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Final call for family and ecclesiastical foundations

19.10.2020

Family and ecclesiastical foundations have until 31 December 2020 to be registered in the commercial register. Until the end of 2015, such foundations were exempt from such registration. Since 1 January 2016, all foundations under private law are required to be registered, with existing family and ecclesiastical foundations being given a transition period of 5 years until the end of 2020.

Family and ecclesiastical foundations have until 31 December 2020 to be registered in the commercial register. Until the end of 2015, such foundations were exempt from such registration. Since 1 January 2016, all foundations under private law are required to be registered, with existing family and ecclesiastical foundations being given a transition period of 5 years until the end of 2020.

The foundation council is responsible for registering the foundation with the commercial register office in due time. Family foundations and ecclesiastical foundations that were formed before 1 January 2016 and that are not entered in the commercial register at the end of 2020 do not automatically cease to be a legal entity. However, there is a risk of ex officio registration and criminal sanctions, as well as liability claims against the defaulting foundation council.

The changes are based on an amendment to art. 52 of the Swiss Civil Code (SCC), which was made on the basis of the recommendations of the Financial Action Task Force (FATF) to combat money laundering and terrorism financing.

The focus is on family foundations. An increased legal duty to keep accounting records now also applies to these, and mere simplified bookkeeping is no longer permitted. That said, unlike usual foundations and pension foundations, family foundations remain exempt from State supervision and do not have to appoint an auditor.

1. Notion of family foundation

Family foundations are foundations in which the assets are tied to a specific family. Whether a foundation is a family foundation must be assessed by interpreting its foundation charter. The determinant factors are the intended purpose and the designated beneficiaries. A family foundation is characterised by the fact that the beneficiaries are primarily members of a particular family. Even if the foundation deed stipulates that charitable purposes will be pursued in the event of the family's extinction, this does not change the character as a family foundation. The designation by the founder or the lack of any designation as a family foundation is also not decisive.

2. Areas of issue

Family foundations are subject to the provisions of art. 335 Para. 1 SCC and can only be created to cover the costs of raising, establishing or supporting family members, or for similar purposes. The Federal Supreme Court interprets the law narrowly and assesses the permissible purposes strictly. According to current law, maintenance foundations, i.e. foundations where benefits are granted "just like that", without any conditions, are prohibited. It is therefore not permissible, for example, to give family members the foundation's capital or its income or other benefits in order to increase their standard of living.

Reference should also be made to the prohibition of establishing fideicommissa or fee tail (art. 335 Para. 2 SCC). These are assets without legal personality (e.g. real estate) which must be passed on within a family over several generations according to a specific order. Fideicommissa that were established before the introduction of the SCC in 1912 and that are still in existence are not affected by the prohibition. They are also exempt from registration in the commercial register.

The new requirement to register family foundations imply an examination of the foundation documents by the commercial register office. If it concludes that the purpose is illegal and the foundation is accordingly void, it will refuse its registration. If the foundation is qualified as a so-called "mixed" foundation and not as a pure family foundation, e.g. because it also pursues charitable purposes, it will be placed under the supervision of the competent supervisory authority.

3. Need for action

For family foundations and patrimonies that are legally connected with a family (by means of a deed, agreements or other written expressions of will), various questions arise given to the new duty to register family foundations, and these must in principle be clarified before registration.

First of all, one must assess whether it is a family foundation at all or whether it is just a foundation-like structure that can continue its existence without any registration (e.g. because it is a fideicommissa that was created before 1912).

If the document interpretation reveals that it is a foundation, one must check – given the Federal Supreme Court's restrictive view of authorised purposes under art. 335 Para 1 SCC – whether it is eligible for registration as a family foundation. One should then check which additional measures are necessary and permissible – e.g. amending the by-laws, issuing or amending regulations, or even dissolving the foundation under court supervision. For instance, given that the commercial register is in the public realm, it may be advisable, for confidentiality reasons, to change the foundation's name, given that this will be entered in the register, as well as to remove personal data or confidential information on family details from publicly-accessible documents. If applicable, the foundation's tax treatment should also be checked prior to registration.

 

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