Published on July 24, 2014
A Critical Analysis of the Foundations Act 2012 A CRITICAL ANALYSIS OF THE FOUNDATIONS ACT 2012 By KASTOOREE DEVI BOKHOREE (ID: 1115587) A dissertation submitted in partial fulfillment of a BACHELOR OF LAWS WITH HONOURS At the UNIVERSITY OF MAURITIUS FACULTY OF LAW AND MANAGEMENT March 2014
A Critical Analysis of the Foundations Act 2012 Table of contents Page Acknowledgements i Dissertation Declaration Form ii Abstract iii List of abbreviations Iv List of statutes V List of cases Vi Introduction 1 CHAPTER ONE: FOUNDATIONS IN MAURITIUS PART A: Definition of Foundations 7 1.1 Introduction 7 1.2 General Definition 7 1.3 Definition of a Mauritius Foundation 8 1.3.1 Charitable foundations 8 1.3.2 Non-charitable foundations 10 1.3.3 A Mauritius foundation with charitable and non-charitable purposes 10 PART B: Substantive Provisions of the Foundations Act 2012 12 1.1 Establishment of a foundation 12 1.2 Constitutive documents of a foundation 14 1.3 Parties to the foundation 15 1.3.1 The Founder 16 1.3.2 The Foundation Council 16 1.3.3 The Protector 16 1.3.4 The Beneficiaries 17
A Critical Analysis of the Foundations Act 2012 1.3.5 The Secretary 17 1.4 Migration of Foundations 18 1.5 Termination of foundations 18 1.6 Transparency of foundations 18 CHAPTER TWO: A COMPARATIVE ANALYSIS BETWEEN THE TRUST AND FOUNDATION CONCEPTS 2.1 Introduction 20 2.2 Legal Structure and Ownership 21 2.3 Formation 22 2.4 Beneficiaries 25 2.5 Duration 27 2.6 Confidentiality 28 2.7 Conclusion 29 CHAPTER THREE: A CRITICAL ANALYSIS OF FOUNDATIONS IN MAURITIUS 3.1 Introduction 31 3.2 Protection from foreign interference 32 3.3 Confidentiality 34 3.4 Flexibility in the operation of activities 35 3.5 Redomiciliation of foundations 36 3.6 Favourable Tax Regime 37 3.7 Role of the Court and Supervisory Authority 39 3.8 Critical Analysis 40 3.9 Recommendations 42 Conclusion 46 Bibliography
A Critical Analysis of the Foundations Act 2012 i Acknowledgement The writing of this dissertation has been one of the most significant academic challenges I have ever had to face. Without the support, guidance and patience of the following people, this study would have not been completed. It is to them that I owe my deepest gratitude. First and foremost, I would like to thank Mr Pramod Bissessur, who despite his numerous other academic and professional commitment undertook to be my supervisor. His wisdom, knowledge, advice and commitment to the highest standard inspired and motivated me. I show my gratitude to Mr Arvin Halkhoree who have proved to be very cooperative and of a great help by answering my questions and providing me with a useful insight about the working of the financial sector. Thank you for making time for me despite your busy schedule. My friends, Nitisha, Veda, Jehsen, Ridhwaan, Karishma, Mevin and many other who had been reassuring and comforting friends during this whole process. My world, my parents and my sister who bear with my mood swings when times were hard. They have always supported, encouraged and believed in me. This dissertation is dedicated to all the above people. I have received numerous useful advice during my writing of the dissertation, but all the faults that remain obstinately my own.
A Critical Analysis of the Foundations Act 2012 ii
A Critical Analysis of the Foundations Act 2012 iii Abstract Purpose: This dissertation studies the concept of foundations in Mauritius. It reviews its effectiveness as a financial product and as an alternative to the trust by analyzing the different aspects of the Foundations Act 2012. Objective: The aim of the study is to assess the potential success of the Mauritius Foundation and provides a critical analysis of the application the foundation structure in Mauritius and a comparative study of the adoption of similar legislations in selected countries, namely Liechtenstein, Malta, Nevis and Jersey. Approach: Most of the research done was carried out through the reading of articles and books. Findings: The study revealed that foundations represent a major potential for Mauritius as an International Financial Centre, especially for fund management. Its uses are diverse and provide for both private benefits and public benefits. Original Value: The dissertation focus is on the foundation structure, its establishment, governance and the different parties to it.
A Critical Analysis of the Foundations Act 2012 iv List of abbreviations Double Taxation Avoidance Treaties (DTAA) Financial Services Commission (FSC) Global business license (GBL) High Net Worth Individuals (HNWIs) Revised Statutes of Canada (RSC) The Organisation for Economic Co-operation and Development (OECD) The Mauritius Revenue Authority (MRA) The law of Persons & Companies” (Personen und Gesellschaft Rech) (P.G.R) The Nevis Multiform Foundation Ordinance 2004 (MFO)
A Critical Analysis of the Foundations Act 2012 v List of Statutes Mauritius The Foundations Act 2012 Income Tax Act 1995 The Trusts Act 2001 Antigua & Barbuda International Foundation Act 2007 Jersey Foundation (Jersey) Law 2009 Liechtenstein PGR (Personen-und-Gesellschaftsrecht, Persons and Companies Act) Law of 26th June 2008 on Amendment of the PGR (Arts 552§ 1-52 PGR) Anguilla Anguilla Foundations Act 2008 Malta Second Schedule, Act No. XIII Civil Code. (Chapter 16 of the Laws of Malta) Nevis Multiform Foundation Ordinance 2004 Bahamas Foundations Act 2004 Panama Law 25 of June 12 1995 Canada Income Tax Act RSC
A Critical Analysis of the Foundations Act 2012 vi List of cases Mauritian cases: DPP v. Mootoocarpen 1988 MR 195 Bourdin Fils & Co. v. Letellier & ors. 1861 MR 51 Uk Cases: Knight v. Knight (1849) Beav. 148 Snook v London and West Riding Investments Ltd  1 All E.R 518 Shalon v Russo  W.T.L.R 1165 O'Rourke v Darbishire  AC 581 Schmidt v Rosewood Trust Ltd  3 ALL ER 76 Saunders v. Vautier  4 Beav. 115 New Zealand: CIPC (Ocean View)Limited Partnership v. Churchill International Property Corporation et al, (2006) BCSC 1127,(2006) 9 ITELR 157 Jersey: Mubarak v. Mubarak  JRC 136
A Critical Analysis of the Foundations Act 2012 1 INTRODUCTION The offshore private foundations used today have a long history dating back to the days of the Roman Empire. On those days, the idea of Foundation was to create a body to serve the needs of the community more than personal interests. The Catholic Church was considered as a ‘divine foundation’ and was endowed assets for ecclesiastical purposes; it was the first charitable foundation. During the Reformation1 , gradual changes were brought about with secularization and foundations stopped being associated with religious activities solely. With time, the concept of foundations evolved to be used by private individuals also. A distinction was made for the first time between public (charitable) and private foundations in 1926. The private foundation was conceived in the Principality of Liechtenstein with “The law of Persons & Companies” (Personen und Gesellschaft Recht P.G.R), which first established the concepts of the ‘family foundation’ and ‘mixed foundation’. A number of other civil law jurisdictions followed suit. By the end of the century, private foundations were also introduced into common law countries as an alternative vehicle to the trust concept for wealth management. Up to date, the institution of private foundation is recognized in many jurisdictions; each of them has come up with an innovative foundation law despite the substantial influence of Liechtenstein law. The diagram below illustrates the implementation of private foundations in different countries over the years through a progressive timeline. It includes both common law (coloured red) and civil law jurisdictions (coloured blue), with Liechtenstein as the first country and Luxembourg as the most recent country to pass a Bill in 2013 to that effect. Some jurisdictions such as Jersey have a hybrid legal 1 The Protestant Reformation was a major 16th century European movement and religious revolution. The Reformation ended the unity imposed by medieval Christianity and, in the eyes of many historians, signaled the beginning of the modern era.
