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Why choose a foundation - administration office?

Concept

You contribute the shares of your company to a foundation in the form of a trust office (hereinafter: PSAK), which will issue certificates in exchange for this contribution. Through this technique of 'certification', a split is made between the economic ownership (property rights) on the one hand and the legal ownership (membership rights) of the contributed shares on the other. In this context, the PSAK acts as a so-called ‘certification vehicle’.

The certificates (property rights) belong to the certificate holders, being the former owners of the contributed shares, while control of the underlying company (membership rights) remains in the hands of the PSAK.

 

Purpose

In terms of asset structuring and planning, a PSAK is often used when transferring a (family) company to the next generation. Indeed, by first certifying the shares and then donating the certificates to the children, you ensure that the children already acquire the assets of the underlying (family) company while the actual control of the company remains in the hands of (the board) of the PSAK. In this way, you ensure that the company does not have to be sold because of the sky-high inheritance tax and guide the future of the company in the right direction.

This way, you can accommodate the desire to let your children gradually grow into the entrepreneurial world and the responsibilities of running a business, given their often young age. 

However, the creation of a PSAK is not always accompanied by a transfer of the company to the next generation. Even if you want to make arrangements in case of your unexpected death or to concentrate control of the company in case of a dispersed shareholding, this structure may be appropriate. 

 

Founding

Form

Like any other foundation, a PSAK must be established by authentic deed (in life) or by authentic will (after death). The founders can be either natural or legal persons, which means that the underlying company can also participate in the establishment of a PSAK.

 

Assets

The assets of the PSAK are constituted by the contribution of securities of the underlying company. This transfer of securities must be made in accordance with the legal and statutory rules on the transfer of shares. Should you intend to transfer your company's shares into a PSAK, it is highly recommended to have your company's articles of association analysed for special transfer restrictions.  

As mentioned above, in exchange for the contribution of shares, the PSAK will issue depositary receipts. The issuance of the certificates can be modulated to a profound extent. For instance, different categories of certificates can be issued to which different rights can also be attached.

 

Legal personality

A foundation possesses legal personality and is therefore to be considered a separate legal entity that carries its own rights and obligations. As a legal entity, it has its own, separate, assets. It is for these reasons that a PSAK is often considered more suitable as a certification vehicle than a partnership.

 

Publicity

An extract of the incorporation deed, the appointment and dismissal of the (daily) directors and any amendments to the articles of association must be published in the Annexes to the Belgian Official Gazette.

 

Formalities

In addition to the obligation to register in the Crossroads Bank for Enterprises, there should also be a registration of beneficial owners in the UBO register.

 

Operation

Rules

Within the PSAK, the relations between the certificate holders (beneficial owners) and the PSAK (legal owner) are laid down in the PSAK's terms of administration. These may include agreements on the exercise of voting rights within the underlying company, dividend policy, transfer of the certificated securities and the certificates themselves, approval of financial statements, and so on.

 

Bodies

In the absence of shareholders, partners or members, a PSAK is seen as the certification vehicle of choice. Indeed, control over the underlying securities is centralised with the only mandatory body within a PSAK: the governing body.

Whereas the governing body of a foundation used to have to consist of at least three directors, since the entry into force of the Companies and Associations Code, one director is sufficient. That director may be a natural person or a legal entity. The articles of association may prescribe a higher minimum or maximum number of directors. The rules regarding the appointment and dismissal of directors can be freely determined in the articles of association.

 

Power of the board

In principle, within the foundation, the governing body has full powers, except for dissolution and change of purpose.  Consequently, the directors of the PSAK will control the underlying company(ies).

 

Other bodies

Although the governing body is the only mandatory body within the foundation, the law does not prohibit the creation of an additional (ad hoc) body in the articles of association. Such an ad hoc body may be designated, inter alia, in the appointment and removal of directors, determination of directors' remuneration, consent to the transfer of certified securities, and so on. Consequently, the 'plenitude of power' under the governing body may be limited through the articles of association.

Note that the decisions of such ad hoc body cannot be imposed on third parties. They may always rely on the 'fullness of power' under the governing body.

 

Accounting obligations 

Accounting

A private foundation that goes through life as a trust office will usually be allowed to keep simplified accounts and prepare its annual accounts according to a simplified schedule. The annual accounts do not have to be filed with the National Bank of Belgium, but only in the foundation file kept at the registry of the competent corporate court.

 

Taxation

Corporate income tax vs. legal entities tax

Depending on the activities of the foundation, either corporate income tax or legal entities tax will apply. However, if the foundation acts purely as an administrative office, it will always be subject to legal entities tax.

 

Wealth tax

Foundations acting as administrative offices are not subject to wealth tax.

 

Fiscal transparency

In some cases, a trust foundation will be considered tax transparent. This means that income earned by the foundation from the shares of the underlying company will not be taxed on behalf of the foundation but will be considered directly as income of the certificate holders.

As with the legal entities tax, a number of (legal-technical) conditions need to be met for tax transparency. These include the type of securities being certified and the PSAK's commitments regarding the forwarding of proceeds to certificate holders. Moreover, to enjoy fiscal transparency, special attention should also be paid to the drafting of the articles of association.

 

Tax incentive

As we briefly mentioned above, there is a gift tax exemption for the donation of certificates of a PSAK in each of the three Belgian regions under certain conditions. To benefit from this exemption, it is required, among other things, that the certificates relate to shares of a family company and that the PSAK - at least in Flanders and Brussels - has the obligation to pay dividends and other capital gains to the certificate holders within one month.

Under the same conditions as for the gift tax exemption, PSAK certificates can also be inherited at a reduced inheritance tax rate.

 

End of the PSAK

Dissolution

A foundation can only be dissolved by a decision of the competent corporate court under a number of cases listed exhaustively in the law. Thus, dissolution can be pronounced by the court if the purpose or object of the foundation has been realised, if the foundation is no longer able to realise its purpose or object, if the duration of the foundation has expired, and so on.

Consequently, the fact that the certification has come to an end (e.g. because all certificates have been exchanged for the underlying securities (cancellation)) does not automatically lead to the dissolution of the foundation. A court decision will always be required.