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One of the many innovations in Polish law that the Polish Deal is intended to introduce is the family foundation. The proposal was submitted to the Ministry of Development and Technology by family business circles. Under the assumptions, the bill could reach Parliament in the first half of 2022 and enter into force on 1 June 2022.
The purpose of introducing family foundations into Polish law is to improve the legal position of family businesses, specifically their succession. This solution already exists in several European countries, such as Germany and Austria. It is a popular means of controlling assets in well-known multigenerational businesses. Until now, due to the high costs of operating abroad, family foundations were available only to the largest businesses. The solution separates the business and the family by transferring ownership of the family's assets to the foundation.
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The legal status of the foundation, as a new legal person, presupposes a registered office in Poland. Establishing one will require a founding deed or will prepared by a notary containing a declaration to create a family foundation. It will be a legal instrument entirely different from commercial companies. At this stage of work on the proposal, detailed tax regulations are not yet known.
As the gov.pl website states, a family foundation's tasks include “collecting, managing and protecting assets transferred by the founder according to the founder's wishes in the articles, (and) providing funds to the beneficiaries designated by the founder, particularly close relatives and non-governmental organisations carrying out public benefit activities.”
A foundation may be established by one or several founders with full legal capacity, above all the right to dispose freely of their assets. A beneficiary may be a natural person or a non-governmental organisation conducting public benefit activities.
What can the foundation's money be used for?
It may pay for beneficiaries' living costs, education or medical assistance, or the statutory purposes of the non-governmental organisation mentioned above. The family business, along with other accumulated assets such as company shares, securities and property, will become the foundation's property, while the family and succeeding generations become beneficiaries.
The formal structure of a family foundation includes a management board subject to internal supervision by a council of protectors. Beneficiaries will form a beneficiaries' assembly, which will deliberate in exceptional circumstances, such as filling vacancies in a governing body. This will let the family influence the foundation's activities even when outside managers sit on its board.
Why establish a family foundation? According to gov.pl, it makes it “possible to plan business activity over several generations without worrying about difficulties in inheriting shares in commercial companies” and “makes it easier to divide profits from family assets between people involved in the family business and those who chose a different career, without endangering the integrity of family assets and the liquidity of companies in which the family foundation owns shares.”
The aim of establishing a family foundation is to keep the family business going in the founder's heirs' hands. Business longevity is sustained by concentrating family control over business assets in one entity without shareholders or owners, thus preventing the fragmentation of family capital that often leads to a third party taking control of a company. The foundation's mission is therefore to accumulate and increase capital for future generations, according to the idea that the business belongs not only to us but also to our children and grandchildren. This allows flexibility in many areas, including separating the role of beneficiaries from those who decide the future of the foundation's assets.
The main difference between a company and a foundation is that heirs do not become shareholders in the foundation and their rights cannot be sold or transferred to their heirs. If a family's goal is not to pass the business down through generations and successors want the freedom to leave the family business and cash in their shares, a family foundation may not be the best solution.
How can a family foundation succeed? Success depends on designing it well in advance. Consider each family member's role and what will happen to the business over subsequent generations. If we do not want our family business to follow listed companies with dispersed shareholders, whose operations are determined by short-term profits, a foundation is necessary.
What should the family discuss when considering a family foundation?
Separating family assets from business assets – many Polish family businesses focused on rapid growth without considering how much property in fixed assets was essential for business operations and how much could be withdrawn to support the family's living needs.
How family members see their future – do they want to work actively in the business, take a supervisory or decision-making role, or choose a completely different career away from the family business?
Succession plans – they take a long time to prepare and align the vision of shared goals, operating rules and each family member's tasks. Discussions should involve not only close relatives but also successors and other family members connected to the business, and sometimes trusted third parties on its board. Their aim is a coherent family position on the key matters necessary for an effective family business. One can also create a family constitution, a set of principles governing relationships between the business and family.
Reviewing the quality of property and fixed assets – confirm title to property and rule out possible litigation that would burden the foundation's assets.
What does the family expect from the business? Identify every expectation, not just financial ones but social and educational ones too, and then include them in the articles.
What will be the foundation's purpose? Remember that a family foundation not only grows family wealth but also finances its beneficiaries' needs, including education, family integration and buying shared property. It can also help in crises, such as chronic illness or a beneficiary's death.
Who can become a beneficiary and on what conditions? This matters because beneficiaries receive financial benefits. Their expectations should not exceed what the business can afford.
If this article interests you, explore our services for family foundations and find out how we can help:
Our specialists can help you put this knowledge into practice.
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