The Isle of Man has for many years been a jurisdiction of choice for the structuring administration and preservation of private wealth. As a common law jurisdiction, Manx companies and trusts have become the traditional vehicles through which wealth is passed. This has now changed with the passing of the Foundations Act 2011 ("the Act") on the 11th November coming into force on 1st January 2012. A foundation is a legal concept more familiar to civil law jurisdictions and has never had a statutory footing in Manx law.
THE MANX FOUNDATION'S GENERAL CHARACTER
A foundation can be described as a self-owning legal person formed by the dedication of property for specified purposes. Property may or may not be transferred into the foundation when it is established. The foundation is established by making a successful application for establishment to the Foundations Registrar. Whoever initiates the registration of the foundation at the outset is known as the Founder.
A foundation, being a legal person, can sue and be sued in its own name and can own property in its own name. Importantly a foundation must have:
- A foundation instrument that defines the purpose or objects for which the foundation has been set up as well as the foundation's name.
- The foundation rules which must specify those persons who will act as its council, its registered agent and its enforcer. The Act specifies what must be covered by the rules which include but is not limited to:
- the appointment, retirement and replacement of council members, registered agents and enforcers
- the remuneration of council members, registered agents and enforcers
- powers that are to be reserved by the founder
- when the foundation is to be wound-up and for what object or person any surplus assets are to be applied
Other than certain particular issues that must be dealt with in the rules, there is wide scope for the rules to be varied from foundation to foundation. This will be exploited to adapt a foundation to its particular role.
- The foundation's objects define the purpose of the foundation. The objects must be certain, reasonable and possible, but must not be unlawful, contrary to public policy or immoral. The objects may or may not be charitable, they can also be for the benefit of a person or class of persons or for a specified purpose, or both.
- The Council's role is to administer the foundations property and to ensure that the objects are met. The council must comprise of at least one person and that person may be a corporate entity. A council member who is an individual must be at least 18 years old, but must not be suffering from a mental disorder, or be disqualified from being a director or officer of a company or a member of a foundation council. The members of the council must act in good faith and in the best interests of the foundation. The council members must also exercise the care, due diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
- A Registered Agent whose initial purpose is to establish the foundation. The Bill imposes certain administrative duties including the safe custody or particular foundation documents, the production of accounts, filing of annual returns. It is envisaged that these duties will be undertaken by the registered agent.
- An Enforcer whose purpose is to ensure that the objects of the foundation are met. It is not obligatory to have an enforcer, unless the foundation has a specified non-charitable object.
WHAT CAN BE EXPECTED?
The foundation is expected to sit along side trusts and companies as offerings for the structuring of private wealth, focusing towards private clients from civil law jurisdictions whose legal systems can have trouble recognizing notions of trusts and equity.
It is difficult to see at this stage how the foundation could apply to the United Kingdom private client market given that there must be a degree of uncertainty as to how HMRC will view it. This is compounded by the relative certainty afforded to trusts and companies. That said those private clients who are not tax driven, or perhaps are looking to create an exclusively charitable entity may find its structure appealing. Moreover, the foundation will serve a number of possible commercial functions since it is not confined to the affairs of private individuals.
ISLE OF MAN FIDUCIARY INDUSTRY
The Act specifies the various parties involved in a foundation and their roles. Amongst others, the registered agent must be a regulated corporate service provider. The Isle of Man has a well established and internationally renowned industry for the provision of corporate and trust services, and it can be assumed that this fiduciary industry will handle foundation business with its characteristic skill and efficiency.
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.