Foundations are, in principle, entities with legal capacity that are not organized as associations. These entities serve a purpose defined by the founder, which is to be permanently supported through the use of the assets dedicated to that purpose.
When a foundation is established by an entrepreneurial family, the term “family foundation” has become established. Families that choose this structure usually intend to provide for the family in the long term or to cushion the impact of financially difficult situations.
A foundation structure may be a viable option for family-owned businesses facing succession challenges, provided certain conditions are met. The most common reason is that the family lacks an internal successor who is financially, personally, or professionally capable of taking over ownership of the business. This is closely followed by the common situation where there are many heirs, creating a risk of asset fragmentation.
In both cases, establishing a family foundation can be a sensible option, as it allows the accumulated assets to be preserved in their entirety. This, in turn, ensures that the company’s long-term viability is maintained and, in the best-case scenario, the entrepreneurial family can benefit from it for generations to come.
Inheritance disputes can be prevented by transferring the assets to a foundation, as the company’s assets become legally separate through the foundation. This ensures that the heirs cannot access the funds. Since a foundation always has a defined purpose, the use of the assets for any other purpose is neither intended nor possible.
The family also has the freedom to choose how much of its assets are transferred to the foundation. The entrepreneur (founder) can decide, for example, whether to contribute his or her personal assets—which may include real estate or other forms of investment—to the foundation or to limit the contribution to the company’s assets.
Establishing a family foundation is also an effective way to prevent a hostile takeover. This is a significant consideration in the context of an impending business succession.
If entrepreneurial families wish to use a foundation as a tool, they should seek comprehensive advice from a tax expert in advance. This is particularly important given that family foundations are rarely charitable in nature and are therefore subject to the usual corporate and trade taxes. Furthermore, a hypothetical inheritance is assumed to occur every 30 years.
It is also advisable to secure the support of a professional succession planning specialist. The subject matter is inherently complex and, as experience shows, often highly emotional. An expert can help here by both supporting the family and professionally managing the process among the parties involved, such as family members, attorneys, tax advisors, and auditors.
