What forms of charitable trust, charitable company, or philanthropic foundation are commonly established by individuals, and how is this done?
For the purposes of undertaking charitable activities, trust and company are commonly used structures in India.
Registration and applicability of law depends upon the state of India, in which the charitable trust is being set up. For instance, if the charitable trust is proposed to be set up in Maharashtra, then the charitable trusts will have to satisfy the provisions of Bombay Public Trusts Act, 1950.
If individuals seek to further their charitable objects through a company, then such a company will have to be set up under Section 8 of the Companies Act, 2013. Companies incorporated under Section 8 have special set of rules that need to be complied with, such as the profits will only be applied for charitable purposes, there will be no distribution of dividends to its shareholders, change in charter documents of the company can be done only with the prior approval of the Central Government, etc.
Furthermore, the charitable entities are exempt from tax on their income provided they are registered with the Charity Commissioner and continue to fulfill certain conditions prescribed under the IT Act.
The Bulgarian law does not recognise figures such as charitable trust. Individuals may establish foundations with non-profit purposes.
The law recognises two types of foundations – public benefit or private (mutual) benefit foundations. It is the founder’s right to determine the scope and type of activity which the newly established foundation will be carrying out as well as to determine whether these activities will be performed in public or mutual benefit.
Charitable bodies are regulated pursuant to the Charities Act 2009, by the Charities Regulatory Authority.
The most common forms of charitable structures are:
- Companies Limited by Guarantee (“CLG”), which are established by a constitution and incorporated in the Companies Registration Office like other private companies as referred at Question 19 above. CLGs are the most popular form of charitable bodies.
- Charitable Trusts, which are established by deed of trust.
- Unincorporated Bodies, which are also established by a constitution. However, unlike CLGs, these type of charitable bodies do not have limited liability and do not have a separate legal personality to their members.
Individuals in the US commonly establish private grant-making foundations, private operating foundations, public charities, and supporting organizations, which are tax-exempt charitable organizations typically structured as either charitable trusts or nonprofit corporations. Individuals may also establish split-interest trusts, which are trust arrangements that allow individuals to make charitable contributions of property, while retaining (or transferring to non-charitable beneficiaries) an interest in the property transferred.
Private grant-making foundations are nonprofit organizations primarily funded by one family or business. The private foundation’s endowment is invested to generate returns, and the foundation uses its endowment to fund its operations and to make grants to other charitable organizations.
Private operating foundations are private foundations that directly conduct charitable activities. Examples of private operating foundations include certain museums, zoos, and libraries that do not receive substantial support from donations by the general public.
Public charities are publically-supported organizations, meaning that they receive significant support in the form of contributions from government units and/or the general public. Public charities make grants to other charitable organizations and directly provide charitable services.
Supporting organizations are charitable organizations that support one or more public charities by providing them with financial resources and/or conducting charitable activities that the public charities would otherwise have to undertake themselves.
To establish a private grant-making foundation, private operating foundation, supporting organization, or public charity, an individual must first establish a legally-recognized trust or corporation in the state in which the charitable entity will be located. Then, to receive federal tax-exempt status, the individual must apply for recognition of exemption from the IRS.
Split-interest trusts are trust arrangements in which an individual retains (or transfers to non-charitable beneficiaries) either an income or remainder interest in the trust property, while passing the other trust interest to a charitable organization. The individual may receive income, gift and estate tax charitable deductions for the present value of the property that is expected to pass to charity. In order to establish a split-interest trust, an individual need only create a legally valid trust arrangement, but there are strict rules regarding the language required in the Trust Deed.
France also strictly controls charitable and philanthropic matters. This is the main reason why it is not a common practice for French resident individuals to establish charitable trusts, company or philanthropic foundations subject to French law.
However, very wealthy individuals wishing to establish charitable or philanthropic structures may consider creating charitable trusts or philanthropic foundations governed by laws of countries (other than France) which encourage private charitable initiatives.
Charitable activities are usually carried out in Italy by Italian foundations (see 18).
- Amuta - It is a legal entity established under the Amutot Law 1980. There must be a minimum of two founders, the founders must be at least 18 years old and the Amuta is prohibited from distributing any profits to its members. In addition, an Amuta cannot be registered if any of its objects negates the existence or democratic nature of the State of Israel, or if there are reasonable grounds for concluding that the Amuta will be used as cover for illegal activities.
- Non-profit corporation (a charitable company) - This is a corporation incorporated under the Companies Law 1999 for one of the "public purposes" specified in the applicable schedule to the Companies Law. For example, protection of the environment, education, sport, charity or welfare. Its articles of association must prohibit any distribution of dividends to its shareholders.
- Public endowment - This is established as a trust in relation to assets to be used for public purposes and governed by the Trusts Law 1979. A public endowment can be established in accordance with one of the following alternatives: (1) a trust agreement; (2) by an endowment deed signed in the presence of a notary; (3) by will; (4) under the Inheritance Law 1965. A public endowment must be for the benefit of the public.
The following non-profit entities are the most commonly established by individuals in Greece:
- Foundations [see also notes in art. 18] of the Greek law: Due to their wider social impact/significance, a Presidential Decree is issued to ratify their substance and establishment, while they may established either during one’s lifetime or through their will.
- Non Profit Civil Partnerships: These may be established through a much simpler procedure by two or more individuals during their lifetime and can not pursue profit; their scope may be charitable, philanthropic, social, educational, research, religious, political etc.
- Cooperative social ventures: These are quasi non-profit and newly legislated entities that are supervised and regulated by the state; they and may distribute up to 35% of their profits solely to their employees. Their scope must be charitable or philanthropic while individuals from less privileged backgrounds are encouraged to participate actively.
