In previous articles, we have outlined the advantages of establishing a family foundation, the scope of business activities permitted for foundations, and tax issues. Now we turn to the rights and obligations of persons involved in the operation of a family foundation. The foundation operates through its bodies (management board, supervisory board, and assembly of beneficiaries), but it cannot be established and function without the founder and beneficiaries. The Family Foundations Act regulates the tasks and powers of all of these entities, giving the founder relatively wide latitude to set the rules for the foundation’s bodies in the statute. This allows these policies to be tailored flexibly to suit the foundation’s operations and purposes.
Every family foundation must have at least one founder. Only a natural person with full legal capacity can become a founder. Therefore, legal entities (e.g. companies or cooperatives) cannot become founders, but, for example, there is no obstacle to foreigners being founders. Also, the act does not preclude a foundation from having several founders, with theoretically unrelated individuals also able to become founders, creating a single family foundation for several individuals or families.
The source of each family foundation is the founder. Therefore, the act assumes a special role for this person. First of all, the founder is obliged to establish the foundation in either the foundation deed or the founder’s will, in either case in the form of a notarial deed. In turn, the founder should:
- Establish the statute of the family foundation (also in the form of a notarial deed), including in particular its specific purposes
- Draw up an inventory of property to cover the founding fund
- Establish the bodies of the family foundation (unless the statute provides otherwise, the founder retains the right to appoint and remove members of the management board and supervisory board until his or her death)
- Contribute property to a family foundation to cover the founding fund with a value specified in the statute, but not less than PLN 100,000.
Additionally, the act provides for the founder’s power to challenge resolutions of the family foundation’s bodies. The basis for challenging a resolution may be its inconsistency with the law or with the statute or purpose of the foundation.
Otherwise, the founder’s rights and obligations are determined by the statute of the foundation, and in this regard it should be assumed that the provisions of the statute are limited only by law. Thus, the founder can decide to what extent and in what capacity he or she wants to participate in the activities of the foundation.
The founder’s rights and obligations are strictly personal in nature, making them non-transferable. However, in the statute the founder may delegate the exercise of his or her powers to another person. It seems that the entrustment of powers remains effective only during the founder’s lifetime, as in the event of his or her death the founder’s powers are assumed by the competent bodies of the foundation (e.g. the power to appoint and dismiss members of the foundation bodies).
A founder can combine different roles in the foundation’s bodies. For example, he or she may serve as the sole member of the foundation’s management board. Additionally, the act provides that the founder can also be a beneficiary of the foundation. The possibility of combining the management and control competencies in the hands of the founder, and the ability to benefit from the foundation’s assets, strengthens the attractiveness of establishing a family foundation during the founder’s lifetime.
The management board is a mandatory body of a family foundation. Its main task is to manage the affairs of the foundation, represent it, and pursue the purposes indicated in the statute. The management board may have one or more members, and may include the founder, beneficiaries, and also persons unrelated to the founder who will ensure proper management of the foundation’s assets, provided they have full legal capacity. It seems that it is precisely due to the possibility of appointing the founder or beneficiaries to the management board that the parliament expressly allowed this function to be performed without remuneration as well.
In the case of a multi-member management board, the family foundation is represented by two members acting jointly, although the method of representation may be specified otherwise in the statute. In principle, the term of office of a management board member is three years, but the act also leaves this to the discretion of the founder, and this issue may be regulated differently in the statute. A member of the management board of a family foundation can be removed at any time. Also, in the statute the founder may specify who is authorised to appoint and remove the management board, for example the founder, the supervisory board (if established) or the assembly of beneficiaries.
The drafters of the act intended the management board to serve as an intermediary between the family foundation and its beneficiaries. Like other legal entities, a family foundation operates through its bodies. Therefore, the actions of the management board are the actions of the family foundation. In particular, the duties of this body include ensuring the foundation’s financial liquidity and solvency, as well as distributing benefits to the beneficiaries entitled to receive them. The management board is also responsible for maintaining a current inventory of property managed by the family foundation. The beneficiaries and the founder are entitled to address comments, opinions or recommendations to the management board.
The management board has the duty to create, maintain and update the list of beneficiaries. Because this involves processing the beneficiaries’ personal data, the management board is obliged to maintain the confidentiality, integrity, completeness and availability of the personal data.
