For the owner of a private company, the decision to contribute it to a family foundation is one of the most important in long term ownership policy. It affects the structure of control over the company, succession, taxation of profits and the way capital generated by the company supplies successive generations of the family. PLA.partners advises private clients on how to assess whether a specific company is a good candidate for contribution to a family foundation.
Short answer, in many cases an excellent decision
Contributing a company to a family foundation is an excellent way to secure the company’s assets and order succession matters. The family foundation creates the possibility of introducing lasting, transparent and predictable rules of ownership and managerial succession of the company, which improves its stability over a long period.
Maciej Pilarek, attorney and partner at PLA.partners, emphasises that for many private clients this model is a natural direction of development of the ownership structure. The company runs active business, the family foundation acts as the long term owner of the shares, and the family benefits from the profits generated through distributions.
Tax benefits, profit accumulation within the family foundation
Contributing a company to a family foundation makes it possible to take advantage of favourable tax solutions that support the protection and growth of family assets. Dividends paid by the company to the family foundation are, as a rule, tax neutral at the foundation level under the conditions of the corporate income tax exemption within the scope of permitted activity.
In the practice of the PLA.partners team, this parameter is one of the main arguments for placing shares within a family foundation. Profits generated by the company may be accumulated within the foundation, reinvested or used to fund distributions for beneficiaries, while taxation appears only at the moment of paying distributions.
Ownership and managerial succession, company stability in the long term
The most important asset of contributing a company to a family foundation is the ordering of ownership and managerial succession. The family foundation acts as the lasting owner of shares, and classical inheritance of shares after the owner is replaced by statutory mechanisms of the foundation. This materially reduces the risk of inheritance disputes, fragmentation of ownership and loss of company cohesion.
In projects conducted by PLA.partners, this model is often chosen as the basic way of securing the company’s continuity. From the private client’s perspective this means that the company operates after the client’s death according to pre-planned rules, not according to the dynamics of inheritance proceedings.
Distributions to beneficiaries, favourable treatment of the family
Funds accumulated within the family foundation, derived in large part from dividends paid by the company, may then be paid as distributions to beneficiaries who are most often closest family members of the founder. Distributions to the closest family may be subject to tax exemption or the preferential rate of 10%, depending on the beneficiary’s tax group.
In this way contributing a company to a family foundation makes it possible to build financial security for successive generations of the family. PLA.partners experts design the distribution policy so that, on one hand, it genuinely supports the family and, on the other, makes maximum use of tax preferences.
Protection of company assets against creditors and personal risks
Contributing the company’s shares to a family foundation reduces the company’s exposure to the founder’s personal risks. The company’s assets, including its capital and intellectual property, are protected by the family foundation construction in a way that reduces the risk of an unplanned change in the ownership structure.
From the business owner’s perspective this parameter is significant especially in situations where running the business is connected with exposure to economic or personal risk. The family foundation becomes a stabiliser that protects the company not only against accidents, but also against possible family disputes.
Legal and business consequences for the client
From the decision-making perspective in a private company, contributing the company to a family foundation means:
- tax neutrality of domestic dividends received by the foundation,
- the ability to accumulate and reinvest company profits within the foundation,
- preferential treatment of distributions to the closest family members of the founder,
- orderly ownership and managerial succession of the company,
- reduction of the company’s exposure to the founder’s personal risks,
- the need for ongoing corporate servicing of the foundation and the subsidiary.
Possible actions, a plan for the business owner
In the work of the PLA.partners team, the decision on contributing a company to a family foundation involves:
- analysis of the company’s current ownership structure and its legal form,
- assessment of the purpose of contributing the company to the family foundation,
- decision on any conversion of the company’s legal form before contribution,
- design of the target structure with the family foundation as shareholder,
- preparation of corporate and transactional documentation,
- schedule of contributing shares and launching the distribution policy.
Contact PLA.partners Law Firm
Do you need legal support or an individual analysis of your matter? Visit PLA.partners and contact our team, we will help assess the situation and propose specific solutions.
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