A Critical Analysis of the Foundations Act 2012 2 system (Red and Blue). In addition, a new version of the charitable foundation was proposed by the European Union Commission; The European Foundation (Fundatio Europea-FE) would make it easier for foundations to support public benefit causes across Europe.
A Critical Analysis of the Foundations Act 2012 3 A Timeline of the historical evolution of Foundations (1926-2013) 1926 - The law of Persons & Companies in the Principality of Liechtenstein 1993 - Private Foundations Law of Austria 1995 – Law No.25 of 12th June on Private Foundations 1995 of Panama 2003 - St Kitts Foundations Act 2003 2004 - The Multiform Foundation Ordinance 2004 of Nevis Foundations Act 2004 of the Bahamas 2007 - International Foundations Act 2007 of Antigua & Barbuda 2008 – The Foundations (Jersey) Act 2008 The Foundations Act 2008 of Anguilla 2009 – Labuan Foundations Act 2009 2011 - Foundations Act 2011 of Isle of Man 1998 – Curaçao Civil Code (“Stichting Particulier Fonds”) Dutch Civil Code (Burgerlijk Wetboek), Book 2 Art 285-304 of The Netherlands (Stichting) 2013 - Bill no. 6595 on Fondations Patrimoniales (FP) of Luxembourg 2009 – Foundations Act 2009 of Seychelles 2012 – The Foundations Act 2012 of Mauritius Malta - Act XIII of 2007 Second Schedule to the Maltese Civil Code
A Critical Analysis of the Foundations Act 2012 4 Mauritius, as a hybrid legal system, has been endowed with both common law and civil law traditions. The Mauritius Global Business sector offers a well-regulated plethora of financial products including the Limited Partnership, private and public Company, Limited Life Company and Trust. Previously, there was a lacuna in our legislative framework; at the local level, there were forty entities2 incorporated under the Companies Act 2001, but with the appellation of 'Foundation' to carry out Corporate Social Responsibility (CSR) objectives, while at the international level, foundations did not form part of the product offering of our Global Business sector. In 2001, a Steering Committee was set up by the Government and identified that many of the emerging countries providing the island with business opportunities are from civil law jurisdictions. As such, the international demand for foundations is hearty, especially in Mauritius because of the business opportunities available to invest in Asia and Africa. The common law institute of trusts would not suffice for these clients, since it is not recognized in most civil law jurisdictions. Furthermore, clients from Middle East countries seeking a substitute to the Waqf institution may choose a foundation to endow their assets. Eventually on 5th June 2012, the Parliament passed the Foundations Act without any amendment, and it came into force on 1st July 2012. This Act sets out the legal framework to enable the creation of a Mauritius Foundation. The international terminology which is used to define the foundation is diverse, but the one thing which is common to all the foundations, fondations, fundaciones, fondazioni, Stiftungen, or stichtings, is their basic structure. They are all separate legal entities without members, the object of which is to achieve a certain specific purpose, be it charitable or private in nature. The foundation is a useful legal vehicle for estate planning, wealth management, asset holding or even as a special purpose vehicle to legally protect one’s assets against personal liability, high taxes or forced heir ship rules. They are also used by wealthy families and successful businessmen to pursue 2 For instance, The Mauritius Wildlife Foundation, National Empowerment Foundation (NEF).
A Critical Analysis of the Foundations Act 2012 5 charitable purposes or to manage funds or assets for the benefit of these activities. It is important to note that there are some entities which are called foundations but are actually a unique breed of non-profit organizations. For instance, the private foundations in the United States and Canada are solely for charitable and philanthropic purposes and do not carry out investment activities for the benefit of private individuals. The objective of this dissertation is to conduct an in-depth study of the concept of foundations, while keeping in mind the Mauritian context. The Mauritius Foundation derived from the Foundations Act 2012 will be analyzed to draw out its particular strengths and how it may be set apart of other International Financial Centers. The foundation structure will be compared with its common law alter ego, the trust. The ultimate aim is to make an assessment of the potential success of the Mauritius Foundation and bring out the possible improvements and recommendations to eventually propose an enhanced version of the present Mauritius Foundation, or even more, a new and innovative Mauritius Foundation which would combine the best of both the trust and foundation concepts. An elaborate definition of the Mauritius Foundation (CHAPTER ONE PART A) and a description of the substantive provisions of the Act (CHAPTER ONE PART B) are made. CHAPTER TWO and CHAPTER THREE offer a comparative study of foundations. CHAPTER TWO discusses controversially the important characteristics of foundations law in comparison with the law of trusts, while CHAPTER THREE provides a comparison with four selected jurisdictions, by an ample breakdown of their statutes to illustrate better the principles in question. A critical analysis is made to evaluate the Act and bring out its possible improvements that should be made to the law through proposed recommendations.
