Isle of Man Foundations
The Isle of Man’s recently introduced foundations legislation has provided a welcome addition to the Island’s existing broad range of structures. The following article explores the nature of the recently introduced Isle of Man Foundation, the requirements for establishment, and potential uses.
What is a Foundation
A foundation can be thought of as a cross between a trust and a company, and has characteristics of both. Like a trust, a foundation has no owner as such, so the person who establishes the foundation (the ‘founder’) cannot be liable for its debts. However, as an incorporated entity, a foundation has a separate legal personality. It can transact in its own name and is capable of holding assets, suing and being sued. Unlike trusts, which are established for a finite period, foundations can exist in perpetuity.
Key Parties to a Foundation
Founder – The Founder is the individual who causes the foundation to be established and determines the objects of the foundation and the rules by which it will operate. The founder would also typically, but does not have to, provide the initial assets of the foundation. The Founder is comparable to the settlor of a trust.
Council – The Council is the body that is responsible for the day-to-day administration of the foundation in accordance with the foundation’s objects and rules. The Council is comparable to the board of directors of a company or the trustees of a trust.
Registered Agent – Every foundation must have a registered agent, and it is the registered agent who must apply to the Companies Registrar for the establishment of the foundation. A registered agent may be a natural person but will typically be a licensed corporate service provider.
Enforcer – The enforcer is an optional role and, if appointed, is responsible for ensuring that the council acts in accordance with the foundation’s objects and rules. The Enforcer is comparable to the protector of a trust.
Beneficiaries – The Founder may, but does not have to, nominate one or more beneficiaries of the foundation. It may be the case that there are no beneficiaries, for example if the foundation’s sole object is to hold assets.
How is a Foundation Established
In order to establish a foundation, the Registered Agent must make an application to the Companies Registrar. The application includes two key documents; the foundation instrument and the foundation rules. These are comparable, respectively, to the memorandum and articles of a company.
Foundation Instrument – This document sets out the overall purpose of the foundation and establishes the members of the Council.
Foundation Rules – Established in accordance with the wishes of the founder, the rules set out the basis on which the foundation will be administered. The rules should include, but not be limited to, provisions in relation to:
– Powers of the founder;
– The appointment, roles and remuneration of the council members, registered agent and enforcer (if any);
– Distribution of assets;
– Rights of the beneficiaries (if any);
– Winding up of the foundation and distribution of remaining assets.
Why establish a Foundation
Typical uses for an Isle of Man foundation include:
- As a wealth management or succession planning vehicle
- As a vehicle for charitable purposes
- To hold off-balance sheet assets as an orphan structure
- As an alternative to a trust for clients seeking limited liability protection similar to that of a company
- As an a alternative to a trust for clients in non-common law jurisdictions where the trust concept is less well recognised
Isle of Man foundations benefit from the Island’s corporate tax rate of 0%, as well as its absence of capital or wealth taxes.
Acclaim is licensed by the Isle of Man Financial Services Authority as a corporate service provider. As a corporate service provider, Acclaim can offer the following services to persons wishing to establish a foundation:
- Acting as Registered Agent in establishing the foundation
- Provision of Council Members as required
- Acting as Enforcer (when not already acting as a council member)
- Introduction to relevant partners, e.g. legal and tax professionals, banks.
- Administration services – bookkeeping, reconciliations, preparation of financial statements, VAT and tax returns
For further information with regard to Isle of Man Foundations and the services that Acclaim can provide in this regard please call us on +44 1624 618444 or email email@example.com