Foundations attract high net-worth clients

By Michael Paton, managing partner, Lennox Paton

The Bahamas is the principal offshore common-law jurisdiction that has moved with greatest effect to target the growing number of high net-worth individuals living in civil-law jurisdictions, particularly Latin America and Europe.

The Foundations Act 2004 (the Act) came into force in October 2004. Foundations are vehicles with which those who are based in civil-law jurisdictions are particularly familiar. They are certainly better understood than trusts, which are often alien to civil-law practitioners.

Overview and establishment

Foundations are established by a charter or will. They may have perpetual duration and are a separate legal entity.

Assets properly transferred to a foundation cease to be the property of the transferor and become the legal and beneficial property of the foundation. They may be established for any private, commercial or charitable purposes (including management of the foundation’s assets), which are not unlawful, immoral or contrary to Bahamian public policy.

Foundations are required to be registered with the Registrar of Foundations. While the charter and articles are not required to be registered, the secretary of the foundation (who must be a licensed person) is required to file a statement confirming:

The foundation’s name and registered office;
The date of the charter;
The foundation’s purpose(s) and object(s);
The date of any articles;
The name of the founder (which can be a nominee) and an address for service in the Bahamas;
The name and address of the secretary;
The period for which the foundation is established and the value of the initial assets (which must be in excess of $10,000).

The names and addresses of the foundation’s first officers and a statutory declaration of compliance signed by the secretary or an attorney are also required to be filed. The annual fee is $500.

Foundation officers

Usually a foundation will be controlled by the foundation council. This must have a minimum of one corporate member or two individual members. Meetings can be held anywhere in the world, and by telephone.

The duties and responsibilities of an officer are primarily administrative, rather than fiduciary, in nature.

A foundation must appoint a secretary licensed in the Bahamas and is required to keep accurate copies of its charter, articles (if any) and filed documents at its registered office. These documents can be inspected by the founder, officer, foundation council member or other supervisor.

Officers, foundation council members, supervisors and the protector all enjoy statutory exculpation from personal liability unless such liability has been incurred as a result of that person’s own gross negligence, wilful default or misconduct, fraud or dishonesty. In any event, it is commonplace for such office holders to benefit from indemnification by the foundation.

Beneficiaries

Beneficiaries are required to be notified of their interest in any foundation’s assets. They are entitled to:

Information from the foundation in respect of the fulfilment of its objects;
Inspect and copy the charter, articles (if any), financial statements, accounts, audit reports and minutes.

Financial matters

While foundations are required to keep proper accounts detailing receipts, expenditures and distributions, together with a list of assets and liabilities, those accounts are not public documents open for inspection, although officers, the foundation council, supervisor and protector can inspect the accounts at any time. There is no requirement for the appointment of an auditor.

Re-domicile, winding-up

Foundations, like companies and trusts, can re-domicile into the Bahamas from another jurisdiction or from the Bahamas into another jurisdiction as provided under the Act. They can be wound up voluntarily or by petition to the court.

Confidentiality

A fine of up to $50,000 or a maximum term of three-years’ imprisonment awaits any person who discloses information regarding the identity of a foundation’s beneficiaries or its assets, liabilities, transactions or accounts if the discloser acquired that information in his capacity as an officer, protector, attorney, auditor, foundation council member or supervisor of the foundation. There is an exemption if such disclosure arose by order of the Bahamian Court or is otherwise provided for under Bahamian law.

In summary

The Bahamian foundation is inexpensive to create, exempt from tax and circumvents forced heirship provisions.

The Bahamas foundation is a versatile structure and has contributed to an increased interest in the jurisdiction from high net-worth clients and their advisers who are based in civil law jurisdictions.