A Critical Analysis of the Foundations Act 2012 6 CHAPTER ONE: FOUNDATIONS IN MAURITIUS
A Critical Analysis of the Foundations Act 2012 7 Part A: Definition of Foundations 1.1 Introduction This section provides an encompassing tour d’horizon on the Mauritius Foundation which is enshrined in the Foundations Act 2012(hereinafter called the “Act”). It provides for an elaborate description of the main characteristics of a Mauritius Foundation. The requirements and procedure to establish the foundation is described. The various parties to the foundation, their functions and powers are also explained. 1.2 General Definition The foundation is a legal concept that has evolved over the years and undergone several transformations. Amongst the numerous definitions that have yet to receive judicial approval, the most comprehensive definition is given by John Goldsworth: A (private) foundation is an independent self-governing legal entity, set up and registered or recorded by an official body within the jurisdiction of where it is set up in order to hold an endowment provided by the founder and for others for a particular purpose for the benefit of beneficiaries and which usually exclude the ability to engage directly in commercial operations and which exists without shares or other participation.3 In general, there are two types of foundations: (1) Charitable Foundations; (2) Private Foundations 3 Goldsworth J.( 2011) “Private Foundations: Law & Practice”, Mulberry House Press:6
A Critical Analysis of the Foundations Act 2012 8 1.3 Definition of a Mauritius Foundation Foundation in the context of Mauritian law is provided for by the Foundation Act 2012 providing the adequate legal framework for its setting up. After an overview of the Act, it should be observed that the later does not provide for a comprehensive definition of the term 'Foundation’4 . Section 2 of the Act merely provides that a foundation is one which is established in Mauritius or elsewhere and registered in accordance with the Act. An interesting point about Mauritius foundations is that they are not to be construed from a legal definition and are instead identified according to their lawful purposes and objects set out in the foundation charter. Therefore, a Mauritius foundation can broadly be: 1. A Charitable foundation 2. A Non-Charitable foundation 3. A combination of both a charitable and non-charitable foundation 1.3.1 Charitable foundations 4 Other jurisdictions provide a legal definition of foundation in their specific legislation. Some are rather simple and descriptive while others are more elaborate. For e.g. in Malta law, Art 26 (1) of the Second Schedule to the Civil Code(Chapter 16, Laws of Malta ) establishes that: “A foundation is an organization consisting of a universality of things constituted in writing, including by means of a will, by a founder or founders whereby assets are destined either- (a) for the fulfillment of a specified purpose; or (b) for the benefit of a named person or class of persons, and are entrusted to the administration of a designated person or persons. The patrimony, namely assets and liabilities, of the foundation is kept distinct from that of its founder, administrators or any beneficiaries.”
A Critical Analysis of the Foundations Act 2012 9 To identify certain institutions or organizations as charities entail that there exists a legal definition of a charitable foundation in the Act. Section 75 of the Act defines charitable foundations by reference to a list of charitable purposes. Hence, the Act does not provide a concise definition of a charitable foundation. The Act, nonetheless, does indicate a list of purposes which are to be considered as being charitable. It is noted that this is a common law definition of a charity which is the generally accepted definition in most common law offshore jurisdictions. Following this definition, an institution is deemed to be fulfilling a charitable purpose as long as the charity's property is utilized for charitable purposes, which in turn must be for the public benefit. Exclusive Purpose Charitable foundations must be established for purposes which are exclusively charitable, according to the Act. The foundation may however, serve one or more purposes listed at Section 8 of the Act, but cannot at any moment pursue a private benefit. Public benefit element A charitable foundation must be established for the benefit of the public or a sufficiently important section of the public, rather than for the benefit of private individuals. Under the Act, the element of public benefit is a fundamental requirement 5 (1) A Foundation shall be a charitable Foundation where it has as its exclusive purpose or object — (a) the relief of poverty; (b) the advancement of education; (c) the advancement of religion; (d) the protection of the environment; (e) the advancement of human rights and fundamental freedoms; or (f) any other purpose beneficial to the public in general.
A Critical Analysis of the Foundations Act 2012 10 for a purpose to be considered as charitable. It has to be satisfied along with the purpose(s) listed in section 7 of the Act. For the benefit of a particular section within the community As per the terms of Section 7(2) (a) of the Act, it is extended that when the dominant purpose of a foundation is to support a class of persons which compose a section within the community as a whole (and not of a public nature or for a public benefit), because of a particular social, physical or other need they may have; such foundation shall nevertheless be considered as a charitable foundation. In other words, a foundation is not classed as a private foundation instead of a charitable one from the simple indication of such a class of persons or one or more persons of such a class. 1.3.2 Non-charitable foundations A non-charitable (private) foundation will, as opposed to a charitable foundation, be an institution which does not satisfy the conditions for a charitable purpose. Such a foundation is allowed to carry out any lawful business activity and engage in commercial or civil transaction in any part of the globe and in any currency. 1.3.3 A Mauritius foundation with charitable and non-charitable purposes It is possible under a Mauritius foundation to combine objects for the benefit of individuals and for charitable purposes within the framework of a single mixed
A Critical Analysis of the Foundations Act 2012 11 foundation. In other words, a foundation does not have to be exclusively charitable to carry out charitable objects.6 6 This aspect of a Mauritius Foundation has tax implications.
A Critical Analysis of the Foundations Act 2012 12 PART B: Substantive Provisions of the Foundations Act 2012 1.1 Establishment of a foundation Summarizing, the following must be observed for the constitution of a Mauritius Foundation: Stage 1: Application to the Registrar The first step for the creation of a foundation is to make an application for registration on the approved form with the Registrar of Foundations 7 (hereinafter called the ‘Registrar’). When the Foundation is created inter vivos, the Founder shall the person who establishes the foundation. Conversely, when the foundation is created mortis causa, an executor nominated by the Founder (testator) in the duly executed will, shall submit the Charter. Stage 2: Contents of the Charter Extract Under the Act, the founder is required to submit an extract of the Charter to the Registrar, which shall contain the following: a) The name of the foundation, which name shall not be identical or similar to that of a pre-existing foundation, company or other business of the 7 The Registrar of Foundations means the Registrar of Companies, appointed under the Companies Act.
A Critical Analysis of the Foundations Act 2012 13 Republic of Mauritius so as not to lead itself to confusion. The name shall include the word “foundation”, or in any foreign language equivalent to the word “foundation”, in order to distinguish it from natural persons or from different types of juridical persons. b) The purpose and objects of the foundation. c) The name and address of the founder in Mauritius for the service of documents. d) The name and address of the secretary. e) A complete and clear designation of the members of the Foundation Council, to which the founder may belong, including their addresses. f) The manner in which the beneficiaries of the foundation, who may include the founder, are designated. g) The address of the registered office of the foundation h) The duration of the foundation, if any. i) A list of the names and address of the first officers of the foundation. j) A declaration in writing by a law practitioner regarding compliance with all relevant requirements of the Act. k) A declaration made by the applicant that the information provided in the application is true and correct. l) Any other lawful clauses deemed expedient by the Registrar. Stage 3: Registration The Registrar, upon payment of the prescribed fee by the applicant will enter the particulars of the foundation in the register and assign it a unique foundation number. A 'Certificate of Registration' will be issued and breath separate legal personality into the foundation. Stage 4: Pre registration actions
A Critical Analysis of the Foundations Act 2012 14 Pre registration actions may be ratified by a resolution of the Foundation Council given that such actions are not prohibited by the Charter or Articles (if any). Pre-registration actions are those which have been carried out in the name of the foundation or by the foundation prior to registration. 1.2 Constitutive documents of a foundation 1.3.1 The Charter The Charter is the constitutional document, certified by a legal practitioner and providing essential information on the administration of and parties to the foundation. The Charter will contain additional information to the extract provided to the Registrar, such as the reservation of powers by the founder, the appointment and removal of officers, auditors, protectors and members of the Council, list of additional beneficiaries, conditions for redomiciliation and requirements to draft the Articles, if any. 1.3.2 The Articles The Articles constitute a confidential document, prepared by members of the council that may be drafted in addition to the Charter and complements it. It may include provisions as to how the affairs of the Council should be regulated, the distribution of assets or additional beneficiaries.
