Important changes in foundation law as of July 2023

From July 1, 2023, the Act on the Unification of Foundation Law will come into force, bringing together, supplementing and clarifying many previously unclear, contradictory or incomplete points in foundation law. In addition to new, uniform federal regulations, the reform also includes the introduction of a central foundation register. The changes are intended to provide greater legal certainty in matters of liability, conversion and merging of foundations.

Read here about the upcoming changes.

What are the main changes brought about by the reform of foundation law?

The new regulations apply both to charitable foundations within the meaning of the German Fiscal Code and to self-interested (family) foundations. The amendments to the law are very far-reaching and are intended to facilitate self-administration for foundations and ensure greater flexibility. At the same time, the aim is to create regulations that are as uniform as possible throughout Germany. This also includes the introduction of a uniform national foundation register with publicity effect from January 1, 2026 – similar to the commercial register.

  • In future, for example, it will be legally binding to stipulate that the will of the founder is of decisive importance in the context of administration.
  • Furthermore, the law defines for the first time the different asset components of the foundation’s assets as basic assets, which are generally intended to be permanently maintained, and other assets, which are primarily intended to promote the foundation’s purpose.
  • In addition, there is now also a clear regulation on the liability of board members (so-called business judgment rule) in the law.
  • In addition, subsequent amendments to the articles of association will be easier to make in the future.

What impact does the new foundation law have on the establishment of foundations?

With the reform of foundation law, the legislator has settled a long dispute about the need for form in the foundation transaction: As a matter of principle, the establishment document (so-called foundation transaction) is now only subject to the written form, i.e. a notarial appointment is only necessary in exceptional cases. In addition, however, future founders should keep the new legal situation in mind when setting up a foundation and align their articles of association with the new legal situation.

What do foundation managers have to consider in the future?

For the management of the foundation’s assets, a clear distinction is to be made in future between the so-called basic assets, which are in principle to be maintained undiminished, and the other assets. Depending on the structure, only the income generated from the basic assets may be used for the foundation’s purpose. The other assets may be used directly to promote the foundation’s purposes.

It is advisable for those responsible to follow this requirement of the legislator and to define individually which asset components are to be allocated to which area. This can be done, for example, by amending the articles of association or by adopting so-called investment guidelines for the management of the foundation’s assets.

What are the changes in the tax treatment of foundations?

From a tax perspective, the requirements of the German Fiscal Code must continue to be met for charitable foundations. There are no significant changes here as a result of the reform of foundation law. However, if the reform of foundation law requires a change to the articles of association, the new version of the articles of association must meet the strict requirements of charitable law. Particular caution must be exercised here, especially in the case of new regulations on the management of foundation assets, and the new regulations must be checked for their compatibility with tax law.

What do already existing foundations have to consider?

Active foundations should review their existing foundation statutes to ensure that they are compatible with the new legal regulations and take the opportunity to bring the foundation statutes up to date. One incentive may be that from July 01, 2023, the liability of the foundation board or foundation council can be limited by a provision in the articles of association.

What is the role of foundation regulators?

In order for a foundation to be “brought into being”, it must be recognized by the relevant foundation authority. As part of the so-called recognition procedure, the authority then checks whether the foundation statutes comply with the new legal regulations from July 1, 2023. However, even if the articles of association are amended to comply with the new legal situation, it is advisable, as in the past, to coordinate this closely with the responsible foundation supervisory authority. If a foundation gets into difficulties, the foundation authority can in future take emergency measures to maintain or restructure the foundation.

Our recommendation

By reviewing and, if necessary, adapting the articles of association in good time, existing foundations can ensure that they will continue to fulfill their foundation purpose in the future and that their rights and obligations are in line with legal requirements.

We will be happy to assist you in reviewing and adapting your foundation’s articles of association.

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Leon Feyler

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