On 1 January 2012 the Isle of Man Foundations Act 2011 (“the Act”) came into force.
An Isle of Man foundation is a legal entity whose object may be to benefit a person or a class of persons or to carry out a specified purpose or to do both.
As to its characteristics, in certain respects they are similar to trusts (for example a foundation may have an enforcer a role similar to that of a protector under a discretionary trust), in others similar to limited companies. Perhaps the most important characteristic is that, as with a limited company, it is a separate legal person with limited liability. It can hold assets for its objects (see below), trade, raise funds, sue and be sued in its own name.
Further, and again like an Isle of Man limited company, from a tax point it benefits from a 0% corporate tax rate (save for income derived from Isle of Man land held where a 10% rate of tax is applied).
As to the various parties involved in an Isle of Man foundation those familiar with trusts will recognise similar characteristics. One distinction worth mentioning at this point however is that unlike an Isle of Man trust a foundation can run in perpetuity (an Isle of Man trust has a perpetuity period of 150 years).
The establishment of a Foundation is quite straightforward. The Registered Agent (see below) must submit to the Isle of Man Registrar for Foundations an application form together with a copy of the Foundation Instrument and a prescribed fee (at the time of writing this is £195).
Each foundation will have the following
(i) A Founder, this being the person who establishes the foundation (similar to a settlor of a trust).
(ii) A Registered Agent – this agent must be permitted to act as the agent by being the holder of a class 4 licence issued under the Financial Services Act 2008 and permitted to be a registered agent of foundations. It is the Registered Agent and only the Registered Agent who can make the application to the Registrar of Foundations to establish the Foundation.
(iii) The Foundation Instrument –this is the constitutional document of the Foundation. This instrument must contain the name of the Foundation, name the Registered Agent and state who the council members are. This instrument will also set out the objects for which the Foundation has been established, such objects are required under s.7 of the Act to be certain, reasonable and possible and they must not be unlawful, contrary to public policy or immoral. This instrument upon establishment of the Foundation becomes a public document.
(iv) The Foundation Rules – whereas the Foundation Instrument is similar to that of the Memorandum of Association of a company, then the Foundation Rules are similar to the Articles of Association of a company. The rules govern how the Foundation is run and for example will lay out how members of the Foundation Council (see below) are appointed, removed, remunerated and how they may resign.
(v) The Foundation Council – the members of the council are responsible for running the Foundation in accordance with the Foundation Rules.
(vi) The Enforcer – Unless the Foundation has been established to carry out a specified non-charitable purpose, then the Foundation does not need to have an enforcer, it is optional. Where the Foundation does have an enforcer, his role is to take reasonable steps to ensure that the council carries out its functions in accordance with the Foundation Rules and Instrument.