A Critical Analysis of the Foundations Act 2012 15 1.3 Parties to the Foundation Above is a simple illustration of a typical Mauritius Foundation and its various parties.
A Critical Analysis of the Foundations Act 2012 16 1.3.1 The Founder The founder may be one or more natural persons or legal entities that establish a foundation by endowing it with its initial assets. Other persons may subsequently increase the assets of the foundation after its registration; however this does not automatically confer upon them powers of a founder. The founder may also be a beneficiary of the foundation, provided that he is not the sole beneficiary. 1.3.2 The Foundation Council The Foundation Council (‘Council’) is the supervisory body responsible for fulfilling the objects of the foundation and administering the foundation property. It is constituted according to the terms of the Charter or Articles. While there is no fixed number for Council members set by law, the Act clearly sets out that at least one member be ordinarily resident in Mauritius. The duties of the Council members towards the Foundation under the Act are clearly fiduciary. They have to ‘act honestly and in good faith with a view to promoting the best interest of the foundation’ and have to exercise the care, diligence and skill of a reasonably prudent person. 1.3.3 The Protector The Protector or Committee of Protectors act as a supervisory body appointed to oversee the work of the Foundation Council. Unlike most foundations in other jurisdictions, the Act does not impose any specific qualifications required to appoint a Protector. Depending on the provisions of the Charter, the Protector may be conferred extensive powers such as to render Council members accountable or power to appoint or remove council members.
A Critical Analysis of the Foundations Act 2012 17 1.3.4 The Beneficiaries Under section 2 of the Act, A beneficiary is a person “who is entitled to benefit under a foundation”. The latter may also be a ‘remaining beneficiary’ when he is entitled to any residual foundation property upon the Foundation’s winding up. The beneficiaries may be named at the time of the foundation's establishment or the Charter may provide the procedure for naming beneficiaries at a later date. There are no restrictions under the Act on the selection of beneficiaries; in fact a foundation may have one or more persons or classes of persons as beneficiaries, who may include the founder(s), protector(s) or members of the foundation council. 1.3.5 The Secretary The Secretary is a person appointed to act as a representative of the Foundation and must necessarily be appointed prior to registration and may either be a management company duly licensed by the Financial Services Commission (FSC) or any person resident in Mauritius, equally authorized by the latter authority.
A Critical Analysis of the Foundations Act 2012 18 1.4 Migration of foundations An existing foreign foundation may redomicile in Mauritius through an application made to the Registrar. Similarly, a Mauritian foundation may redomicile under the laws of another state. The Foundation needs to provide evidence of its solvency and satisfy conditions for redomiliation set out in the Charter, if any. 1.5 Termination of a Foundation A Mauritius Foundation may either be terminated by a winding up order of the Court or by voluntary winding up. A petition in Court may be presented by the foundation itself, a beneficiary, a creditor, a liquidator, the Registrar or the Financial Services Commission in specific circumstances, while voluntary winding up will occur at the expiry of the foundation duration, on the occurrence of a specified event, upon a unanimous resolution of the Council or due to insolvency. 1.6 Transparency of a Foundation Both the private and charitable foundations must, in respect of the management and appropriation of the foundation assets, respect the principles of proper book-keeping, maintain appropriate records of the financial position of the foundation and keep documentary evidence presenting a clear account of the course of business and movement of the foundation assets. These records have to be kept at the registered office of the foundation and made accessible to the authorized persons, including beneficiaries.
A Critical Analysis of the Foundations Act 2012 19 CHAPTER TWO: A COMPARATIVE ANALYSIS OF THE TRUST AND FOUNDATION CONCEPTS
A Critical Analysis of the Foundations Act 2012 20 2.1 Introduction This chapter analyses the concept of Trust and Foundation and draws a comparison between these two institutions. The trust has evolved from a common law background, originating from the medieval times in England at the time of the Crusades, in the 12th and 13th centuries. The Lord Chancellor would at that time do what was “just” and “equitable” for the Crusaders, practice which gave birth to the principle of Equity8 . The development of the trust is based on the number of court decisions as source of law. It gained wider recognition with the Hague Convention on Trusts9 . In contrast, the foundation has a civil law origin, but is becoming increasingly popular in common law jurisdictions where practitioners have found this alternative to the trust particularly appealing for business opportunities. However, the absence of judicial decisions pertaining to foundations as a source of law have forced practitioners to rely mostly on the written law and on the constitutional documents of foundations. In fact, common law practitioners tend to adapt their knowledge and experience with trusts to tackle the foundation. Thus, these two structures are intertwined and the choice of either a Foundation or a Trust will be based on the particular strengths and weaknesses of each structure. It will also depend on what institute the civil or common law client is most comfortable with, as well as his needs and what he wishes to achieve. In sum, the opportunities offered by these two structures are infinite. 8 Equity is a word with many meanings. Broadly, it means that which is fair and just, moral and ethical. It is synonymous with justice. 9 The Hague Convention on the Law Applicable to Trusts and on their Recognition.
