On 22nd October, 2008 the States of Jersey passed the Foundations (Jersey) Law 200_ which can be expected to become law in the first half of 2009. It will provide a further means to structure and hold assets by using an entity established in Jersey, with the advantages and assurance which this brings.

Foundations are neither a company nor a trust but have some similarities to both. Foundations also provide certain advantages over companies and trusts. They are useful to act as a holding vehicle and to provide an orphan or independent structure. They also assist private individuals with global asset management, by dealing with succession and inheritance planning, wealth preservation, ensuring assets are located in a tax neutral jurisdiction to avoid tax legitimately and to avoid probate requirements in various countries.

Foundations are a distinct and independent legal entity created for a particular purpose. They are, in effect, a purpose entity without shareholders and with or without beneficiaries. Having a distinct legal personality, they hold assets in their own name like a company holds assets and they can contract with others. Just as it is possible to have purpose trusts or trusts with beneficiaries so too it is possible to have foundations set up solely for a purpose or set up for beneficiaries. There will be no Jersey income or capital taxes for non resident taxpayers.

Jersey foundations will be registered with the registrar of companies and he can evidence their existence by issuing a certificate of good standing. The constitutional documents of a foundation will consist of a charter and regulations. The charter is open to public inspection. It contains certain required information such as the name of the foundation, its objects and details of any initial endowment of the foundation. Other information can be included in the charter if desired, but is not required. In particular, details of how any beneficiaries of a foundation are to be ascertained, and details of what is to happen to any assets remaining after dissolution of the foundation, can be included in the charter solely by reference to the regulations of the foundation. The charter does not need to specify or identify the founder or the council members.

The regulations are private and must provide for the appointment, replacement and remuneration (if any) of its council members, how the council should operate and for the appointment and continuance of a guardian. The regulations may provide for any other matter, for example, in relation to powers, duties and rights of the council and the beneficiaries.

The founder is the person who originates the foundation and he may reserve rights to himself or to others. As indicated, his identity need not be a matter of public record. Those who subsequently transfer further assets to the foundation will not usually be treated as a founder, but can be so treated if the regulations of the foundation allow this.

Every foundation will have a council to organise its affairs with similar functions and duties to directors of a company. These are less onerous than for trustees. One or more of the members of the council must be a trust company service provider based in Jersey and registered with the Jersey Financial Services Commission. Thus, unlike a trust or a company, it will not be possible to have a foundation with nobody in Jersey involved in its management and activities.

The duties of council members are more like directors than trustees. Council members like trustees can be indemnified for negligence but not fraud, wilful misconduct or gross negligence. Unlike trustees, there is no express provision for the court to relieve council members from liability for a wrongful act where the member has acted honestly and reasonably and in the best interests of the foundation.

Every foundation will have a guardian whose duty is to ensure that the council carries out its functions properly under the law, the charter and the regulations and in the interests of the objects or beneficiaries. Anyone can be appointed a guardian except a council member, but that restriction does not apply to the founder or the qualified council member. The guardian can also be given veto or similar powers over actions of the council.

Foundations may or may not have beneficiaries and they can be added or removed later if the documents so provide. Beneficiaries can be named or be ascertainable by reference to a class or description of people. Unlike beneficiaries of trusts, they need have no rights or their rights can be specified; their position is based on a contractual rather than a fiduciary (trust) basis. The council need not inform beneficiaries that they are beneficiaries and need not provide them with information unless the documents otherwise provide.

Foundations are incorporated like limited liability companies; and they can own all types of property anywhere in the world other than Jersey immovable property. However, they cannot trade in a commercial way unless it is incidental to their objects. The principles of ultra vires do not apply and so the legal capacity of a foundation is not limited by the terms of its charter or regulations.

Any challenges that may be made to the foundation itself or to any transfer of assets to it are to be determined by the courts applying Jersey law exclusively notwithstanding that under the law of any country outside Jersey there could be grounds for making such a claim. The foreign law simply does not apply.

There are certain administrative requirements such as having a business address in Jersey, and ensuring the name and business address of the foundation appear on written communications. Statutory and financial books and records must be maintained at the business address. The business address will be the address of the locally regulated council member.

Helpfully, if in due course, directions are required any person with standing in the foundation can ask the court for directions in relation to the foundation or to ensure compliance.

The potential advantages of a foundation over a trust are incorporation, greater flexibility, registration of its existence and ease of understanding for clients from jurisdictions which do not recognise trusts.

The potential advantages over a company are that a foundation can either have no beneficiaries or, if preferred, may have beneficiaries and (unless otherwise provided) they will not have ownership or control of the structure, nor over the composition or operation of the council or its assets.

There will in most cases be no need to take out probate on the death of a person with an interest in a foundation, as the assets do not form part of a person's estate on death. Similarly the assets do not form part of a person's property on their bankruptcy as, for example, would be the case with shares in a company.

In conclusion this new incorporated purpose entity stands alongside other vehicles available to hold assets such as companies, trusts, limited partnerships and partnerships. Foundations are likely to be used by corporate and private clients; they are likely to be used where current structures are held by charitable trusts, purpose trusts, or companies limited by guarantee.

The flexibility available and the mixture of company and trust aspects will for many avoid the problems of understanding trusts and indeed may avoid the need to have both a company and a trust thus producing simplicity and cost savings. How foundations will be treated for tax purposes outside Jersey will need careful consideration and may depend on the balance of ownership and control contained within the charter and regulations of each particular foundation.

Foundations will attract those from non trust or civil law jurisdictions and those unwilling to transfer their assets outright to a trustee of a trust.