Wealth planning quick course: the foundation, Part 1
In the next four posts, we will discuss the foundation, the private foundation, the trust, and the trust foundation in a few thoughts, summarising the most important facts. We will look at all four institutions from the same perspective, which we will summarise in a table for our kind readers at the end. The topic of today’s post is foundations.
It is possible to join a registered foundation, the conditions for which are set out in the articles of association. One of the most important differences with a private foundation is that a foundation cannot be created for the benefit of the founder; the person joining the foundation, the foundation officer, the member of the foundation organs and their relatives. However, the founder and the assignee may be beneficiaries of the foundation if the purpose of the foundation is to promote the founder’s scientific, literary, or artistic works.
It is created by registration with the court based on the Memorandum and Articles of Association.
Supervision / Control
The legal supervision of civil society organisations is carried out by the court, which acts ex officio or on request.
A legal entity established by the founder for the continuous pursuit of a permanent purpose; as defined in the articles of association, which may not be established for the purpose of carrying on an economic activity but which is entitled to carry on an economic activity directly related to the pursuit of the purpose of the foundation.
A foundation may not be established for the benefit of the founder, the affiliate, the foundation officer, the members of the foundation bodies or their relatives.
The purpose is a permanent public interest purpose.
Can be a natural person or a legal entity.
Board of trustees (3 natural persons) or trustee (one person managing director).
Only mandatory if the organisation is seeking public benefit status and its expected annual income exceeds HUF 50 million.
Termination by the founder
The founder may not dissolve the foundation.
Assets contributed / minimum capital
The founder must transfer to the foundation at least the assets necessary to start the foundation’s operations by the date of submission of the application for registration. The founder must transfer all the assets granted to the foundation no later than one year after the registration of the foundation.
Possibility to join
A registered foundation may be joined by making a contribution of assets under the conditions laid down in the foundation deed.
Both private persons and legal entities may join.
Not required. Auditing is mandatory for organisations whose annual (annualised) income from business activities exceeds HUF 300 million on average over the two financial years preceding the financial year.
Transfer of founder’s rights
Allows the transfer of founder’s rights or the succession to founder’s rights for other reasons. The founder’s rights may also be transferred to the board of trustees; in which case the founder’s rights and the management rights are merged.
Only economic activities directly related to the purpose of the foundation (directness is a new element) may be carried out and the foundation may not be a member with unlimited liability of another legal entity.
Dissolution of a foundation
A foundation shall cease to exist if:
- the foundation has achieved its purpose and the founder has not defined a new purpose,
- the purpose of the foundation cannot be achieved; and it is not possible to amend the purpose or merge with another foundation, or
- the foundation has not pursued any activity in pursuit of its purpose for a period of three years.
Does not include dissolution due to the passage of time.
Nomination of the beneficiary
The assets of the foundation may be used to provide a benefit in connection with the achievement of the foundation’s purpose to the person designated as the beneficiary by the foundation’s articles of association or; in the absence of a provision in the articles of association; by the foundation’s governing body.