A Critical Analysis of the Foundations Act 2012 21 2.2 Legal Structure and Ownership The trust is an equitable relationship or obligation10 . While the foundation falls under the legal definition of a corporation11 . The foundation can be termed as a ‘quasi- corporation’, since it has some of the usual attributes of corporations, but it lacks ‘an association or bodies of persons’ constituting a corporation. In fact, shareholders or subscribers comprise the ‘body of persons’ but shareholders, however do not exist in foundations. The hallmark of a trust is its duality of ownership or ‘double dominion’12 and a distinction is to be made between legal ownership and equitable ownership. The person enjoying the legal ownership is the trustee while the person enjoying the equitable ownership is a beneficiary. Conversely, the foundation is based on the civil law principle of ‘séparation des patrimoines’. The foundation is endowed part of an individual’s (the founder) ‘patrimoine’. In fact, every individual has an indivisible ‘patrimoine’ representing that person’s ‘economic value’. The Foundation will segregate part of the ‘patrimoine’ from the owner so that the dedicated assets are applied towards the purposes of the Foundation. The owner of the assets will be the Foundation itself, since it has a legal personality of its own. A first advantage of having legal personality is that the foundation does not face the same problem as trustees who have to prove, in addition, that the property owned by them or under their control, forms part of the trust property and not part of their personal property. Secondly, in relation to 10 "A Trust is an equitable obligation, binding a person (called a Trustee) to deal with property owned by him (called Trust property, being distinguished from his Private property) for the benefit of persons (called Beneficiaries or, in old cases, cestuis que Trust), of whom he may himself be one, and any one of whom may enforce the obligation." Underhill & Hayton (2003), “Law of Trusts and Trustees” 16th edn. Butterworth’s: 3. 11 “A corporation may be defined as a body of persons…or an office…which is recognized by the law as having a personality which is distinct from the separate personalities of the members of the body or the personality of the individual holder for the time being of the office in question.” Lord Mackay of Clashfern (1991) “Halsbury’s Laws of England on Corporations” 4th edn. Vol. 36(2). 12 Robert P. & J. Steven (1998) “The Law of Trusts and Equitable Obligations”, Butterworth’s, 2nd Ed: 94
A Critical Analysis of the Foundations Act 2012 22 administration, a change amongst members of the foundation council will not affect the foundation property. On the other hand, if the trustees change, there is the added formality of having to transfer the ownership from the outgoing trustee to the incoming trustee. In addition, the Foundation itself has no owner; which is why it is often termed as an ‘orphan’ structure. 2.3 Formation Trusts created between parties are formalized via a trust deed or a declaration of trust. In comparison, foundations are set up by a formal procedure of registration or incorporation. Also, both may be set up by a duly constituted will. The foundation acquires juridical personality when registration is completed. However, variations occur in this process in civil and common law systems. Blackstone made the distinction, stating that while civil law required only “a voluntary association”, in common law on the contrary, approval of the King was compulsory for a validly constituted corporation13 . For instance in Liechtenstein, the foundation becomes a juristic person upon the “unilateral declaration of the founder14 ” and without any government approval. While in common law, the prior approval of the Registrar (or other supervisory body) is required and will be evidenced by some form of official certificate or entry into a register. The foundation is therefore the product of a specific legislation and the entity acquires legal personality because the legislation creating them says so. 13 “Corporations, by the civil law, seem to have been created by the mere act, and voluntary association of their members; provided such convention was not contrary to law, for then it was illicitum collegium. It does not appear that the prince’s consent was necessary to be actually given to the foundation of them; but merely that the original founders of these voluntary and friendly societies (for they were little more than such) should not establish any meetings in opposition to the laws of the state. But with us in England, the King’s consent is absolutely necessary to the erection of any corporation, either implied or expressly given.” (Blackstone W. (1765) “Commentaries on the Laws of England, Volume 1: The Rights of Persons” Clarendone Press) 14 Article 552.1 PSG
A Critical Analysis of the Foundations Act 2012 23 There are strict legal requirements for the creation of trusts. A trust is validly set up when it conforms to the three certainties; certainty of intention, certainty of subject- matter and certainty of objects15 . Other formal requirements include; the trust has to be properly constituted i.e. the trust property must be put into the legal ownership of the trustees and the settlor has to relinquish the ownership of the assets and is not allowed to interfere in the operational management of the assets. These requirements have commonly been the reason for challenges in court on the validity of trusts. Foundations do not have such validity issues, being an incorporated entity. While the certainty of intention is not per se a condition for a valid foundation, the language and wording used is particularly relevant in case of a will creating a foundation. According to Williams on Wills16 , “intention …is not the intention in the mind of the testator at the time he made his will, but that declared and apparent in his will.” Furthermore, a founder unlike a settlor may without jeopardizing the validity of a foundation, reserve powers to exercise control over the foundation’s property and management. The law or the provisions of the Charter or Regulations will determine the extent of such powers. For instance in Bahamas, the reservation of founders’ powers may be “without limitation17 .” In Malta, the founder may exercise supervision over the administration of the foundation and may be an administrator himself, unless he is a sole beneficiary18 . Upon the founder’s death such powers will be vested in the Protector, as in Jersey19 . However, the law in Antigua & Barbuda20 remains the exception to this rule, where a founder is not allowed to retain, possess or acquire powers to direct a foundation council or retain any control over the foundation property. 15 As stated in Knight v. Knight (1849) Beav. 148 at 173. 16 Sherrin C.H. and R.F.D. Barlow (2002) “Williams on Wills, Volume 1, Law of Wills”, 8th edn. Butterworth’s. 17 Section 6(2)(a)Foundations Act 2004 18 Section 36 (1)(2)(3)Act No XIII of 2007 19 Article 18(3)Foundations (Jersey) Law 2009 20 Section 28(4)International Foundation Act 2007
A Critical Analysis of the Foundations Act 2012 24 When uncertainty around the settlor’s intention arises, the trust may be declared as a ‘sham’. It may be on the face of the trust instrument, where the settlor intends to remain full beneficial owner of the trust fund and not beneficiaries, or because of a common understanding21 between the settlor and trustee, where the settlor retains excessive powers over the management of the trust fund. The term ‘sham’ was coined by Lord Diplock in Snook v London and West Riding Investments Ltd  1 All E.R 518 at 528. He said a sham: “means acts done or documents executed by the parties to the "sham" which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create […]” According to John Goldsworth22 , it is proposed that the concept of ‘sham’ may apply to foundations. Generally, the principle of ‘separation des patrimoines’ must be preserved between the founder and the foundation. The principle of good faith that dominates civil law also requires that position and transaction cannot be abused23 . A ‘sham’ foundation will arise when the founder has reserved complete or almost complete control over it, such that it is not a real separate independent legal person. The founder has in fact acted in bad faith by incorporating the foundation to cloak his real intentions. The Court may decide to ‘pierce the corporate veil’ just as in a company, in favour of the claimants so that they can identify the actual persons standing behind the legal entity. As for certainty of subject-matter, both trust and foundation cannot be established without initial capital. While there is no restriction on the value of trust property, certain jurisdictions impose a minimum endowment amount. For example, in Malta, in the case of a private foundation a minimum of 1,164.69 Euro in money or property must be transferred to the foundation in order for it to be validly created. 21 Shalon v Russo  W.T.L.R 1165 22 Goldsworth J. (2011) “Private Foundations: Law & Practice”, Mulberry House Press:151 23 Niegel J. (2009) “Brave New World of Foundations” Oxford Journals: Trusts and Trustees (2009) 15 (5) : 260-267.
