Foundation

A foundation is not a company with shareholders, it's a legally independent pool of assets with no owner, dedicated permanently to a purpose set by its founder. There are no shares to sell, inherit, or transfer: the Stiftung doesn't "belong" to anyone, only to the purpose fixed in its charter.

What is a foundation?

The legally capable Stiftung under German civil law is governed by Sections 80 et seq. of the BGB. A founder permanently dedicates assets to a defined purpose and sets this out in a founding transaction (Stiftungsgeschäft) and a charter (Satzung); the Stiftung comes into existence as an independent legal entity once recognized by the responsible foundation authority of the relevant German state. It is run by its own governing bodies, typically an executive board, often supplemented by a board of trustees or supervisory board, rather than by shareholders, since a Stiftung has none.

How do you form a foundation?

Formation requires a founding transaction (the founder's declaration dedicating assets to the purpose) and a charter setting out the purpose, assets, governing bodies, and use of returns. There is no nationally fixed minimum asset requirement, but in practice the foundation authorities expect assets sufficient to fund the purpose permanently from returns alone, a figure of roughly €50,000 is often cited as a rule of thumb. Legally, the Stiftung comes into existence only upon recognition by the foundation authority, not merely upon signing the charter.

How does liability work for a Stiftung?

Only the Stiftung's own assets are liable for its obligations; the founder bears no further personal liability once the Stiftung is validly established. In exchange, the Stiftung's assets are subject to the principle of asset preservation: they must be permanently maintained intact, and generally only the returns, not the underlying capital, may be used for the purpose. An important exception is the time-limited "Verbrauchsstiftung" (spend-down foundation).

What types of foundations exist?

In practice, the main distinction is by purpose. The charitable Stiftung (gemeinnützige Stiftung) pursues a tax-privileged purpose (e.g. education, research, social causes) and is the most common type. A family foundation (Familienstiftung), by contrast, serves the interests of one or more families — for example, supporting family members or preserving family wealth long-term — and DUB has a separate, detailed glossary entry on this specific type. A holding foundation (Unternehmensträgerstiftung) holds shares in an operating business as a shareholder without conducting business itself, primarily to permanently preserve the company's structure. By time horizon, a further distinction is made between the perpetual foundation (Ewigkeitsstiftung) and the time-limited spend-down foundation (Verbrauchsstiftung), which deliberately depletes its assets for the purpose over time.

Foundation vs. family foundation (Familienstiftung): what's the difference?

"Stiftung" is the umbrella term; "Familienstiftung" is one of its purpose categories. Every family foundation is a Stiftung, but not every Stiftung is a family foundation. The difference lies in the purpose the founder sets out in the charter: a charitable Stiftung serves a tax-privileged purpose that benefits the public (education, research, social causes, etc.), while a Familienstiftung is established predominantly in the interest of one or more specific families, for example, to support family members or to preserve family or business assets across generations. Legally, both are subject to the same basic rules (Sections 80 et seq. of the BGB, recognition by the foundation authority, the asset-preservation principle), but a Familienstiftung is generally not charitable and therefore doesn't enjoy the associated tax benefits. In exchange, it ties the assets exclusively to the circle of beneficiary family/families, which makes it a preferred tool in business succession. For full details on the Familienstiftung, formation, taxation, typical succession use cases, see the dedicated Familienstiftung glossary entry.

Stiftung vs. GmbH vs. GmbH & Co. KG: what's the difference?

What role does a Stiftung play in business succession?

For business succession, the Stiftung is particularly interesting as a tool against the fragmentation of company shares across generations: instead of distributing shares among several heirs, the entrepreneur transfers them to a Stiftung, which remains the permanent, indivisible owner, while the family is involved through returns or a role on the foundation's governing bodies. In practice, this is often implemented through a "Doppelstiftung" (dual-foundation) model, a combination of a charitable foundation and a family foundation that jointly hold the shares in the holding company. The drawback: assets once transferred into a Stiftung can barely be extracted again later, so this step should be carefully considered.