Jersey Foundations - 15 years on
In 2007 our Managing Partner James Mews in his role as Director, Finance Industry Development within the Jersey Government was asked to develop a law of foundations.
Renowned expert John Goldsworth was chosen to assist in developing a foundations law and worked with an expert steering party constituted by Jersey Finance. The purpose of this briefing note is to set out an overview of the Foundations Law as it nears 15 years old from its formative steps to help understand Jersey’s law. At the end of the briefing note, consideration is given to some of the key provisions and what amendments could be developed in the future to enhance the law.
Overview of the Jersey Foundation
A Jersey foundation is different to a trust in that it is an incorporated body, it is able to transact, and to carry out acts in its own name. The council of the foundation is the equivalent of the trustees or board of directors who administer the foundation's assets and carry out its objects.
Like a company, a Jersey foundation can exercise the functions of a body corporate, with two constraints. It cannot directly acquire, hold or dispose of Jersey immovable property, or engage in commercial trading activities unless those activities are incidental to the attainment of its objects. There are no other limits on the activities of a foundation unless the constitutional documents limit the capacity of a foundation or limit the powers of the council to carry out certain actions.
The Jersey foundation was devised by considering the merits of foundations or entities similar to foundations in other jurisdictions. Jersey foundations are therefore slightly different to foundations established in different jurisdictions.
Building blocks of Jersey foundations
A Jersey Foundation has a council which acts like the trustees. One of these is required to be a "qualified member". A qualified member must be licensed to act as a council member of foundations under the Financial Services (Jersey) Law 1998 (the "Financial Services Law"). The business address of the qualified member in Jersey is the registered office address of the foundation in the Island.
Every foundation must have a guardian to act as a check on the carrying out of the functions of the council. This check is like the protector of a trust so that there will always be a person whose role is to hold the council to account. Having a protector like role was considered important because beneficiaries can be given very limited rights to hold the foundation to account or foundations may have no beneficiaries, but exist to carry out a purpose. The guardian need not be a licensed person however the guardian may be the qualified member of the council avoiding the need for a duplication of roles.
Incorporation of a foundation
The key documents required to incorporate a foundation are a copy of the proposed charter of the foundation, a copy of the abridged regulations (but not of the full non-abridged regulations), and a certificate from the applicant that identifies the initial qualified member of the council. Usually the qualified member of the council applies for incorporation, with documents drafted by a legal firm. The certificate confirms that the applicant holds regulations for the foundation which have been approved by the founder and by the qualified member of the council, and that a guardian has been selected for the foundation. The identity of the guardian does not need to be disclosed or appear on the register.
Following incorporation, the registrar of companies (the "Registrar") enters the name of the foundation, the name and Jersey business address of the qualified member of its council in a register, and allocates the foundation a registration number which is set out in the register (the “Register”).
The Charter
The constitutional documents of the foundation are the charter and regulations, just as a company has the memorandum and articles of association. The charter contains public information whereas the regulations are more private and only a reduced form are a matter of record. The charter is filed with the Registrar and available for public inspection in the Register. The charter must include the following:
Name of the foundation. It must end with the word "Foundation", or its equivalent in a foreign language so that people know that they are dealing with a foundation.
Specify the objects of the foundation. These must be lawful, and can be charitable or non-charitable or both. The objects may be to benefit a person or class of persons or to carry out a specified purpose, or to do both. The person or class of persons to benefit or the specified purpose can be determined in accordance with provisions found in the regulations. As a result the identity of the beneficiaries, and details of the specified purpose may be kept private.
The initial endowment. This must be specified in the charter as well as whether further endowments can be made.
· The names and addresses of the first council members. This is optional and may be utilised by foundations established for charitable objects.
Set out the term or if winding up will happen upon the occurrence of a particular event.
Any rights conferred upon any person to wind up and dissolve the foundation.
The charter can also contain any other matter, including the procedure required for its amendment and any provisions that can or must be addressed in the regulations. There is, therefore, considerable flexibility as to the contents of the charter.
The Regulations
A foundation must have regulations, unless all of the governing provisions are contained in the charter.
The regulations are not available for public inspection. However, amendments in January 2021 by the Financial Services (Disclosure and Provision of Information) (Jersey) Law 2020 (the "Disclosure Law"), to the Foundations (Jersey) Law 2009 (the "Law") means that abridged regulations must be submitted with an application for incorporation of a foundation and these abridged regulations may be reviewed at the Register. The
The requirement for foundations to file abridged regulations was introduced in January 2021 by the Financial Services (Disclosure and Provision of Information) (Jersey) Law 2020 (the "Disclosure Law"), which amended the Foundations (Jersey) Law 2009 (the "Law"). These abridged regulations are a shortened version of the full regulations and can be drafted so that they do not personally identify specific persons, such as the founder, guardian and council members preserving privacy.
Certain information must be included in the regulations. This includes the provision for the establishment of the council to administer its assets and carry out its objects. In particular, the regulations must provide for the appointment, retirement, removal and remuneration (if any) of the council members, set out the decision making process of the council, state whether any decisions require the approval of a third party, and state the functions of the council and the extent to which these can be delegated or must be exercised in conjunction with any third party. The regulations must provide how the replacement and remuneration (if any) of the guardian will take place.
