeseen circumstances. The Foundation's separate legal personality ensures that the assets are protected and kept separate from the Founder's personal liabilities. This aspect makes Guernsey Foundations an attractive option for individuals looking to safeguard their wealth and minimise potential risks.
Guernsey Foundations can serve as a vehicle for charitable giving and philanthropy. By establishing a Foundation, individuals can create a lasting legacy by supporting chosen causes. The Foundation can be structured to support specific charitable purposes, manage donations, and distribute funds to charitable organisations over time. This allows philanthropists to make a significant impact, while maintaining control and ensuring their charitable objectives are met.
A Guernsey Foundation can be an integral part of a comprehensive family office structure. It provides a centralised vehicle for managing the family's wealth, investments, and philanthropic activities.
Key Concepts and Terms
A Guernsey foundation has legal personality, separate from its Founder, Foundation officials and Beneficiaries. The assets of a Foundation belong to the Foundation and it may exercise all the functions of a legal person, including the power to hold land. Unless otherwise limited in the Constitution, a Foundation has a continuous existence until its removal from the Register.
Register of Foundations
A Foundation must be registered at the Guernsey Register of Foundations, which is publicly accessible. However, only the name and registered number of the Foundation, details of the Registered Address and the names and addresses of the Councillors and Guardian are public.
In addition, the resident agent is obliged by law to disclose the information he holds in respect of the beneficial owners of the Foundation to law enforcement or similar agencies for certain permitted purposes relating to investigation or regulatory oversight, whether in Guernsey or elsewhere, but is otherwise not disclosable. Such information is not accessible to and cannot be viewed by the public.
The Founder is the individual or entity that establishes the Foundation and provides the initial assets. They can retain certain powers and influence over the Foundation's activities as specified in the Charter.
A Founder does not have any interest in a foundation (e.g. a shareholding or similar) by virtue only of endowing it with its initial capital or further property. However, the Founder can either be a Councillor or a Guardian (but not both simultaneously) in addition to being a Beneficiary.
A Founder can reserve the power to amend, revoke or vary the terms of the Foundation's Constitution or its purpose and reserve the power to terminate the Foundation but only if these powers are fully detailed in the Foundation's Charter. Such powers can only be reserved by the Founder for the duration of the Founder's life (if he is a natural person) or for a period not exceeding 50 years from the date the Foundation is established if the founder is a legal person. These reserved powers will thereafter automatically lapse.
Guernsey Foundations can have Beneficiaries who may receive benefits from the Foundation. The Founder can define the Beneficiaries and specify their rights and entitlements.
The Constitution may state:-
(a) whether a Beneficiary is entitled to information about the Foundation ("an Enfranchised Beneficiary"), or
(b) whether a Beneficiary is not entitled to that information ("a Disenfranchised Beneficiary"), and
(c) whether, and if so, in what manner a Disenfranchised Beneficiary may become an Enfranchised Beneficiary or vice versa.
An Enfranchised Beneficiary is entitled to:-
(a) Copies of the Constitution,
(b) Disclosure of records and accounts (Excepting any disclosure of a Councillor's deliberations subject to the Constitution)
(c) Make an application to the Royal Court to request an order to prohibit
(i) a change to the Purpose, or
(ii) the winding up of the foundation.
Subject to the terms of the Constitution a Disenfranchised Beneficiary is not entitled to any information.
Foundations can be established for various purposes, including wealth management, estate planning, philanthropy, or as holding vehicles for assets such as real estate, investments, or intellectual property. Note that a purpose of carrying out commercial activity (i.e. running an active business) is prohibited, but the Foundation could be the shareholder of a company running such a business.
Establishment and Constitution
Every foundation must have a registered office in Guernsey and the name and address of the registered office must be included in all correspondence sent on behalf of the foundation, together with its registration number. A Guernsey foundation must also have a resident agent who is either an individual resident agent in Guernsey who is a foundation official or a Guernsey regulated corporate services provider such as Verfides.
The Constitution of a Foundation comprises the Charter, and the Rules (which can be contained within the Charter). The Founder must subscribe to the Constitution by signing it either personally or by his resident agent on his behalf.
The Charter MUST:
(a) state the name of the Foundation
(b) state the Purpose of the Foundation
(c) contain a description of the initial capital of the Foundation
(d) state the duration of the foundation (if it is to subsist for a limited period only)
(e) contain a declaration from the Founder, or his resident agent, that the founder wishes the Councillors to comply with the terms of the Charter.
The Charter may be amended if the Charter so provides, or if the Royal Court so orders, or if the Registrar so permits.
The Rules must prescribe the functions of the Council, detail the procedures for the appointment, resignation and removal of Councillors and any Guardian, and, if the Councillors or Guardian are to be remunerated, make such provision. The Rules may also address a number of other matters such as the manner in which the property of the Foundation may be distributed, accumulated or applied.
A foundation must have a Council; its members are called Councillors who are Foundation Officials. Unless the Constitution states otherwise, the Council shall have at least two Councillors. The Founder may be a Councillor as might be a body corporate. Each Councillor must be so named in the Register.
The Councillors have a duty to the foundation which includes, inter alia:
- To act in good faith in the exercise of their functions;
- To execute and administer the foundation and must exercise his functions under it (a) in accordance with the provisions of this Law, and (b) in accordance with the terms of the Constitution, and, only in the advancement of the Purpose;
- To give information to the Guardian, any Enfranchised Beneficiary and, subject to the Constitution, the
- Keep at the registered office accurate accounting records sufficient to show and explain the Foundation's transactions and show with reasonable accuracy the Foundation's financial position at that time, and to enable the Foundation officials to ensure that the accounts are properly prepared in accordance with any relevant enactment in force.
A Foundation may have a Guardian if the Charter so provides; however there must be a Guardian if:-
- There is a Purpose in respect of which there are no Beneficiaries, or
- There are Disenfranchised Beneficiaries.
The Foundation must have a Guardian in relation to that purpose or those beneficiaries, and Guardian may be a body corporate. The Guardian may not also be a Councillor.
A Foundation is treated as a corporation for Guernsey tax purposes and will be treated as resident in Guernsey if established and managed there. Unless the Foundation holds investments situated in Guernsey, it will be subject to tax at the usual rate of 0%. It must file an annual tax return even where no tax is due.
Despite being treated as a company for tax purposes, the Guernsey economic substance rules do not apply to Foundations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.