A foundation is a non-profit organization whose primary purpose is charitable and/or research-related. The actual scope of permissible activities for foundations varies significantly between jurisdictions, but the general goal of any foundation is to serve the common good without making profit. Foundations base their work on distributing donated assets appropriately, and these assets can be collected both publicly and privately.
Today, however, foundations are often used as an instrument for protecting assets. Hence, here we will discuss offshore foundations used for wealth management. In this sense, foundations are commonly used to accept the transfer of foreign funds and assets (including such assets as real estate, intellectual property, bank deposits, company shares, investment portfolios, etc.). Foundations are recognized as independent legal entities and combine the characteristics of corporations and trusts.
There are a variety of legal implications for foundations depending on the particular jurisdiction in which they are registered. In some countries, foundations are prohibited from conducting business of any kind; in some, e.g. Economic activity is permitted in Germany if it serves the main purpose of the foundation. In the US, the law distinguishes between private foundations (which distribute donations made by specific individuals) and community foundations (which distribute public donations). Private foundations have more control over their charitable activities, but also receive fewer tax benefits.
Functions of a foundation The main function of a foundation is to engage in charitable work and to distribute donations. An additional aim is to raise the assets needed for these donations and to choose recipients. Assets can be acquired either privately (from specific individuals) or publicly (from the general public). Public donations are usually collected with the aid of publicity campaigns and advertising. Some jurisdictions also allow foundations to obtain assets from business activity, if it can be proven that this economic activity is of a truly non-profit nature.
There are a number of functions that are prohibited to foundations, the main one being economic activity aimed solely at generating a profit. In some jurisdictions, e.g. Italy, foundations are also prohibited from dedicating their charitable activities to purposes other than those declared upon registration.