A foundation is a non-profit organisation whose main aims are charitable and/or research-related. The actual scope of permitted activities for foundations varies significantly between jurisdictions, but the general aim of any foundation is to serve the public benefit without seeking to make a profit. Foundations base their work around distributing donated assets in ways that further their purpose, and these assets can be collected both publicly and privately.
However, today foundations are often used as an asset protection tool. Therefore, here we will discuss offshore foundations used for asset management. In this sense, foundations are commonly used to accept transfers of foreign funds and property (including such assets as real estate, intellectual property, bank deposits, company shares, investment portfolios, etc.). Foundations are recognised as separate legal entities and combine the features of corporations and trusts.
There is a wide variety of legal implications for foundations, depending on the particular jurisdiction they are registered in. In some countries, foundations are prohibited from conducting any form of business; in some, e.g. Germany, economic activity is permitted if it serves the main purpose of the foundation. In the USA, the law distinguishes between private foundations (which distribute the donations of specific individuals) and community foundations (which distribute public donations). Private foundations have more control over their charity-related activities, but also receive fewer tax benefits.
Functions of a foundation
The main function of a foundation is to engage in charitable work and to distribute donations. An additional aim is to raise the assets needed for these donations and to choose recipients. Assets can be acquired either privately (from specific individuals) or publicly (from the general public). Public donations are usually collected with the aid of publicity campaigns and advertising. Some jurisdictions also allow foundations to obtain assets from business activity, if it can be proven that this economic activity is of a truly non-profit nature.
There are a number of functions that are prohibited to foundations, the main one being economic activity aimed solely at generating a profit. In some jurisdictions, e.g. Italy, foundations are also prohibited from dedicating their charitable activities to purposes other than those declared upon registration.