A Critical Analysis of the Foundations Act 2012 25 2.4 Beneficiaries Under a trust, beneficiaries have extensive rights since they have an equitable proprietary interest resulting from their beneficial ownership of the trust property. The proprietary interest occurs as soon as the settlor has transferred the legal title to the trust property to a trustee. Conversely, beneficiary rights under the foundation are those rights stated in the Charter and do not occur from the ownership of any proprietary interest. In Jersey, it is clearly provided that "a beneficiary has no interest in the foundation assets24 ". While in Mauritius, the assets “shall become the property of a beneficiary only after any distribution25 ”. Beneficiaries of trusts have a prima facie proprietary right to information; in sum “The beneficiary is entitled to see all trust documents because they are trust documents and because he is a beneficiary. They are in this sense his own.26 " However, in the recent case of Schmidt v Rosewood Trust Ltd27 , the Privy Council held that the Court has an inherent discretion as to questions of disclosure to beneficiaries thus shaking off the focus of a proprietary basis to a beneficiary's claim to disclosure. As for foundations, the importance of beneficiary rights to information is increasingly recognized by offshore jurisdictions. The issue has been summarized by a Liechtenstein lawyer: “Therefore, the beneficiary’s access to some information about the foundation is vital for the effective control of the foundation board (Foundation council).28 " To cater for this particular lacuna in Liechtenstein, the law was amended in 2008 to add beneficiary rights to information29 and they are now entitled to inspect the foundation deed, the 24 Sec 25(1)(a)Foundation (Jersey) Law 2009 25 Sec 11(3)Foundations Act (Mauritius) 26 O'Rourke v Darbishire  AC 581, 626-627, HL, Per Lord Wrenbury 27 Schmidt v Rosewood Trust Ltd  3 ALL ER 76 28 Summer, Dr. M. (2006) "The information Rights of beneficiary of a Liechtenstein Foundation, An overview of recent court ruling", Oxford Journals: Trusts and Trustees (2006) 12 (5): 37-40. 29 Art. 552, §29(4), Law of 26th June 2008 on the Amendment of the Persons Companies Act
A Critical Analysis of the Foundations Act 2012 26 supplementary foundation deed and the possible regulations30 and are further entitled to receive information, reports and accounts. Beneficiaries under foundations do not have the power to petition the Court to vary the terms of the Charter and even less to terminate the foundation, unlike the trust. Under the trust, beneficiaries' current interests take priority over the original intention of the settlor. This rule emerges from Saunders v. Vautier31 , which concerned the premature termination of the trust by the beneficiary. More formally, the rule is "If there is only one beneficiary, or if there are several (whether entitled concurrently or successively) and they are all of one mind, and he or they are not under any disability, the specific performance of the trust may be arrested and the trust modified or extinguished by him or them without reference to the wishes of the settler or the trustees.32 " More recently, the rule was upheld in CIPC (Ocean View) Limited Partnership v. Churchill International Property Corporation33 , where the Supreme Court of British Columbia held that the beneficiary of a trust could depart from the settlor's original intentions provided that they are of full legal capacity and are together entitled to all the rights of beneficial ownership in the trust property. Furthermore, the law relating to enforcement rights of beneficiaries is seen to vary in different jurisdictions. In Nevis, an absolute beneficiary (who has an absolute vested interest) can only require the Foundation Board (Council) to meet. While in Mauritius34 and Jersey35 , they can institute legal proceedings to restrain the performance of an act which would be beyond the capacity of the foundation. Panama law offers the strongest 30 Ibid. Section 9(1) 31 Saunders v. Vautier  4 Beav. 115 32 Underhill and Hayton (Supra), at p. 628 33 CIPC (Ocean View)Limited Partnership v. Churchill International Property Corporation et al, (2006) BCSC 1127,(2006) 9 ITELR 157 34 Sec 31 (4) Foundations Act 2012 35 Article 43 Foundations ( Jersey) Act
A Critical Analysis of the Foundations Act 2012 27 provisions where, beneficiaries may apply to court for removal of a member of the Foundation Council or contest the decisions of the Foundation Council. Yet, certain jurisdictions tend to restrict such rights and do not allow beneficiaries a right to challenge the foundation by provisions in the Charter termed as 'in terrorem clauses36 '. For instance, a beneficiary under a foundation in the Bahamas, could forfeit his interest without any recourse to claiming that he incurred an in terrorem clause37 . 2.5 Duration The position of the two competing structures on their duration is a major difference. The Trust is subject to the restrictive common law rules against perpetuity, which have been major cause of trust failure. While the Foundation depends primarily on the chosen governing law, but may be subject to perpetuity rules to some extent. The rules against perpetuity implicate that any future interest in a property held by a trust, be it real or personal, must vest in interest to the beneficiary within that perpetuity period. Any breach of the perpetuity rule will spontaneously make the trust unlawful. In contrast, the foundation as a legal entity is the owner of the assets endowed upon it by the founder and no proprietary interest of beneficiaries apply. Hence, the assets are not considered as future assets of any beneficiary (especially if it is a foundation for a purpose). A foundation simply exists to hold and distribute property to individuals or to be applied for purposes, or both. To be noted however that perpetuity rules may still apply to the particular process of vesting of assets in a beneficiary within the perpetuity period. Additionally, it is trite law that a trust must necessarily end after it has distributed its entire assets to the beneficiaries; trusts cannot hold ‘nothing’ in trust. The position 36 A Latin word meaning “in fear". Generally, it is a provision which threatens that if any one challenges the legality of a will, then that person will be cut off of the will. The clause is intended to discourage beneficiaries from challenging the deed. 37 Section 66 Foundations Act 2004, Bahamas.
A Critical Analysis of the Foundations Act 2012 28 differs for foundations, since a foundation as a separate legal entity, may generally survive even if the entire assets are distributed. The foundation may continue without assets. The duration of a foundation will also depend upon its chosen governing law and the latter’s perpetuity law. This principle may be supported by analogy by the provisions of the Hague Convention on Trusts relating to the duration of a trust. Article 8 of the Convention provides that the law which governs the trust shall govern the validity of the trust, its construction its effect and the administration of the trust and in particular Article 8 (F) on the restriction on the duration and the power of trustees to accumulate the income of the trust. Hence, the duration may vary in different jurisdictions. For instance, in Panama38 and Anguilla39 , the law states that foundations shall be irrevocable, while Antigua & Barbuda Law provides that a foundation can be established for any period or for an indefinite period. On the other hand, Malta Law imposes a rather broad limit of 100 years in specific circumstances40 . 2.6 Confidentiality A duty of confidentiality is imposed on both the trustees and foundation council members of the trust and foundation respectively41 . In addition, under a trust, the identity of beneficiaries may be kept private. With the dual ownership of trust property, it is the trustee (legal owner) and not the beneficiaries who are named as registered owner of trust assets. The beneficiaries will be listed in the trust instrument. However, the trust instrument is not a public document and is not required to be registered in any 38 Article 12 Law No.25 of 12th June on Private Foundations 1995. 39 Section 45 Anguilla Foundations Act 2008. 40 Section 29(7) Act No. XIII Civil Code. 41 Section 33 of the Trusts Act 2001 clearly defines under which circumstances and to whom information relating to the trust affairs may be disclosed. Section 46 of the Foundations Act 2012 preserves confidentiality in respect of information relating to the foundation.
