Niklas Schmidt e Eva Stadler | Wolf Theiss
1. The creation of private foundations in Austria
Since the Austrian Act on Private Foundations has come into force in 1993 (over 25 years ago), private foundations (Privatstiftungen) may be established in Austria. Originally, the intent of the legislator was to offer an Austrian wealth management vehicle and to thereby prevent capital from being moved to foreign structures, notably to foundations established in nearby Liechtenstein.
Currently there exist over 3,000 private foundations in Austria, with an estimated total wealth of approx. EUR 70 billion (64% of which is held through companies and 24% through real estate).
80 of Austria's 100 largest companies are being controlled by private foundations, with a total of around 400,000 jobs indirectly depending on private foundations. Most private foundations were founded in the year 2000 (approx. 800); since then the number of private foundations being established has decreased.
Most wealthy Austrian families have set up private foundations. The list of the largest private foundations in Austria is almost identical to the list of the richest Austrians.
2. What characterizes a private foundation?
The Austrian private foundation:
(i) is a legal entity without owners, members or shareholders (meaning that there is nobody holding shares in a private foundation);
(ii) is established through a declaration of intent by the founder under private law (rather than under public law);
(iii) is endowed with assets by the founder (either at establishment or at a later point in time);
(iv) is to serve a legally valid purpose determined by the founder;
(v) is not allowed to carry out a commercial activity exceeding a merely ancillary activity nor to be a general partner of a registered partnership;
(vi) is represented in its dealings through a board of directors; and
(vii) is registered with the commercial register as a result of which it comes into legal existence.
3. What are your main goals?
Austrian private foundations can be used for many purposes, including the following:
(i) for holding wealth and supporting the members of a family;
(ii) for estate planning (e.g., in order to prevent the fragmentation of shares in an incorporated
family business due to successive cases of inheritance);
(iii) for asset protection (e.g., in order to keep assets out of reach of creditors or spouses in the event of divorce);
(iv) for the avoidance of inheritance tax (but this is no longer relevant in Austria, since such tax was abolished in 2008);
(v) for charitable purposes (e.g., in order to operate a museum).
4. How is the foundation deed carried out?
A private foundation can be set up by one or more founders, who can be individuals or legal entities. For this, the founders have to sign a deed of foundation in the form of a notarial deed. This has to contain:
(i) the assets to be endowed to the private foundation (at least EUR 70,000);
(ii) the purpose of the private foundation;
(iii) the body which determines the beneficiaries (e.g., the board of directors);
(iv) the name of the private foundation (which must contain the wording "Privatstiftung");
(v) the legal seat of the private foundation (which must be in Austria);
(vi) the names, postal addresses and dates of birth (in case of individuals) or registration numbers (in case of legal entities) of the founders; and
(vii) the term of the private foundation (which may be limited or unlimited).
Certain rights of the founder have to be contained in the deed of foundation in order to be valid, such as the right to amend the deed of foundation, the right to revoke the private foundation as well as the admissibility of setting up a supplementary deed of foundation.
5. The functioning of the complementary foundation deed
In practice, the founder of a private foundation will always reserve the right to set up a supplementary deed of foundation. Since the latter does not need to be disclosed to the commercial register, details of a more private nature are usually regulated therein. Typically, it will contain:
(i) detailed provisions regarding the determination of the beneficiaries and the distributions to them;
(ii) further endowments to be made by the founder to the private foundation exceeding the minimum endowment of EUR 70,000; and
(iii) the fees to be paid to the members of the various bodies of the private foundation.
The supplementary deed also has to be set up in the form of a notarial deed and may be signed by the holder of a power of attorney or by a nominee acting for the founder.
6. The allocation of assets
As mentioned above, assets having a value of at least EUR 70,000 must be endowed by the founder to the private foundation. In case there are several founders, it is not necessary that each founder contributes the same amount. Often minors contribute a nominal amount (e.g., EUR 1,000) when a private foundation is set up, in order for them to acquire the status as a founder, which enables them to exercise the rights associated therewith.
In practice, it does not make sense to set up a private foundation with assets of less than EUR 5 million. Assets endowed may consist in cash or in kind. In the latter case, an audit will be necessary to determine the value. After the establishment of a private foundation, subsequent endowments by the founder are still possible. It is also possible for non-founders to make endowments; however, this does not result in these persons thus becoming founders.
Once the deed of foundation and the supplementary deed of foundation, if any, have been signed, the first board of directors must apply for registration of the private foundation in the commercial register.
Foundations serve similar purposes in civil law countries as trusts in common law countries. Since 1993, Austria has offered its own form of foundation, the private foundation, which has seen much success in the past, both for Austrian and non-Austrian clients.
Niklas Schmidt - Partner (email@example.com)
Eva Stadler - Counsel (firstname.lastname@example.org)
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