The Family Foundation Act is due to enter into force in January 2022. Many family business owners see in it the solutions of their dilemmas related to the transfer of the company to their children, which is why it is worth starting preparing for its establishment.
In recent years, much has been heard about the work of the Ministry of Development, Labour and Technology on the bill to introduce the family foundation into the Polish legal order. This topic is a subject of great excitement among the organisations of Polish business representatives and lawyers. From our conversations with family businesses' owners, many of them already look at the family foundation to resolve their dilemmas with the transfer of the company to next generations.
Family foundations operate in many European countries and are a popular form of property control in well-known multigenerational companies. Many owners of Polish companies also decided to establish a family foundation outside the country. So far, due to the high costs of working abroad, the family foundation has been within reach of only the largest companies that were ready for this step. Now it's about to change.
The most important and crucial goal of establishing a family foundation is to enable the family company to survive for subsequent generations, already in the hands of the founder's heirs
The objectives of the family foundation
The most important and key goal of establishing a family foundation is to enable the family company to survive for subsequent generations, already in the hands of the founder's heirs.
The preservation of the longevity of the company takes place by concentrating family control of the company’s assets in a single entity that has no shareholders or owners, and thus provides protection against the scattering of family capital, often leading to the acquisition of control of the company by entities third.
It is therefore the task of the foundation to raise capital and multiply it for subsequent generations according to the philosophy that our company belongs not only to us, but also to our children and future generations of our family.
The family foundation also has a number of other advantages, especially in relation to the legal solutions currently available in Poland. These are, above all, flexibility in many fields, the possibility of separating the role of the beneficiary of the foundation and the person deciding on the future of the foundation's assets.
Which, at this stage, makes it possible to conclude that it will be a legal instrument completely different from commercial companies. At this stage of work on the project, detailed tax regulations are not yet known, but they should also encourage entrepreneurs to use the institution of the family foundation.
In what case do you start foundations?
In order for the foundation to function effectively and reflect the objectives for which it was established, it is necessary to prepare well for its establishment. If the Family Foundations Act enters into force in Poland as announced 1 January 2022, the entrepreneurs concerned remain one year to prepare.
It is only a seemingly long time, because the preparation of succession plans takes a relatively long time and requires space for reflection and discussion on common goals, rules of operation and tasks of individual family members.
Work on the family foundation is worth engaging not only owners, but also wider, successors and other family members associated with the company, and sometimes even trusted people third sitting on the company board.
The purpose of the talks is to develop a coherent family position in the most important areas, very important for the efficient functioning of the family business.
Our experience shows that such discussions bring the best results when moderated by external business and legal advisers who advise family members on an ongoing basis, present possible solutions as well as write down all the arrangements and implement them.
Foundation and Company
The fundamental difference between the company and the foundation is that the successors do not become partners of the foundation, nor can they dispose of or transfer their rights to their successors.
If the purpose of the family is not to keep the company in its hands for generations, and the successors are to be free to leave the family business and cash their share, then the family foundation may not be the best solution at all.
If, on the other hand, the family's goal is multigenerational succession, the family foundation can carry out such a need.
Author: Bartosz Nawrot
Legal consultant with the law firm Russell Bedford Poland 2018.