Family foundations, well-known for millennia, primarily serve to prevent fragmentation of family assets. Profits generated by assets held within a family foundation are designated for the specific needs of beneficiaries, typically the family members.

Now, this option won't be confined solely to the wealthiest entrepreneurs capable of establishing a foundation abroad.

Let's now examine what I consider the paramount features of a Polish family foundation:

1. A family foundation is an independent legal entity.

A family foundation holds a distinct legal status, akin to an autonomous entity. The registry for these foundations (abbreviated as F.R.) is maintained by the District Court in Piotrkow Trybunalski. Similar to a limited liability company, a family foundation can commence operations immediately upon its establishment in an organizational capacity, employing solutions well-recognized within the framework of the Commercial Companies Code.

Note: The founder bears no liability for the obligations of the family foundation. Conversely, the foundation is responsible for obligations of the founder that arose prior to its establishment (except maintenance obligations). However, the foundation's liability is confined to the value of assets contributed by the founder (evaluated at the contribution time and prevailing market rates upon creditor satisfaction).

2. Eligibility of the Funder

An individual or multiple individuals with full legal capacity can be funders.

A family foundation can be established through a will (yielding a foundation with a sole founder) or a trust deed (e.g., involving all family members for family assets).

Other entities (e.g., companies or associations) are ineligible as funders.

Nonetheless, this does not restrict other entities (e.g., companies) from donating to a family foundation.

3. Eligibility of the Beneficiary

Beneficiaries may comprise individuals or non-profit organizations.

Note: The beneficiary may also include the funder.

For each foundation, a list of beneficiaries is compiled, encompassing essential details as well as requisite data for fulfilling beneficiaries' entitlements, including beneficiary rights information.

Interestingly, the funder can stipulate that items accruing to a minor beneficiary shall not be overseen by their parents but by a designated individual/entity. In instances where the funder fails to appoint a trustee, the responsibility shall be entrusted to a guardian designated by the guardianship court.

Beneficiaries can renounce their rights from the foundation through a notarized declaration.

The foundation's articles of incorporation may delineate provisions pertaining to deprivation of beneficiary status (e.g., divorce, conviction).

4. Authorized Activities of a Foundation

Primarily, a foundation should refrain from engaging in commercial activities and focus solely on asset management. However, the law outlines permissible activities, conducting which will not jeopardize the foundation's tax benefits (discussed further below).

Permissible activities encompass:

1. Asset disposal, excluding instances where property was acquired solely for further disposal;
2. Property lease, rental, or provision for usage under various arrangements;
3. Participation in commercial entities, investment funds, cooperatives, and similar entities, both domestically and abroad;
4. Acquisition and sale of securities, derivatives, and similar rights;
5. Loans, including to capital companies where the foundation holds shares, partnerships in which the foundation is a partner, or beneficiaries;
6. Foreign currency trading for making payments related to the foundation's activities;
7. Production of non-industrially processed plant and animal products (excluding products subject to excise taxes), provided that at least 50% of a given product's components derive from the foundation's own cultivation, breeding, or rearing;
8. Forest management.

Note: These restrictions apply to the foundation's activities. The foundation may possess shares and rights in companies engaged in normal, unrestricted activities.

5. Tax Considerations for a Family Foundation

Contributing assets to a family foundation is tax-neutral in income tax (CIT/PIT).

The foundation remains tax-exempt as long as no benefits are disbursed to beneficiaries.

Upon withdrawal, Corporate Income Tax (CIT) obligation at a 15% revenue rate will be levied (no deductible expenses are acknowledged).

If the foundation conducts activities beyond the permitted exceptions (as mentioned earlier), it will be subject to a 25% CIT on income generated from these "non-allowed" activities.

Benefactors and beneficiaries within the so-called "zero tax group" are exempt from Personal Income Tax (PIT) on benefits derived from the family foundation. Others will be subject to a 15% PIT. Additionally, benefits received by funders and beneficiaries are exempt from inheritance and gift tax.

"Real estateincome," currently subjected to 0.035% of the tax base per month according to CIT Law, has been excluded from this exemption.

Certainly, the topic of foundation taxation merits a dedicated discussion.

6. Bylaws of the Family Foundation

The law mandates specific elements for the bylaws. However, it's important to underscore that substantial flexibility exists in regulating family foundation rules. Therefore, similar to the uniqueness of each family, the bylaws of family foundations will be distinctive.

Mandatory bylaw elements encompass:

1. Family foundation name;
2. Family foundation headquarters;
3. Precise purpose of the family foundation;
4. Beneficiary details or the methodology for beneficiary determination and the extent of beneficiary rights;
5. Procedures for maintaining a beneficiary list;
6. Guidelines, including a comprehensive process, for beneficiary rights waiver;
7. Family foundation duration if specified;
8. Initial funding value;
9. Rules governing the appointment, dismissal, powers, and duties of family foundation body members, as well as rules for representation by the board of directors or other bodies under circumstances defined by the law;
10. Entity authorized to approve board of directors' actions in the organization;
11. At least one beneficiary entitled to participate in beneficiary assemblies;
12. Procedures for amending the bylaws;
13. Family foundation property disposition after dissolution, including beneficiary entitlement to property connected with family foundation dissolution.

The bylaws may also stipulate other matters, including:

1. Principles for body cooperation or collaboration within the family foundation;
2. Comprehensive circumstances surrounding family foundation dissolution;
3. Investment guidelines for foundation assets;
4. Establishment of field units.

Bylaw amendments take effect upon entry into the family foundation register.

7. Family Foundation Board

A family foundation may possess a board of directors, which can include non-family members. Such a configuration is valuable when heirs are uninterested in managing the business post-senior family members' involvement or are unqualified.

Additionally, a family foundation may feature a supervisory board or an assembly of beneficiaries, each endowed with defined powers to structure relationships within the foundation.

8. Foundation Audit

A family foundation is subject to an audit every four years or more. The audit team comprises a certified public accountant, tax advisor, and lawyer/legal advisor. The audit assesses the state of asset management, compliance with obligations or public liabilities, operational correctness and legality, foundation purpose, and documentation.

9. Family Foundation Dissolution

A family foundation can be dissolved under various circumstances outlined by the law.

Notably, these circumstances may be stipulated in the bylaws, resulting in dissolution based on a board of directors resolution.

Dissolution is preceded by liquidation proceedings.

Disposition of remaining assets, after satisfying or securing creditors (excluding founder, beneficiaries, or founder's heirs entitled to property due to family foundation dissolution), is restricted for one year from the announcement of liquidation commencement and creditor claims summoning.

Dissolution can occur during the founder's lifetime.

In cases involving multiple funders, property distribution is proportionate to contributed property value (unless specified otherwise in the bylaws).

10. Compulsory portion of inheritance (forced share)

Note: When calculating forced share, family foundation fund contributions made over a decade before inheritance opening are excluded from inheritance. This implies that after a specific period, the founder regains full control over their inheritance and succession rules.

Prior to this time limit, changes regarding foced share are substantial.

FOced share can be paid in installments (up to five years, exceptionally ten years), payment dates postponed, and, under justified circumstances, reduced.

A beneficiary entitled to retention will receive only one of these benefits.

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