Foundation Councils, Charters, and Rules

Foundation councils, boards, founders and officials have roles defined by the governing documents.

Councils and boards administer foundations

The governing body depends on the foundation form. A Guernsey foundation is administered by a council, and Cayman foundation company assets are managed day to day by a board of directors.^[2]^[4]

For Guernsey, councillors owe duties to the foundation and are to act in good faith when carrying out their functions. In Panama, the Foundation Council is responsible for carrying out the foundation's purposes and objectives.^[2]^[3]

Council size varies by jurisdiction and governing terms. A Guernsey council may have a sole member when the constitution specifies it, while a Panama council must have at least three members unless the council is a juridical person.^[2]^[3]

Jersey and Guernsey foundations are run by councils, with different default council sizes in each jurisdiction. A founder may join a council.^[5]

Charters, rules, and regulations set governance terms

A foundation constitution can include a charter and rules. A Guernsey charter states the foundation's name and purpose, along with its initial endowment. It also gives the duration when that duration is limited. Rules set operational provisions and describe council functions.^[2]

The Guernsey rules address the appointment, resignation, or removal of councillors and any guardian. They also provide for remuneration when those officials are paid. Separate rules are unnecessary if the charter contains the required provisions.^[2]

The rules of a Guernsey foundation can address adding or removing beneficiaries and how property may be distributed or applied. In Panama, the charter or regulations establish the Foundation Council's powers and responsibilities.^[2]^[3]

For Guernsey, the charter and rules make up the constitution when rules are included. The charter contains key information, while rules can give greater detail about councillor functions. They can also cover officials' appointment and retirement, as well as their remuneration.^[6]

Cayman foundation companies may also have bylaws. Bylaws can set the company's structure and provisions for governance and management. They can also cover directors' or other officeholders' duties and powers.^[7]

Founders and other officials have defined roles

The Guernsey founder provides the initial endowment and signs the charter, personally or through an agent. A founder can reserve powers to amend, revoke, vary, or terminate the foundation when the charter sets out those powers. This is subject to stated limits on their duration.^[2]

A Guernsey founder may also serve as a councillor or guardian, but cannot hold both roles at once. In Cayman foundation companies, governing documents may specify what powers a founder retains, including appointment of directors or amendment of governing documents.^[2]^[7]

A Guernsey guardian is required for a purpose foundation or one with disenfranchised beneficiaries. The guardian enforces the foundation's purpose. In Cayman foundation companies, supervisors may enforce company rules against directors when the company has no members or shareholders.^[2]^[7]

For Panama, a charter or regulations may require prior approval from a protector or committee, or from another supervisory body, before council members exercise powers. They may also establish duties for the supervisory body, including monitoring whether the council carries out the foundation's purposes.^[3]

The documents identify the governing structure

Governing documents have different names across foundation forms. Jersey foundations have a charter and regulations, while Guernsey foundations have a charter and rules.^[5]^[6]

Governing documents can assign powers and duties and set out processes for councils and boards. They can also cover founders and guardians, along with supervisors or committees. The stated terms vary by jurisdiction and by the provisions included in the documents.^[3]^[7]

Guardians and Supervisors of Foundations

Guardians and supervisors perform oversight roles defined by the governing law and documents. Jersey requires every foundation to have a guardian, who monitors the council's performance and may require an account of its actions. Regulations may give the guardian authority to approve or deny specified council actions, identify who must provide approval, and define its scope. A guardian cannot also be a council member unless that person is the founder or a qualified member.^[5]^[8]

Cayman foundations that cease to have members must have one or more Supervisors. A Supervisor may also be a director, but this is not required. The Supervisor enforces the foundation's rules against directors in place of members, and typically has access to the company's files and books, along with accounts.^[9]

U.S. tax classification of a foundation

A foundation is an entity, so the U.S. result depends on classification under Treas. Reg. sections 301.7701-2 through 301.7701-4, and the absence of a dedicated foundation form does not take it outside U.S. tax. Depending on its terms, a foundation can be treated as a foreign trust (Forms 3520 and 3520-A, with grantor trust status if the founder holds revocation or similar rights), as a foreign corporation (Form 5471, with CFC and PFIC consequences), or as another entity type. A U.S. founder or beneficiary may also have Form 8938 and FBAR duties for its accounts. See Foreign entity tax classification and Panama foundation versus trust: U.S. classification.

Questions and answers

What does a Guernsey foundation council do?

The council administers the foundation. Councillors have a duty to the foundation to act in good faith when performing their functions.^[2]

What information can a Guernsey charter state?

The charter states the foundation's name and purpose, along with its initial endowment. It also states duration when the foundation is to have a limited duration.^[2]

What can Guernsey rules cover?

Rules prescribe council functions and procedures for official appointments or removals. They also address resignations, beneficiary changes, and how foundation property is distributed or applied.^[2]

Can a founder take part in foundation governance?

A Guernsey founder may be a councillor or guardian, but not both. The founder provides the initial endowment and signs the charter personally or through an agent.^[2]

What are Cayman foundation company bylaws for?

Bylaws can set rules on governance and management, as well as organizational structure. They may also address directors' and other officeholders' duties or powers.^[7]

Can documents limit how a council or board exercises its powers?

In Panama, a charter or regulations may require prior authorization from a supervisory body before Foundation Council members exercise powers. Cayman foundation company governing documents may also restrict directors' exercise of powers.^[3]^[7]

Related glossary terms

Trust: The Hague Convention describes a trust as a relationship in which a settlor places assets under a trustee's control for beneficiaries or a specified purpose.
Proper law of a trust: The Jersey Trusts Law defines proper law as the jurisdiction's law expressed or implied in trust terms, or most closely connected to the trust when created.