Foundation

What it means

A foundation is a pool of assets with its own legal personality, dedicated to a public-benefit purpose fixed in advance. It has no members and no shares: the founder who endows it does not thereby own it.

It differs from a civic association in that assets rather than members sit at its core, and from a non-profit organisation providing public-benefit services in that it usually passes funds on instead of running a service itself.

At the heart of a foundation is its endowment, which stays in it permanently and may not be spent, much as the registered capital of a company is not money for day-to-day costs. That is what separates a foundation from a non-investment fund, which collects money precisely in order to spend it on its purpose and need not keep any permanent asset base.

How it works in practice

A foundation comes into being on entry in the register kept by the Ministry of the Interior; the filing carries the foundation deed, the appointment of an administrator and proof that the endowment was paid in. It may trade only within the narrow list the Act allows.

The books have to show how much went to the purpose and how much to administration. The financial statements go to the register of financial statements, and a received share of paid tax from the tax assignation carries its own rules of use.

Every year a foundation prepares an annual report that, besides the financial statements, shows income by source, administration costs and what it supported during the year. We build the material as the year goes: every gift is recorded with its deed of gift and stated purpose, so at year end the overview comes out of the accounts rather than the administrator’s memory.

What to watch out for

The expensive mistake is usually a missed date rather than a bookkeeping slip: a recipient that fails to publish how the assigned share of tax was used, in the form and by the deadline the Act sets, cannot be a recipient the following year. One missed notice wipes out a whole year of assignation income.

A common mistake is keeping the endowment in the same bank account as operating money and gradually paying ordinary invoices out of it. When the year-end close shows the endowment has fallen below the amount entered in the register, it has to be topped up from other sources, and the shortfall is visible in the public annual report that donors and the ministry both read.