Family Foundation Act adopted by the Sejm

The family foundation, a solution known for years in many EU countries, can soon ensure safe continuation of business and protection of assets in the long term also for Polish family businesses.

Family foundation — a new concept in Polish law

So far, family foundations have operated successfully in many countries. Thanks to this solution, the firm’s assets can remain in the hands of family for more than one generation.

In Poland, this solution may also soon become part of the legal system, as on 14 December 2022 the Sejm adopted a draft bill on family foundation prepared by the Ministry of Development and Technology in cooperation with the Ministry of Finance and social partners. The family foundation will be a legal person created for the purpose of accumulating property, managing it in the interests of the beneficiaries and to provide benefits to the beneficiaries.

Basic assumptions of the family foundation

The family foundation will be, so to say, a family treasury to support the functioning of the family business over many generations. Its purpose is to realise the vision of the founder and to provide funds for the beneficiaries, but the specific goals of the family foundation are defined by the founder in the statutes.

The name of the family foundation will include an additional designation “Family Foundation”, abbreviated as “F.R.” and the foundation will be subject to registration in the register of family foundations kept by the Regional Court in Piotrków Trybunalski (registration court). The family foundation will acquire legal personality upon entry into the register.

The family foundation will be able to carry out business activities only in the scope of:

• disposal of property, unless such property has been acquired solely for the purpose of further disposal;

• renting, leasing or making available property for other use;

• joining companies, investment funds, cooperatives and entities of a similar nature, established in Poland or abroad, and participating in such companies, funds, cooperatives and entities;

• acquisition and disposal of securities, derivatives and rights of a similar nature;

• granting loans to:

• companies in which the family foundation holds shares,

• partnerships in which the family foundation participates as a partner,

• beneficiaries;

• trading foreign means of payment belonging to a family foundation for the purpose of making payments related to the activities of the family foundation;

• operating an enterprise within an agricultural holding.

Family foundation — principles of formation and operation

The family foundation can be set up by a founder, and the founder of the family foundation may be a natural person with full legal capacity who has made a declaration of will to establish a family foundation in the founding act (the foundation may be created by more than one founder) or in a will (the foundation established in the will may have only one founder).

To establish a family foundation, the following is needed:

• the founder’s making a declaration of will to establish a family foundation before a notary in the founding act or in the will;
• drawing up a statute laying down principles of operation of a family foundation;
• contribution of property to the founding capital;
• appointing the foundation’s bodies;
• entering the family foundation in the court register of family foundations.

In addition, the founder will contribute to the family foundation property to the founding capital of the value specified in the statutes, but not lower than PLN 100,000.

The foundation’s activities will be to accumulate and manage the property contributed by the founder and to provide funds to the beneficiaries.

A family foundation can be established for a definite or indefinite period of time.

Beneficiaries of family foundation

Beneficiaries of a family foundation may be natural persons and Public Benefit Organisations (OPP). In addition, the beneficiary will also have the right to obtain information about the activities of the family foundation either personally or by a person authorised by him, in particular to request:

• inspection of documents of the family foundation, including the statutes, financial statements and accounts, and make copies and notes thereof,

• explanations from the management board

taking into account the provisions on the protection of personal data.

Family foundation and its management

The governing bodies of the family foundation are the management board, the supervisory board and the assembly of beneficiaries, and the tasks of the management board will include:

• running the affairs of the family foundation and representing it;

• achieving goals of the family foundation set out in the statutes;

• undertaking activities to ensure financial liquidity and solvency of the family foundation;

• creating, maintaining and updating a list of beneficiaries in accordance with the provisions of the Act and the principles laid down in the statutes;

• informing the beneficiary of his or her entitlement to benefit;

• rendering benefits to beneficiaries.

In turn, the supervisory board’s tasks are to perform supervisory functions in relation to the management board in respect of compliance with the law and the statutes.

In addition, as mentioned above, the founder also indicates the beneficiaries and appoints the assembly of beneficiaries, to be formed by beneficiaries eligible to participate in it under the statutes.

The assembly of beneficiaries adopt resolutions on the appointment or dismissal of members of the management board or supervisory board.

Taxation of family foundation

The draft bill provides that:

• contribution of property to the foundation by the founder will be neutral to taxation,
• benefits and property received by the founder and beneficiaries in connection with dissolution of the foundation will be exempted from inheritance and gift tax,
• acquisition of the above property and benefits will be subject to a 15% PIT— with exception of the founder and beneficiaries from his closest family,
• foundation will be exempted from CIT, whereas a 15% CIT will apply to payment of benefits from the foundation and distribution of assets in the event of liquidation.

The proposed act will enter into force three months after the publication date.This is expected to happen in 2023.

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