Introduction
A private foundation is an effective succession and wealth-planning vehicle in many jurisdictions around the world. However, the status of beneficiaries of such a foundation is understood differently across legal systems. In some systems, a beneficiary is merely a recipient of benefits – someone who waits for distributions and has no say in the affairs of the foundation. In others, beneficiaries become actors capable of influencing the way in which the foundation operates. These differences affect not only the role of the beneficiary within the foundation, but, above all, the way in which the foundation will function across future generations, particularly after the founder’s death.
It should first be noted that some legal systems contain no provisions giving particular attention to the role of beneficiaries in foundations. This is the case, for example, in Germany and Switzerland, where the legislature leaves the matter largely to the charter of the individual foundation. Ultimately, therefore, it is the founders who determine the role of beneficiaries in the foundation’s charter. Two systems can nevertheless be contrasted that clearly embrace two opposing conceptions of the beneficiary. These are the Austrian private foundation (Privatstiftung) and the Polish family foundation (fundacja rodzinna). Their comparison illustrates two extreme, and therefore particularly interesting, models of beneficiary influence over the functioning of a foundation.
1. Austria: The Concept of the Passive Creditor
In the Austrian model of the private foundation, the beneficiaries occupy a fundamentally passive position. Their primary role is to derive financial benefits from the foundation, in particular by receiving the distributions to which they are entitled, rather than participating in its day-to-day functioning. The Austrian Private Foundations Act (Privatstiftungsgesetz) clearly separates the management of the foundation’s assets from the enjoyment of their economic benefits. One consequence of this approach is the prohibition on combining the status of beneficiary with membership of the foundation’s management board. A beneficiary therefore cannot simultaneously act as a person deriving benefits from the foundation and as a person exercising influence over its management.
The passive nature of the beneficiary’s position is particularly apparent from the organisational structure of the foundation. Beneficiaries do not form any body of the foundation corresponding, for example, to a shareholders’ meeting or general meeting of members. They do not constitute a collective body capable of adopting resolutions, directing the foundation’s activities or determining the composition of its governing bodies. Their position is external to the organisational structure of the foundation: they are primarily persons entitled to receive benefits from the foundation, rather than participants in its corporate structure. They are granted certain supervisory and informational rights, but without any direct influence over the management of the foundation’s affairs.
2. Poland: The Concept of the Active Stakeholder
The Polish family foundation has taken a different approach. Polish law assumes beneficiaries to become members of the Beneficiaries’ Assembly (zgromadzenie beneficjentów). This assembly is a mandatory body of every family foundation, and it consists of those beneficiaries to whom the foundation’s charter grants membership rights. The Beneficiaries’ Assembly considers and approves the financial statements, grants discharge to members of the management board and supervisory board, and appoints and dismisses members of those bodies.
Following the founder’s death, the role of this body becomes even more significant: in most cases, the Beneficiaries’ Assembly is granted the most important power of all – the power to amend the charter – and, frequently, the power to dissolve the foundation as well. In the Polish model, beneficiaries in gremio are therefore not merely recipients of benefits, but actors who determine the direction in which the family foundation operates, particularly after the founder’s death, when they often assume powers previously held by the founder.
Systematic Implications
What accounts for these differences? Each legal system has a somewhat different understanding of the nature of the foundation as a legal person. Austrian law adheres closely to the concept of the foundation a legal person based not on persons, but assets (Anstalt), which has no members, shareholders or owners. Since the foundation has no “economic owners”, beneficiaries are not granted rights typically associated with shareholders in a commercial company. They therefore remain outside the organisational structure of the family foundation. The Polish legislature, by contrast, has introduced distinct corporate elements into the family foundation. The family foundation is therefore a hybrid: on the one hand, it retains the classical features of an institutional legal person (a founder and a charter rather than an agreement and shares); on the other hand, it implements clearly corporate elements, the most significant of which is the Beneficiaries’ Assembly with its statutory powers.
Advantages and Disadvantages of the Two Models
The model of the beneficiary as a passive creditor is consistent with the ideal type of an institutional legal person. This, however, is neither an advantage nor a disadvantage in itself. Assessing such a model requires an examination of its practical consequences. Its principal advantage is that it promotes the professionalisation of the management of the private foundation. If beneficiaries are not to determine the foundation’s strategic direction, the management of the foundation must instead be entrusted to professional managers who are not members of the family and who can therefore maintain a greater degree of objectivity and independence. This, however, comes at a price. After the founder’s death, there may be no person or group with a particular sense of responsibility for safeguarding the foundation’s long-term strategic interests.
Against this background, the advantages and disadvantages of the Polish model of the beneficiary as an active stakeholder become apparent. Under this model, the principal decision-making burden, especially after the founder’s death, falls on the beneficiaries. Responsibility for the future of the foundation therefore remains with the family. The legislation does not promote the professionalisation of the management of the foundation. This model does, however, offer considerable flexibility. The charter of an individual foundation can shift the balance in different directions – towards a more professional “private foundation” or towards a less professional but more strongly integrated “family foundation”. The Polish model thus makes it possible to reconcile the interests of the family foundation with those of its beneficiaries.
Dr Kacper Górniak