Typically a foundation differs from a Limited Liability Company, because its focus cannot be the pursuit of profit. In addition, it has no shares and cannot distribute dividends or equity to its founders. Under Dutch Law, there is only one type of foundation (‘stichting’). However, the legal type has various applications, which, to some extent, influence the set-up of the foundation and the contents of the Articles of Association. Most commonly, our clients ask for standard foundations, charity foundations, family foundations or ‘STAK’ foundations. A Dutch foundation has a board of directors but cannot have any members (as opposed to an association).
Formation of a Dutch foundation
One of our Dutch public notaries will officialize the Deed of Incorporation One or more individuals or legal entities can set up a foundation. Thus, a Limited Liability Company can also be the founder of a Dutch foundation. The deed of incorporation needs to contain the information of the founders, as well as the name of the foundation and its purpose. Afterwards, you must register the foundation at the Dutch Chamber of Commerce. The founder does not necessarily play a part in the day-to-day management of the foundation. For this, it has a board of directors. The founder can be included in this board, but this is not a requirement.
Holding assets for the risk and account of third parties
A foundation may also be set up for the purpose of holding certain assets for the risk and account of third parties, without the issuance of depository receipts. These assets do not only include shares, but other assets, as well. Additionally, it is possible to sell or inherit the contractual claim of the person towards the foundation. The foundation holds the assets for the risk and account. This use of the foundation is usually seen as temporary. Therefore, it would be possible to “convert” this set-up into a voting trust foundation somewhat later.
Voting trust foundation (in Dutch: STAK)
Many entrepreneurs in the Netherlands use a foundation to effect a concentration of voting rights on shares. Moreover, the foundation holds the legal title of those shares. Meanwhile, the economic benefit attached to those shares remains for the risk and account of third parties. You can also use the depository receipt to split legal and beneficial ownership of paintings, work of art, patents, books, etc.
The shares held by the Dutch foundation (STAK) may either be shares in a Dutch legal entity, or in a foreign legal entity. However, this requires that company law of that foreign jurisdiction accepts such split between economic ownership and legal title. In exchange for the acquired shares, the STAK issues depository receipts:
Depository receipts reflect the shares, except for the voting rights. If there is a distribution of profits by the company whose shares are held by the foundation, it shall immediately forward these distributions to the holders of depository receipts. Sometimes, this might occur with a small deduction for costs incurred by the foundation. For tax purposes, the STAK is usually considered transparent. The depository receipts may be sold and transferred by the depository receipt holders, usually subject to transfer restrictions. The STAK usually acquires shares after the incorporation of a company in exchange for depository receipts. However, it may also act as an incorporator itself and grant the depository receipts somewhat later to the persons for whose risk and account the incorporation took place.
A family foundation is usually created to provide the material needs of members of a certain family. Therefore, funds and/or assets (such as shares or real estate) are transferred to the family foundation. Furthermore, the foundation may distribute (the proceeds of) these assets among the family members. This needs to be in accordance with the wishes of the persons who instigated the incorporation. Under Dutch law, the objective of a foundation cannot be to make distributions to either persons who take part in one if its corporate bodies, or to other persons or legal entities. An exception to this would be where these distributions have a non-commercial or social character. However, in practice, the settlor can circumvent this rule. Therefore, the settlor makes a donation to the Dutch foundation, under the obligation that it makes distributions to certain beneficiaries. You need to designate those beneficiaries in a letter of wishes.
Charity foundation or trust
You can also use a foundation for charity. As discussed, the Netherlands legally employ a broad definition of a foundation as a non-profit institution. Practically, however, the goals and applications of the foundation might differ. A trust, where the focus is the benefit of others, is therefore considered as a charitable foundation. If your foundation is a trust, it is meaningful to obtain an ANBI-status (in Dutch: Algemeen Nut Beogende Instelling). This means the trust qualifies for tax benefits. If it is committed to charity for 90% or more, it can be considered as ANBI. Then, there is no taxation for inheritance and gifts (provided that you use the inheritance or gift for charity purposes) and refund of energy tax. Furthermore, donors are able to deduct the donation of their taxable income or corporate income tax. This tax regime, designed for non-profit end charitable activities, makes the Netherlands a very interesting country to establish a charitable foundation.
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