- Fundraising Committees: These entities are established by at least 5 persons; they are ratified by virtue of Presidential Decree and may carry out solely fund raising activities to serve public or charitable purpose.
Charitable foundations (“gemeinnützige Stiftungen”) in the meaning of the German civil code are quite common. They have to be approved by the foundation supervisory authority (“Stiftungsaufsicht”) and constitute a legal entity. As such they realise their altruistic purpose chosen by the settlor. In contrast to charitable foundations the legal regime of charitable companies is much less rigid. For example, the terms of a charitable company can be changed much easier than the articles of a charitable foundation.
Two types of legal bodies are frequently used by individuals for charitable reasons: private foundations and non-profit associations. Unlike a non-profit association, a private foundation has no members. Its assets must be used by its directors for an ‘altruistic’ private purpose, e.g. the wellbeing of a disabled child. A non-profit association is often dedicated for furthering a more social cause.
British Virgin Islands
Charitable trusts and companies with charitable objects are often created and this is done by following the same procedures as those which apply to beneficiary trusts and companies. The Non-Profit Organisations Act, 2012 contains registration and other requirements which could be applicable, but these will not apply if the charity’s funds are not raised or distributed primarily within the BVI or (in the case of a trust) if its sole trustee or all its trustees are regulated under BVI statute.
The DIFC Trust Law provides for the creation of a charitable trust if it is created for the relief of poverty, the advancement of education or religion, the promotion of health or art, the protection of the environment, or any other purposes which are beneficial to the general public.
The proposed DIFC Foundations Law also provides for the creation of a foundation to hold property for charitable objects. For a charitable foundation to be valid, a Guardian must be appointed to oversee the charitable objects.
The manner in which to create charitable trusts and foundations is as detailed above.
Charitable trusts are common in New Zealand. They are governed by the Charitable Trusts Act 1975 and the Charities Act 2005, and they are tax exempt in New Zealand. A charitable trust can be either society or trust based, the main difference being that a society-based trust must have a minimum 5 people on its board and a set of rules or constitution under which it operates.
The definition of charitable purpose is broad; a charitable trust can be established to aid in the relief of poverty, the advancement of education or religion, or any other matter for public benefit. Charitable trusts must be registered with the Companies Office, and the trustees must apply to the IRD for the tax exemption.
Under Monegasque law, a charity may be created in Monaco in the form of an association (Law 1.355 of 23 December 2008) or a foundation (Law 56 of 29 January 1922).
Charitable organisations are recognised and hosted in Switzerland. Almost all type of Swiss legal entities (for example foundations, associations, limited liability companies, co-operatives and so on) can be used as charities. However, the majority of charities are either foundations or associations.
Swiss charities are typically exempt from profits and wealth tax, on the federal level, as well as on the cantonal and municipal levels if they pursue public or charitable purposes. The circle of beneficiaries must remain open. Profits have to be exclusively and irrevocably devoted to these particulars interests.
To establish a charitable foundation, the donor (founder) must contribute the assets for a specific charitable purpose. The founder can set up a charitable foundation either by public deed during his/her lifetime or by testamentary disposition in the last will (or inheritance contract).
26.1 The simplest form of English charity is the charitable trust (§19.1). The named trustees (§19.1) hold and control the assets of the charity in their personal names but must use them for exclusively charitable purposes in accordance with the terms of the trust. This arrangement is suitable for the simplest charities, particularly those which are grant-making, do not pursue charitable activities themselves, and will not have employees or own land.
26.2 Another common form of English charity is a charitable incorporated organisation ("CIO"), which is like a charitable company (§26.3) but is regulated only by the Charity Commission for England and Wales (§26.5). The compliance obligations falling on a CIO are somewhat lighter than those falling on a charitable company. A CIO only comes into existence once it has been registered with the Charity Commission for England and Wales, which can take several months.
26.3 Another common form of English charity is a charitable company limited by guarantee. This form is generally less attractive than a CIO (§26.2) because it is regulated by both the Charity Commission for England and Wales (§26.5) and Companies House and filings must be made to both bodies. However, unlike a CIO, a charitable company limited by guarantee can be established very quickly and is a familiar form of legal entity recognised around the world.
26.4 Whatever form is chosen, a trust or body is not a charity for the purposes of English law unless it is established (and its constitutional document requires its property to be used) only for one or more of the statutory purposes and only for the public benefit. The statutory purposes include the relief of poverty, and the advancement of education, religion, health, and the arts, and may be carried on anywhere in the world.
26.5 The Charity Commission for England and Wales is the body responsible for the regulation of charities in England and Wales. Most English charities with an annual income over £5,000 must be registered with and send annual filings to the Commission, which maintains a public register including for each registered charity the names of its trustees, its charitable purposes, and copies of its filed accounts.
In Austria there are two ways to establish a charitable foundation. On the one hand a genuine charitable foundation, on the other hand a private foundation with charitable character.
A charitable foundation has permanently dedicated assets with legal personality, the proceeds of which serve to fulfil charitable purposes. The minimum assets amount to EUR 50,000 and may not be less at a later date.
The pursuit of charitable purposes does not necessarily have to take the form of a genuine charitable foundation; a private foundation can also be purely charitable in nature under the private foundation act or at least combine charitable elements with those of benefit to others.
The charitable foundation is created when it is established by a declaration of foundation and when it is entered in the foundation and fund register.
The private foundation is established by a declaration of foundation and entry in the commercial register.