The Foundation in the Principality of
Liechtenstein is one of the few countries admitting a private foundation. In Liechtenstein any foundation can be established and may pursue its objects with virtually no official control.
The Liechtenstein foundation differs from foundations in other countries mainly in that it may pursue any lawful purpose. Therefore, especially the maintenance foundation is admissible. In practice it is mainly the family foundation that is of importance. It serves the protection, administration and maintenance of family assets to ensure the support of family members.
For general information and more specifically, we would like to refer to the following information links, “Forms of Companies in the Principality of Liechtenstein”; in connection with the foundation we also recommend the following link “Estate Succession Arrangements upon Decease”.
Definition and Legal Fundamentals
The Liechtenstein foundation has its legal basis in the Persons and Company Law (PGR – Personen- und Gesellschaftsrecht) of January 20, 1926. This law grants the founder ample freedom relating to the arrangement of the foundation. Many legal rules are optional, they come into effect only if the statutes do not stipulate otherwise.
The definition of a foundation reads: “The creation of a foundation requires the allocation of funds (foundation property) for a specifically designated object. These include in particular ecclesiastical, family and socially beneficial (charitable) objects.” (PGR, Art. 552).
One or more natural or juridical persons may constitute a private foundation either personally or through third parties in accordance with the given procedures. For this purpose, an endowment shall be established, to be used exclusively towards the objectives or purposes expressly provided for in the foundation charter. This endowment then constitutes an independent estate, thus creating a new legal entity.
When the capital is paid into the foundation it is transferred by the founder by way of donation, without the founder receiving any legal or economic registerable equivalent. This essential difference between a capital company and the foundation is of primary importance, especially when considering the property placed in a foundation with regard to taxation and succession laws.
Types of Foundations
There are three types of foundations:
A family foundation is created, if the foundation capital is established for the purpose of continuously providing the means for education and instruction, outfitting or financial relief to members of one or several families
Church foundations are those established for purposes of the church
Mixed Family Foundation
The mixed family foundation serve family purposes and additionally or complementary, a general (charitable) purpose or purposes of the church.
Object of Liechtenstein Foundation
The founder is free in his definition of the objects of the foundation. They must be clearly outlined, possible and reasonable and must not be of an illegal or immoral nature. A limitation for the founder is the restriction to only engage in commercial activities if these serve the achievement of its non-profit purpose. A commercial attribution to a purpose, like it is typical for a joint stock company, is therefore out of question.
The following examples will illustrate possible objects:
Payment of individual sums to family members for subsistence, education, training and outfitting
Recurring payments to individually designated beneficiaries, and, in case of dissolution of the foundation, distribution of the foundation funds to these beneficiaries
As already mentioned, the law of the Principality of Liechtenstein allows the so called maintenance foundation, where beneficiaries can profit without having to meet any requirements in order to benefit. That means, that economical needs do not have to be observed. Proceeds may be paid out no matter what the economical situation of the beneficiary is like.
Formation of Liechtenstein Foundation
The allocation or endowment of funds or assets is essential to the formation of a foundation and a deed has to be drawn up containing the essential provisions such as its name, purpose and the duration of the foundation, the nomination of the foundation board (council) and the beneficiaries, as well as provisions as to the application of the assets in case of liquidation. If it is desired that a foundation shall come into effect only after the death of the founder it may be formed by last will and testament, or by means of a contract of succession.
The deed of foundation generally contains the basic provisions, while the nature and extent of the beneficial interest and the circle of beneficiaries is usually defined in the form of so-called subsidiary provisions or by-laws. The foundation may also be constituted by a trustee, so that the name of the actual donor or founder does not appear.
The family foundation and the mixed family foundation are not entered in the Public Registry, but the statutes, excluding the by-laws, must be deposited with the Court of Justice of the Principality of Liechtenstein as the supervisory authority. Documents deposited in this manner are not subject to public inspection.
If a foundation conducts an enterprise within the framework of its non-commercial purpose, it must be entered in the Public Register and does not achieve its juridical personality until it has done so. For deposited foundation deeds, the authorities issue an official certification stating the existence of the foundation, its registered capital and the organs of the foundation.
Assets and Liability
The assets may be submitted in any currency, but have to amount to a minimum of the equivalent of CHF 30’000.–. Precondition for the formation of a foundation is the dedication of those assets. Dedication does not mean, however, that the assets must immediately be transferred to the foundation; the foundation can also be established with the obligation of the founder to transfer the assets after it has been established.
Solely the foundation capital is liable for the liabilities of the foundation. Neither the founder nor any other organ of the foundation can be held liable for the liabilities of the foundation. The founder is only bound to transfer the dedicated assets. He does not have any further obligations towards the foundation.
Organization and Management
The organs of the foundation, such as the foundation board, audit office, as well as its administration and representation have to be stated in the foundation deed.
Legal provisions are only applicable, when the deed of formation does not include any according provisions.
The foundation board is the supreme organ of the foundation and consists of at least one member. The powers of the foundation board such as the management and representation as well as the manner in which resolutions are made need to be outlined in the statutes. The foundation board may also have further duties, such as the appointment of beneficiaries, the determination of the extent and type of their benefit rights, amendment of statutes, and issuance and amendment of additional by-laws, and, finally, the dissolution and liquidation of the foundation. The validity of such resolutions can be made dependent on the approval of the founder, the audit office, individual beneficiaries or of all of them jointly.
As a rule, board members are appointed by the founder in the statutes.
