The Stichting (or foundation in English) is a centuries-old solution for modern charity, asset protection and international structuring. The legislation is rather concise. Paragraph 2:285 of the Dutch Civil code defines the Stichting as;
‘A legal person formed by means of a juridical act, that has no members, and that intends to realise an objective (purpose), mentioned in its articles of incorporation, by using capital (property) which has been brought in for this purpose.’
The entire legislation of the foundation is contained in a mere 3,500 words, yet for more than five centuries it has proven to be a powerful vehicle for charity and non-profit purposes, private wealth planning, asset protection and estate planning extensively tested before court.
A key feature of the Stichting is its legal personality. It is a so-called orphan entity, meaning that it has no shareholders or members. As a consequence, it is fully controlled by its management board, although additional bodies, such as a supervisory or advisory board, may be installed. There are also no specific statutory legal requirements with respect to the appointment, dismissal, composition and nationality of the board, allowing clients to flexibly lay down their wishes in the foundation’s article of association and, if applicable, its bylaws.
There are no requirements with respect to minimum capital, and, in most cases, it is not subject to taxation and is not held to publish annual accounts. Distribution of profits to founders or members of its bodies is not allowed. This seems like a contradiction, given its use for private wealth planning and estate planning, but there is a reason for this.
Charity and non-profit
The original role of Stichtings was as a vehicle for charity. The initiator incorporates a foundation with a specific char- itable object (e.g. annual donations to UNICEF), but also a general object (e.g. initiatives aimed at promoting a healthy lifestyle). After the incorporation, the client donates funds, to be invested by the board of the foundation. The board subse- quently makes donations to the charities as defined. If certain conditions are met, the donations to and by the foundation are not subject to gift tax.
In the Netherlands, hospitals and schools are often organised as foundations. They receive government funds for spending in accordance with the foundation’s goal (e.g. health care in Rotterdam).
Private wealth planning (STAK)
To avoid dilution of ownership or control over a (family) business, the foundation can be used to separate legal from beneficial ownership. The client will contribute shares of his company to the foundation and will receive so-called deposi- tory receipts (certificates) in return.
Such depository receipts can be donated to family members, and the holder of these depository receipts is entitled to dividends or other proceeds as the beneficial owner. The foundation is the legal owner of the company’s shares, with the goal of holding the company shares in administration for the benefit of the holders of the depository receipts. Founda- tions used for this purpose are referred to as STAK (Stichting Administratiekantoor / administrative foundation). For tax purposes a STAK is transparent.
The shares of publicly-listed companies can also be held in administration by a STAK. In such case there is usually an element of protection against takeovers, since any potential acquirer of depository receipts will be less interested if he cannot gain control over the underlying company, which resides with the board of the foundation. It should be men- tioned that this role of a foundation can also be used for other types of assets, such as an art collection.
Asset protection and estate planning
In the case of asset protection and estate planning, the shares are donated to the foundation. The board, which can consist of family members or trusted relations, will hold the assets for the benefit of the defined beneficiaries. By transferring the ownership to the foundation, they stop being part of the cli- ent’s wealth and are thus protected from the latter’s creditors. Further, the foundation can also be used to stipulate which assets should be transferred to which heir. Such donations do not qualify as last will and can be made independent from inheritance laws.
The orphan nature of the Stichting, also makes the foundation a commonly used entity for heading securitisation structures. Its charitable nature also makes it a suitable holding vehicle for sharia-compliant investment structures.
This article is taken from the recent IR Digital doucment: IR GLOBAL – MEET THE MEMBERS: The Netherlands.