At the same time, the management board of a family foundation will usually have extensive knowledge of the foundation’s activities, resulting not only from access to the documents of the foundation itself but also from the possibility of receiving information intended for the foundation as a partner or shareholder of companies in which the family foundation has an interest. As a result, every member of the management board is obliged to keep confidential the information obtained in relation with his or her function, even after the member’s term of office ends. Due to the nature of the family foundation as an instrument to preserve the founder’s assets, the concept of family foundation secrecy is broader than that of business secrecy, and includes, among other things, information regarding the investment policy, organisational or other information of economic value, as well as information regarding beneficiaries.
The members of the foundation’s management board have an obligation to act loyally towards the family foundation and to exercise due care. A member of the management board of a family foundation may be liable to the foundation for damage caused by an act or omission contrary to the law or the statute, unless he or she is not at fault. To release a member of the management board from liability, it must be demonstrated, in particular, that he or she acted within the bounds of reasonable economic risk, a concept that should be understood in line with the business judgment rule for members of the management board of companies. This issue is discussed more extensively in our article “The business judgment rule.”
In addition to liability for the foundation’s obligations borne by a member of the management board under generally applicable provisions (e.g. the Bankruptcy Law or the Tax Ordinance), members will also be obliged to reimburse the foundation for benefits they have provided to beneficiaries in violation of the law or the statute, jointly and severally with the beneficiary who received the undue benefit.
The supervisory board is an optional body of a family foundation. However, when the number of foundation beneficiaries exceeds 25 persons, the foundation must appoint a supervisory board. Until then, there will be a supervisory board only if expressly provided for in the statute of the foundation.
Interestingly, the supervisory board may consist of as few as one member. Otherwise, it seems that the structure and purpose of the supervisory board can be compared to supervisory boards in companies. In short:
- A member of the supervisory board may be a natural person with full legal capacity who has not been convicted of any crimes specified in the Family Foundations Act
- The members of the management board are appointed for maximum 5-year terms by the founder, or after his or her death by the assembly of beneficiaries
- The same person cannot serve on both the management board and the supervisory board
- The supervisory board oversees the activities of the management board in terms of compliance with the law and the statute, and may, in particular, request any information, documents, reports and explanations from the management board
- The supervisory board represents the family foundation in contracts or disputes with a member of the management board
- The members of the supervisory board are bound by the principle of due care in the performance of their duties, the duty of loyalty to the foundation, and the duty to preserve the secrets of the foundation (also after their term ends).
However, due to recent amendments to the Commercial Companies Code, the powers of the supervisory board of a family foundation are not as broad as in the case of companies. This is important, as the scope of liability of a member of the supervisory board of a family foundation for damage caused to the foundation is the same as the scope of liability of members of the supervisory boards of companies. This raises the question of whether the members of the supervisory board of a family foundations will be able to properly perform their duties, since they are not expressly granted, for example, the right to seek the assistance of advisors of their choice, as members of the supervisory boards of companies can do (under certain conditions).
Beneficiaries and the assembly of beneficiaries
By definition, a family foundation should act in the interests of its beneficiaries and distribute specific benefits to them. At the same time, the foundation’s beneficiaries may include the founder, the founder’s family members, as well as unrelated persons and public benefit organisations.
The beneficiary’s rights and obligations are non-transferable, which does not apply to the beneficiary’s claims against the foundation for benefits due to the beneficiary. However, beneficiaries may waive their rights, which requires written form with a notarised signature. Waiver of all rights by a beneficiary is equivalent to waiver of beneficiary status.
The beneficiaries may address comments, opinions or recommendations to the bodies of the family foundation regarding its activities. On the other hand, not every beneficiary will necessarily be a member of the assembly of beneficiaries, as this right extends only to beneficiaries granted the right to participate in the assembly in the statute. The statute must identify at least one beneficiary entitled to participate in the assembly of beneficiaries. This way, the founder can exclude from decision-making power any beneficiaries the founder deems unsuitable to adopt resolutions on the foundation’s key issues, but without depriving them of the right to receive certain benefits from the foundation’s assets. The members of the assembly of beneficiaries are obliged to exercise due care in carrying out their duties.