Board members can be natural persons or legal entities with seat or residence in Liechtenstein or abroad; at least one board member, however, must have his regular residence in Liechtenstein and must be qualified to undertake this mandate (lawyer, legal agent, auditor, fiduciary or must possess an acknowledged professional qualification).
The foundation board is responsible for the observance of the statutes. In case of non-compliance, each board member is liable with his whole property to the foundation, to the founder and to the beneficiaries.
The founder does not need to be a Liechtenstein resident nor does it need to be a natural person.
It is the duty of the founder to provide the statutes. According to the law, the founder has supervisory rights with regard to the foundation; he may check, whether the provisions of the statutes are being observed properly by its administration. The founder can also grant individual rights to himself in the statutes, for instance the right to appoint board members or to recall them at any time, to revoke the foundation or to amend the statutes of the foundation.
The office of the founder can also be performed in trust by a legal entity in Liechtenstein.
The audit office is not a compulsory organ, but can optionally be appointed. If an auditor is in office, the founder is responsible for the determination of its tasks.
Beneficiaries are those persons, who, according to the statutes, draw any present or future advantage from the foundation; be this as a share in the proceeds or in the foundation property or in both. The beneficiaries are appointed in the statutes or by-laws by the organ authorized to do so (generally the founder or foundation board). Extent and type of benefit may be definitely outlined in the statutes.
The beneficiaries in their entirety also can be an organ and may, e.g. be appointed as the supervisory organ of the foundation board. The founder also can establish how far the beneficiaries are to cooperate in the administration, how their rights to benefit are to be remunerated, etc. As a rule, the beneficiaries only participate in the foundation proceeds without having any influence on the administration of the foundation.
The statutes can stipulate, that the benefit cannot be withdrawn by execution or bankruptcy.
According to the law, a legal representative resident in Liechtenstein must be appointed for the foundation. This mandate is normally undertaken by a lawyer’s or trustee’s office or a bank. The legal representative is not a body of the company but is permanently empowered by the foundation to receive notices of all kinds from the authorities. The legal representative only has authorization to act and represent the foundation when expressly authorized to do so.
A foundation is obliged to keep books of account insofar as an annual assets and liability statement has to be drawn up showing the total accounts receivable and payable. An annual balance sheet does not have to be submitted, as long as the foundation does not engage in commercially conducted activities in Liechtenstein.
Amendment of the Statutes of the Foundation
The statutes of the foundation or possible by-laws must inform about the way how resolutions on amendments of the statutes are to be carried out. The great difference to foundations in other countries is found in the fact, that the founder can reserve himself the amendment of the statutes of the foundation as well as of the by-laws (non-real foundation).
Besides, the statutes can establish that for any amendment of the statutes, which by optional law is reserved to the foundation board, the approval of other persons is required, e.g. the founder, the beneficiaries, the audit office or third parties (a Protector).
If the foundation statutes do not inform about the way of amending the statutes, they are assumed unalterable. In that case, it is only for important reasons that the foundation statutes may be amended with the approval of all parties concerned and with the consent of the registry office.
Revocation of the foundation
The founder may grant himself in the statutes a right of revocation of the foundation. In this case it is up to the founder to revoke the foundation at any time. Then the property of the foundation is passed back to the property of the founder.
When the establishment of a foundation is based on last will and testament, the founder himself has an unlimited right of revocation until his death. The heirs are not granted this right.
Dissolution of the foundation
The statutes must inform about the organs authorized to dissolve the foundation and about the procedure of a dissolution. The founder may establish in the statutes, that the foundation cannot be dissolved, or only can be dissolved at a certain time. If the statutes do not give any information regarding the organ which is competent for the dissolution, and how it is to be carried out, the law provides that the foundation can only be dissolved with the approval of all parties concerned (founder, foundation board, beneficiaries and auditors). Upon dissolution of the foundation, the foundation capital is distributed among the beneficiaries.
Contestability of the foundation
Heirs and creditors may contest the foundation like a donation. The contestation, however, only affects the foundation as such, it does not in any way interfere with dispositions or resolutions taken within the foundation, such as the use of assets or the distribution of benefits.
After the deposition of the foundation’s statues with the Court of Justice, the founder as well as the heirs may still contest the foundation with regard to absences of consent according to the rules on contesting the conclusion of a contract.
Advantages of Liechtenstein
Neither the dedication of assets to the foundation nor the distribution to the beneficiaries or the profit made is subject to any further taxation in Liechtenstein. The capital tax was abolished through the Lichtenstein tax reform. Moreover, both inheritance tax and gift tax have been abolished in Liechtenstein, because inherited or bestowed assets have already been taxed.
Other advantages of a private-benefit Liechtenstein foundation The family foundations created under Liechtenstein law also allow one to benefit oneself or to benefit family members as well as to separate assets from their actual owner and thus to anonymise them. When crafting the articles of association, the founder has many options.
Private-benefit Liechtenstein foundations are not subject to external supervision and do not have to be entered into the Commercial Registry (Public Registry).
Moreover, there is no obligation to deposit the foundation deed. A formation notification to the Registry of Deeds and Public Registry suffices. The name of the founder and the object of the foundation must be disclosed only to the Liechtenstein attorney and trustee. There is also no obligation to disclose the beneficiaries to the Liechtenstein authorities. Moreover, the formation of a Liechtenstein foundation lasts only a couple of days. Unlike foundations in most other countries, a Liechtenstein foundation can be dissolved by the founder at any time. The formation of foundations without preconditions is also allowed in Liechtenstein.