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Seminar on Legal and Financial Aspects of Endowment Building
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Dr. Carsten Carstensen VolkswagenStiftung
Legal Provisions for Establishing and Managing Endowments in the US, in Western Europe, and in Visehrad Countries
The Understanding of the Foundation in Economic Terms
How to define a foundation?
- No definition by German law!
- to endow capital for a defined purpose
- a legally personified private capital
- an independent amount of capital
- In its very meaning
- a union consisting of the elements
- capital
- purpose/objectives
- independent self organization
Consequences: The foundation
- has no members (like the association)
- has no outside (capital) owners
- and therefore owns itself
- the founder of the endowment has irreversibly given away his capital
Legal provisions:
- the foundation under private law
- serves public purposes
- and therefore benefits from tax exemption
Some more legal provisions:
- the foundation's capital must be preserved in its value
- the proceeds out of the foundation's capital must be disposed of only for the foundation's objectives
- the proceeds may be retained and accumulated to the capital if this is required to compensate for capital losses
- the members of the foundation's board undertake to see to an orderly and proper management of the foundation's capital and will be held responsible for mismanagementu
The fulfilment of the foundation's purpose:
- Definition of the foundation's purpose in its statutes
- Fulfilment of the purpose by spending the proceeds
- Foundation's capital as source of the proceeds
- Disposition of the capital by means of asset management
We want to achieve:
- continuous and sustained fulfilment of the foundation's purpose
- which is also the prevailing condition for the establishment of a new foundation
- that has to be approved by the foundation authority This means:
- the degree of fulfilment of the foundation's purpose is dependent on the economic capacity of the foundation
The foundation's capital must be preserved in its value
- continuous and sustained fulfilment of the foundation's purpose the moment of eternity in the foundation's life characterizes the responsibility of the foundation's board
Capital and capital proceeds
Capital
- the sum of assets that are used to generate proceeds
- preservation of the value of the sum of the assets
Proceeds
- are spent for the fulfilment of the foundation's purpose
Preservation of the foundation's capital The Foundation's capital must by no means
- be granted
- be consumed
- be sold below its value
neither for the purposes
- which do not match the foundation's objectives nor for purposes
- which match the foundation's objectives
Preservation of the capital "in its value"
Consequently
- to compensate for inflation
- to guarantee the continuous fulfilment of the foundation's purpose
- to compensate for any loss in the assets' value
In economic terms
- to maintain the purchasing power of the foundation's capital
- at the end of the period the purchasing power is equivalent to that prevailing at the beginning of the respective period
- in case of inflation it is not sufficient to maintain the nominal value of the capital but
- it is necessary to maintain the real value of the capital
Disposition of the proceeds out of capital
- to dispose of the proceeds only for the foundation's purpose --> to spend them
- to maintain the real value of the capital
Legal restriction for retaining proceeds in Germany
- up to 33 % of the annual proceeds can be accumulated to the capital
- independently of the degree of the annual rate of inflation
Copyright © Fundacja Batorego
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