The assembly of beneficiaries adopts resolutions on key issues for the foundation. In particular, a resolution of the assembly of beneficiaries is required for:
- Consideration and approval of the family foundation’s financial statements for the previous financial year
- Discharge of the members of the family foundation’s bodies for performance of their duties
- Deciding on distribution or coverage of the net financial result
- Selection of an audit firm, when the financial statements of the foundation are subject to mandatory audit under the Accounting Act
- Appointment and removal of members of the management board in the event of the founder’s death and the absence of a supervisory board, unless the statute provides otherwise
- Appointment and removal of the management board after the founder’s death, unless the statute provides otherwise
- Appointment of an attorney-in-fact to represent a family foundation with no supervisory board to conclude a contract between the foundation and a member of the management board, and in a dispute between the foundation and a member of the management board
- Appointment of an audit firm or team of auditors to perform an audit of the management of the family foundation’s assets, and incurring and fulfilment of private and public liabilities, in terms of regularity, reliability and compliance with the law and the purpose and documents of the family foundation
- Dissolution of the family foundation for important reasons other than those specified in the statute or the act, which requires a unanimous resolution of the assembly of beneficiaries
- Determination of the manner of representation of the family foundation during the liquidation period, if not provided for in the statute or a ruling of the registry court
- Approval of the liquidation opening balance of the family foundation drawn up by the liquidators, as well as approval of the liquidators’ activity report and financial statements following each financial year during the liquidation
- Transfer of immovable property to a buyer of the liquidators’ choice in the course of liquidation and indication of the price at which this may take place
- Approval of the liquidation report as of the day prior to the release of the assets remaining after satisfying or securing the foundation’s creditors
- Other matters specified in the act or the statute.
Therefore, in the statute the founder may also specify other activities for which the approval of the assembly of beneficiaries is required.
If the act requires a resolution of the assembly of beneficiaries to perform a legal act, the legal act performed without the required resolution is invalid. On the other hand, a legal act performed without the approval of the competent body of the family foundation, required exclusively by the statute, is valid, but this does not preclude the liability of management board members to the family foundation for violation of the statute.
As a rule, the assembly of beneficiaries is convened by the management board, unless the statute provides otherwise. Also, it is permissible to indicate in the statute the cases when the beneficiaries may request the management board to convene an assembly of beneficiaries. Then, such a request should specify the proposed agenda for the meeting of the assembly of beneficiaries.
Unless otherwise provided in the statute, the assembly of beneficiaries is valid regardless of the number of votes represented, except for resolutions on appointment or removal of the management board or supervisory board, when participation of at least half of the assembly’s members is required. Resolutions of the assembly of beneficiaries are adopted by a simple majority of votes, unless the statute provides otherwise. Each beneficiary entitled to participate in the assembly holds one vote, unless the statute provides otherwise, and therefore it is permissible to privilege certain beneficiaries by granting them a larger number of votes.
Meetings of the assembly of beneficiaries are held at the foundation’s premises, unless the statute provides otherwise. Beneficiaries may also participate in meetings via telecommunications, unless otherwise provided in the statute.
Beneficiaries may participate in the assembly of beneficiaries and exercise their voting rights in person or by proxy. A proxy to participate in the assembly of beneficiaries and exercise voting rights must be made in “document” form to be valid. Document form does not require “written” form. It is enough to submit a declaration of will in the form of a document enabling identification of the person making the declaration, in a medium enabling examination of the contents.
The set of powers of the assembly of beneficiaries shows that it is a body authorised to make key decisions for the foundation in certain situations, such as election of members of other bodies or dissolution of the family foundation for important reasons other than those indicated in the statute or the act. From this perspective, it is important to indicate in the statute which beneficiaries will be entitled to participate in the assembly of beneficiaries, what number of votes they should have, and what majority will be required to adopt resolutions on particular matters.
To a large extent, the scope of powers of the family foundation’s bodies, their control and cooperation can be shaped by the founder, to whom the parliament has left relatively broad freedom to introduce relevant provisions in the statute. Therefore, the founder can exclude certain beneficiaries from the decision-making process, without depriving them of specific benefits from the foundation’s assets. This allows solutions to be tailored to the needs of the particular foundation, including family relationships, the extent of the assets managed by the foundation, and its anticipated activities.
Dr Kinga Ziemnicka, attorney-at-law, Paweł Szumowski, attorney-at-law, Adam Strzelecki, M&A and Corporate practice, Wardyński & Partners