A Critical Analysis of the Foundations Act 2012 29 official or public register maintained by the authorities. In addition, the trustee may execute the trust instrument as a declaration of trust. As a result, the name of the settlor will not appear in the document. Similarly under a Foundation, the beneficiaries are not named in the Charter registered with the Registrar (or other supervisory body). The Charter and Regulations are confidential documents which can be restricted to the Foundation Council and Protectors and access may only be provided to them in exceptional circumstance such a court order. 2.7 Conclusion The choice of either of the two structures; trust or foundation, will clearly be based on the needs of the parties. If a founder seeks to keep extensive rights over its investments and participate in the operation of the business activities or restrict wholly or partially beneficiary rights to information, then the foundation is a better choice. The fact that the foundation is a separate legal entity is in itself an attractive point since it can conduct business in its own name without involving any third party, while the identity of the founder and beneficiaries are kept confidential. There is also lesser risk of validity issue with a foundation being an incorporated entity. In contrast, from a beneficiary’s point of view the trust is the preferred choice, where the interest of beneficiaries is in essence the main purpose of the trust. While such rights are more restricted under the foundation. However, it is seen that there is gradual change over time on legislation to give beneficiaries more rights and powers. From the above, it may also be deduced that foundations may be prone to abuses from Council members when beneficiaries do not have any equivalent to an equitable interest nor do they have the ability to control the foundation similar to shareholders having a right to control a company. As long as the founder is alive he is able to keep certain rights upon the activities of the foundation and ensure the interests of beneficiary are protected. After his death, the role of the Protector will become particularly important in ensuring the objects and purpose of the foundation are executed properly and without any abuse.
A Critical Analysis of the Foundations Act 2012 30 CHAPTER THREE: A CRITICAL ANALYSIS OF FOUNDATION IN MAURITIUS
A Critical Analysis of the Foundations Act 2012 31 3.1 Introduction The main purpose of enacting the Foundations Act 2012 was to cater for a lacuna in our legislative framework in terms of a foundation structure. In this chapter, the particular characteristics and strengths of the Mauritian Foundation will be analyzed and contrasted with selected jurisdictions which are renowned for their foundation legislations. All these foundation structures have at their core the same offering and the same basic structure as a Mauritius Foundation, i.e., a separate legal structure holding assets for specific purposes. Yet, certain jurisdictions have come up over time with a customized and improved version of the original Liechtenstein Foundation, hence setting them apart as an International Financial Centre of choice for conducting business and in particular, for wealth management and asset protection. The use of different terminologies also demonstrates how each jurisdiction is individual in its approach. The four main jurisdictions addressed are: Liechtenstein- Officially the Principality of Liechtenstein, Liechtenstein is a civil law jurisdiction chosen because of its long history and experience on foundation law. Briefly, it is an alpine country in Central Europe. Since 1926, foundations have contributed significantly to the development of its wealth. The PGR (Personen-und-Gesellschaftsrecht, Persons and Companies Act) established the first law on private foundations, being amended recently by the Law of 26th June 2008 on Amendment of the PGR (Arts 552§ 1-52 PGR). The new law provides for the discrepancies that were prevalent in the previous foundations law and now offers foundations of two kinds: private-benefit foundations and public-benefit foundations. Malta- Malta is an island situated south of Europe and was the second choice of a civil law jurisdiction. What set Malta apart is that formerly the foundation was absent in the legislative framework despite being recognized in Maltese Court judgments. The recent enactment of a new Second Schedule to the Maltese Civil
A Critical Analysis of the Foundations Act 2012 32 Code (Chapter 16 of the Laws of Malta) on foundations brought about innovative changes which makes it an interesting structure for study. Nevis- The choice for a common law jurisdiction fell on Nevis because the Multiform Foundation derived from the Multiform Foundation Ordinance 2004(MFO) is a unique an innovative structure, worthy of a profound study. Jersey- Eventually, Jersey was chosen for its similarities to the Mauritius legal system, with its hybrid legal system with influences from common law and civil law and especially in terms of their analogous Foundation legislations. 3.2 Protection from foreign interference All foundation legislations provide a special protection to the property endowed upon them. However, it is reasonable to say that none of the legal systems in the freshly emerged International Financial Centers are as good as the European jurisdictions, yet small jurisdictions such as Mauritius have come a long way in elaborating an adequate legislative framework for the conduct of Global Business services. The Act provides adequate provisions to protect the non-citizen founder’s property transferred to the foundation from forced heir ship rules42 , matrimonial claims or claims from creditors. As stated under Section 4(2) of the Act, a founder who is a non-citizen of Mauritius shall be considered to have full capacity to endow property to the foundation, where at the time of the transfer, he was of full age and sound mind, under the laws of Mauritius, the laws of his domicile or nationality, or the proper law of the transfer. Further, Section 4(3) provides that endowments made by non-citizens “shall not be set aside, avoided or otherwise declared invalid or ineffective” because of any foreign law, hence protecting the foundation assets from 'attacks' by foreign courts. Therefore, Mauritian law relating 42 Forced heir ship rules may be described as a legal rule which restricts the right of a person to dispose of his/her property as they wish upon death so as to preserve that property for distribution to specified heirs.
A Critical Analysis of the Foundations Act 2012 33 to the rights of the heritiers and surviving spouses shall not apply, save where the founder or a person endowing the foundation is domiciled in Mauritius. On the matter, Jersey law provides an elaborate provision on protection of foundations from foreign law43 and further provides an exhaustive list of exceptional circumstances where foreign law will in effect be applicable44 . The exceptions include matters such as the recognition of the foreign law in determining whether the founder is or was the owner of the endowed property or the holder of such power; where there is an express provision that Jersey Law shall not apply in the Charter; and where a testamentary disposition is invalid under the testator’s last domicile. The landmark case of "Mubarak v. Mubarak45 " [The matter of IMK Family Trust] concerns a Jersey Trust but is relevant to illustrate Jersey’s strong laws against foreign interference. It concerned the enforcement of an English court order varying a Jersey trust. The Royal Court of Jersey gave a robust judgment, refusing to enforce the order. Such a decision is unprecedented since the Court usually chooses to adopt the international law principle of comity46 and enforce foreign court orders.47 Along the same line, Nevis equally imposes strong provisions against enforcement of foreign judgments and thus deters any such actions48 . Furthermore, the concept of forced heir ship is not recognized in Nevis and any such action will not be entertained by the Court. There are also strict provisions in the MFO regarding creditor claims against a registered entity or anyone with an interest in a foundation. For instance, the plaintiff-creditor must post a bond in the amount of US$50,000 with the Minister of Finance, prior to initiating court action49 . This amount is used to guarantee the payment 43 Article 32(1)(2) The Foundations Act (Jersey). 44 Ibid Article 32(3). 45 Mubarak v. Mubarak  JRC 136. 46 A principle of international law, that one state, to the greatest extent possible, recognize the legislative, executive or judicial acts of another. 47 Shant M.S. (2009) “Foreign Court's Invasion of Jersey Trusts Repelled”, Appleby Publications (January):1-2 48 Section 46(1) MFO. 49 Ibid Section 83(1).