The regulations may also provide for the reimbursement of expenses of any other person appointed to carry out functions in relation to the foundation. As with the charter, the regulations can contain any other matters beyond those which are prescribed by the Law. For example, provisions concerning the disclosure of information, accounts and record keeping and the amendment of the charter and regulations (amongst other provisions) could also be included. Such provisions do not need to be contained in the abridged regulations and therefore can be kept confidential, given that the full non-abridged regulations are not held in the public domain.
The Founder
The founder is the equivalent of a settlor under a trust. The founder can be given such rights (if any) as are provided by the charter and regulations and, if permitted by the charter or regulations, those rights can be assigned to other persons. Where the current holder of such rights (including the founder) dies or ceases to exist, the rights will vest in the guardian unless the charter or regulations provide otherwise.
The Council
The council is the equivalent of the board of directors or the trustees of a trust. The powers and duties of the council must be provided for in the regulations, and, as stated above, there must at all times be a person on the council who is a qualified member.
The council’s role is to administer the assets of the foundation and carry out its objects. The council may consist of one or more members, who are required to act in accordance with the foundation's charter and regulations and the Law. The duty of care for council members are to act honestly and in good faith with a view to the best interests of the foundation. They must exercise the care, diligence and skill of reasonably prudent persons in similar circumstances.
Broadly in line with trust laws, the constitutional documents may not relieve the members of the council from liability for fraud, wilful misconduct or gross negligence, and there are limitations on the scope of insurance which a foundation can purchase in respect of such members.
The Guardian
A foundation is required to have a guardian and the initial guardian is identified in the regulations, which will also provide for matters of succession and remuneration (if any). The guardian is separate from the council as he acts as a check and balance on its powers unless he is a founder or the qualified member of the council. The guardian's duty is to take such steps as are reasonable in all the circumstances to ensure that the council carries out its functions. Though not written into the Law, the implication of this provision is that the guardian has such rights as he may reasonably require to have sight of accounting and management documentation relating to the foundation and the activities of the council.
Unless provided otherwise, the guardian can sanction any action of the council which would not otherwise be permitted by the charter or regulations. In determining such, the guardian will have to be satisfied that it is in the best interests of the foundation and that the council is acting in good faith. When the guardian gives his authorization, the actions of the council will be deemed to be in accordance with the charter and regulations. The aim of this provision is to provide a useful means of enabling actions to be taken which would not otherwise be possible.
Beneficiaries and provision of information
A foundation may have beneficiaries, or may be established for a particular purpose. A decision was made to separate the beneficiaries from having an interest in the assets of the foundation and are not owed any fiduciary or analogous duty by the foundation or by the members of the council, the guardian or any other person appointed under the regulations to perform a function in respect of the foundation.
If a beneficiary becomes entitled to a benefit under the foundation and it is not provided, he can apply to the Royal Court for the foundation to be ordered to provide the benefit.
A foundation is not obliged to provide a beneficiary with any information relating to the administration, the manner in which the assets are being administered, the assets or the carrying out of the objects of the foundation.
Annual confirmation statement
Each year each foundation must file an annual confirmation statement with the Jersey Financial Services Commission (the "JFSC"). This requirement was introduced by the Disclosure Law.
The deadline for the filing of the annual confirmation statement is between 1 January and the end of February in each year. This requires the verification that the foundation's beneficial owner information and significant person information remains correct.
Migration, merger and dissolution
Existing foreign-law foundations and similar entities may be migrated to Jersey so that they can continue as Jersey foundations. Alternatively they can merge such entities with existing foundations and continue as Jersey foundations.
The Foundations (Continuance) (Jersey) Regulations 2009 allow for Jersey companies and "recognized entities" to continue as Jersey foundations, and for Jersey foundations to continue as "recognized entities" in other jurisdictions. The list of "recognized entities" includes Panama Private Interest Foundations, Bahamas Foundations, Liechtenstein Stiftungs, Liechtenstein Anstalts, St Kitts Foundations, Nevis Multiform Foundations, Malta Private Foundations, Anguilla Foundations, Isle of Man Foundations and Guernsey Foundations.
The Foundations (Mergers) (Jersey) Regulations 2009 allow for two or more Jersey foundations to merge and continue as one foundation, for Jersey foundations to merge with "recognized entities" and continue as one foundation, and also for Jersey foundations to merge with "recognized entities" and continue as one "recognized entity".
Separate regulations – the Foundations (Winding up) (Jersey) Regulations 2009 – provide for the dissolution of foundations and include provisions regarding the winding up of both solvent and insolvent foundations.
Future changes?
Overall the law remains fit for purpose. It is suggested that work could be carried out on in two areas. Consideration could be given to the role of the guardian so that it could be removed for plain vanilla structures, or where duties are given to beneficiaries to hold the foundation to account. Further consideration could also take place relating to the ban on commercial trading activities. Arguably the restriction provides no substantial purpose when concerns about charities trading are normally dealt with by relevant jurisdiction’s charity laws.
How can Amati Law assist you?
Our team can assist with the preparation of foundation documents and with issues arising during a foundation's existence. If you would like assistance, or any more information, please contact one of our team and we will be happy to help. Please email jm@amatilaw.com for more information.