For the owner of a private company, the family foundation often becomes the platform on which shares in companies running the operating business are gathered. The question of which companies the foundation may be a shareholder in therefore has strategic significance. PLA.partners advises private clients on how to arrange the ownership structure with the participation of a family foundation, so that operating companies and the family foundation work together in a legally and fiscally efficient way.
Short answer, the family foundation may be a shareholder in commercial companies
Yes, a family foundation may be a shareholder in commercial companies, both partnerships and capital companies. This possibility follows directly from the regulations governing the family foundation and falls within the catalogue of the so-called permitted activity. In practice it means that the family foundation may hold shares in limited liability companies, stocks in joint stock companies and simple joint stock companies, as well as participate in limited partnerships and general partnerships.
Maciej Pilarek, attorney and partner at PLA.partners, points out that this feature makes the family foundation a perfect fit for the hybrid model, in which a company runs active business and the family foundation gathers shares and acts as the long term owner.
Capital companies, the natural area of family foundation participation
Capital companies, namely the limited liability company, the joint stock company and the simple joint stock company, are the most frequently encountered type of company in which a family foundation appears as a shareholder. The legal character of these companies enables tax neutral receipt of dividends by the foundation, under the conditions of the subjective exemption from corporate income tax.
In projects conducted by PLA.partners the family foundation is usually placed as the sole or majority shareholder of an operating company. Such an arrangement allows the active operating activity to be separated from the long term asset strategy of the family.
Partnerships, caution recommended
A family foundation may also participate in partnerships, including the limited partnership and the general partnership. In the case of tax-transparent companies, however, particular caution should be exercised on tax issues, since the structure of tax flows in these companies may affect the scope of the family foundation’s exemption.
PLA.partners experts analyse each entry of a family foundation into a partnership separately, assessing both the formal and the tax consequences of such a decision. In some cases the better solution is to keep the foundation exclusively within capital companies.
Hybrid model, family foundation as long term shareholder
In the practice of the PLA.partners team, the model most often chosen by private clients combines a capital company conducting the operating business with a family foundation acting as its long term shareholder. The company generates profit, the foundation receives dividends under the conditions of exemption, capital is gathered in the foundation and reinvested or allocated to distributions for beneficiaries.
This model allows a legal, tax and succession effect to be achieved that is unattainable in a stand-alone company without a family foundation. From the business owner’s perspective it usually offers the most practical and adequate solution to the realities of a Polish family.
Legal and business consequences for the client
From the decision-making perspective in a private company, the presence of a family foundation as shareholder means:
- the ability to gather shares and stocks in one long term entity,
- tax neutrality of dividends from domestic capital companies,
- the need for a careful approach to partnerships due to their tax character,
- the ability to design a hybrid model linking the operating business with the asset structure,
- significant strengthening of the family’s asset protection,
- the need for ongoing corporate servicing of the foundation and subsidiaries.
Possible actions, a plan for the business owner
In the work of the PLA.partners team, designing a structure with the participation of a family foundation involves:
- a map of existing companies and analysis of their current ownership structure,
- assessment of the purpose of including the family foundation as a shareholder,
- choice of the model, foundation as sole, majority or minority shareholder,
- analysis of the tax consequences of the foundation’s presence in each company,
- preparation of corporate and transactional documentation,
- schedule of contributing shares or stocks to the family foundation.
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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