A Critical Analysis of the Foundations Act 2012 34 of any costs in the event of an unsuccessful action. There is also an attractive statute of limitations benefiting debtors and aimed at enhancing the preservation features of wealth planning of the foundation, by imposing time limits on actions brought by creditors against fraudulent subscriptions50 . Apart from protection provided under the Act, the question arises whether a Mauritian Court may use foreign cases as Mubarak v. Mubarak as judicial precedent. In the light of Article 5 of the Code Napoléon to the effect that “il est défendu aux juges de prononcer par voie de disposition générale et réglementaire sur les causes qui leur sont soumises”, it could be inferred that judges are prohibited from adhering to a system of judicial precedent and hence may not use case law as a source of law. Yet, the Supreme Court asserted the contrary in DPP v. Mootoocarpen51 where it was held that: “It is quite clear that if a treatise were to be written on Mauritian Law, the sources of our law would not be limited to statute but would have to include case-law.” As regard to foreign judicial precedents, it was resolved by the Supreme Court in Bourdin Fils & Co. v. Letellier that “in this, as in every other case, where questions are raised on the Civil Code, we are in the habit of resorting to the decisions of the Courts which gave it birth52 ”. Hence, Mauritian courts may rely on foreign case-law to defend foundations or other financial structures governed by the laws of Mauritius, but only as persuasive authority. 3.3 Confidentiality Confidentiality is one of the legitimate expectations of foreign investors when choosing the foundation structure. In fact, the Mauritius foundation provides for a balance between confidentiality and transparency. In order to comply with international standards for transparency of the OECD, the disclosure requirement is the approach 50 Ibid. Section 108 (3) (a) (b) and (4) 51 DPP v. Mootoocarpen (1988) MR 195 at 196 52 Bourdin Fils & Co. v. Letellier & ors. (1861) MR 51
A Critical Analysis of the Foundations Act 2012 35 used by the FSC to maintain transparency about the activities of a foundation and also keep out fraud or malpractices by members of the foundation. However, the foundation is required to produce only an extract of the Charter upon registration and therefore the Charter itself remains confidential, allowing beneficiaries and subsequent donors to keep their identity private. Hence, the disclosure requirements are not absolute. The records maintained by the Registrar are not available for public inspection, but are restricted to an exhaustive list of people, including the founder(s), supervisory persons, the Registrar, beneficiaries and persons authorized by the FSC or the Secretary. Furthermore, except when provided by law, a court order, a unanimous approval of the foundation Council or the Charter, the council members are held by a duty of confidentiality on information about the foundation. In Malta and Nevis, the foundation legislations go further by imposing stricter provisions to maintain confidentiality during any judicial proceedings held against a foundation domiciled in their jurisdiction. Any proceedings, other than criminal proceedings have to be held ‘in camera’, i.e. in the judge’s chambers and no details of the action can be published without a court order. 3.4 Flexibility in the operation of activities Foundation structures in general are imposed restrictions on the conduct of their business activities. Such activities have to be “ancillary or incidental” to their main objects. In such circumstances, an underlying special purpose vehicle (SPV) held by the foundation will carry out the business activities. In respect to charitable foundations, the country of origin of the client will commonly provide generous tax benefits for donating to charity. However, they also tend to impose the most restrictive rules on investing
A Critical Analysis of the Foundations Act 2012 36 assets, and operating a charity53 , which has handicapped their popularity amongst donors. Fines, penalties, taxes, suspension of tax receipting privileges and possible revocation of charitable status are sanctions that may apply when these rules are not followed. In fact, Maltese law does not allow foundations to be established to trade or carry on commercial activities, even where the proceeds of such activities are destined for a social purpose. In Liechtenstein, commercial activities are permissible; however such public-benefit foundations and private-benefit foundations need to be entered in the Public Registry to acquire the right of legal personality and need to follow stricter disclosure requirements, as compared to ‘non-commercial’ foundations. A Mauritius foundation can be distinguished at the outset as it allows the conduct of commercial and certain civil transactions. Mauritius also allows more flexibility to charitable foundations. There is no compulsory yearly pay out (disbursement) requirements54 . Investors are attracted by the greater flexibility of such an offshore foundation since they can pursue longer term objectives such as accumulation of investments. From this, they are able to build up a reasonable reserve for the sustainable pursuit of the public benefit purposes of the foundation. 3.5 Redomiciliation of foundations Foundations in Mauritius may either be established through incorporation, or a foreign foundation may be redomiciled in Mauritius and become a Mauritius foundation, benefiting from all the advantages entailed. There is a legal continuance of the same 53 In Canada, a Private Foundation cannot engage in any type of business activity nor can it acquire control of a corporation, (Section 149.1(12) Income Tax Act RSC). Violation of these rules will end in a 5% tax on business revenue that will rise to 100% for repeated offences and a potential suspension of tax privileges. 54 For instance, the Private Foundation must meet a disbursement quota, which is a specifically assessed sum which has to be spent on charitable activities, in order to prevent the accumulation of excess funds, Section 149.1(1) Income Tax Act RSC.
A Critical Analysis of the Foundations Act 2012 37 foundation without any break in its legal existence from one jurisdiction to another. The procedure is a relatively simple process whereby the foundation will be registered at the Registrar and should give adequate proof of its solvency. Other jurisdictions offer more possibilities to the investor wishing to transfer his/her property. The Nevis Multiform foundation, for instance, provides similar provisions on migration of a foundation. But added to that, other Nevis structures such as companies, trust or partnerships can be changed during their lifetime to become a Multiform Foundation. In effect, the Multiform Foundation can actually be self-designed by its founder, to become a trust, a company, a partnership or an ordinary foundation. It is also possible for two or more entities within Nevis to be merged into a Nevis Multiform Foundation. Such features serve to make the Nevis Mult
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