Panama Private Foundation Part 3 – Basis Elements of Panama Private `Foundations
It is simpler to make a thorough study of this wonderful figure by reviewing the persons or internal bodies a Panama Private Interest Foundation comprises. Put in words differing from its definitions, a Private Foundation consists of the commitment of one or more “founders” to transmit assets (money, real estate, shares, bonds and others) that they have undertaken to contribute or donate (which never amount to less than the equivalent of USD10,000) which, together with other assets contributed by “third parties” may be managed by a “Foundation Council” overseen or not by “protectors” (known in the law as “supervisory bodies” for the benefit of the “beneficiaries”).
Each participant in a Foundation is briefly explained below:
- The Founder
One or more persons, whether natural persons or bodies corporate, Panamanian or foreign, may be Founders. Adopting what has become a common practice in Liechtenstein, Panama makes express reference to the Founders acting through persons designated solely to act as such (“nominees”, whether as trustees, agents, or attorneys in fact. The acts of such “third persons” do not change the fact that the principal (“settlor” or “granter of the power of attorney” is the true Founder whose name does not appear in the Foundation Charter because the client so wishes it in order to maintain absolute confidentiality.
There is no need whatsoever to refer in the Foundation Charter to the juridical relation existing between the true Founder and the nominee Founder, as this is a confidential matter of which evidence is kept only at our offices and is not available to the public. For registration publicity purposes, it shall be understood that the Founder is actually the “nominee” not the client. It is important to note in this regard that Law No.25 of 1995 on “Private Foundations” imposes the obligation of maintaining full secrecy on the matters of a Foundation, not only on those who are involved in its creation, but also on every public employee or private employee who handles confidential information. Infringement of such obligation is penalized with six (6) months of imprisonment and a fifty thousand dollar (US$50,000) fine, not precluding the corresponding civil liability. The sole exception in respect of confidentiality is that of a competent Panamanian authority ordering the disclosure of information in penal investigations relating to laundered money arising from drug trafficking.
Founders have rights and obligations in respect of Foundations: where the Foundation Charter grants the Founder full powers (Revocable Foundation Charter), the latter shall have the right and power to adopt the Foundation Regulations, amend them, freely appoint and remove the Foundation Council, the Protector and the Beneficiaries, act as adviser, protector or beneficiary, revoke the creation of the Foundation or any transfer made to it, accept assets of any nature for the Foundation, receive and demand Statements of Account, request the judicial removal of members of the Foundation Council, redomicile the foundation and dissolve it.
Following registration of the Foundation at the Public Registry, the Founder shall officially acquire the obligation to formalize the contribution of assets he has undertaken (there is no deadline for doing this).
Since for legal purposes a Foundation’s assets constitute an estate separate from the Founder’s personal assets, the Foundation’s assets may in no case be answerable for the Founder’s personal obligations. By the same token, the Founder’s assets shall not be answerable for the Foundation’s obligations. In other words, a Private Foundation is a limited liability Entity, that is, it covers its obligations only up to the whole of its foundation assets, the latter including promised donations (save for very special exceptions relating to the members of the Foundation Council).
- The Foundation Council
The administration of a Foundation is entrusted to the Foundation Council, which is charged with the fulfillment of the Foundation’s aims and objectives under the supervision or not of a “Protector”.
Save if the Foundation Council should be a body corporate, the number of members comprising it shall not be less than three (3), all of legal age, of any gender or nationality.
As in the case of corporations, the laws on Private Foundations do not forbid the appointment of “nominees” as members of the Foundation Council. We offer the services of nominee members of the Foundation Council.
If the client so wishes, he may opt for appointing “officers” for the Foundation Council (although it is not required by law), in which case, we also offer the services of nominee officers for the Foundation Council.
The Foundation Council has rights and obligations in respect of the Foundation (See our Standard Foundation Charter and our Standard Foundation Regulations in Annexes 4 and 5): In general, the Foundation Council is granted full administrative powers (together with the required authorization from the “Protector” if designated), and has the right and power to adopt the Foundation Regulations, to amend same, to designate and remove its members, to freely appoint and remove the Beneficiaries, to contribute assets of any nature to the Foundation, to dispose of assets, to enter into any acts or contracts in the name and on behalf of the Foundation, to grant special or general powers of attorney, to redomicile the Foundation and to dissolve it.
The Foundation Council has various obligations: To act with the diligence of a good paterfamilias, to obtain authorization from the Protector (if there is one), to render account of its administration to the Founder, to the beneficiaries and to the Protector, and to deliver the corresponding earnings and assets to the beneficiaries.
Our Standard Foundation Charters set down the ways the Foundation Council may be removed, this power generally falling on the Founder, the Protector or the beneficiaries. If the client should for any reason adopt a Foundation Charter that does not specify the way the members of the Foundation Council shall be removed, the Founder or the beneficiary may request their judicial removal for the causes set forth in the law.
In no case may the Foundation’s assets be used to answer for the personal obligations of the Foundation Council members. Likewise, the members of the Foundation Council shall not be answerable for the Foundation’s obligations save in the following sole special exception: where damage, loss or wear has been caused by serious fault or fraud in the administration of the Foundation. It is important to note here that the Foundation Council members are not liable when they have obtained authorization from the Foundation’s Protector.
- The Protector
The legislation on Foundations refers to “supervisory bodies” that are made up of natural persons or bodies corporate that may be appointed in any way. In most cases, such bodies consist of one sole person that we call the “Protector”.
In practice, the Protector is usually the client himself or someone he trusts. His functions are specified in the Foundation Charter. His main functions are the supervision of the Foundation Council, demanding and receiving the Statement of Account, adding or removing beneficiaries and authorizing the acts of the Foundation Council.
The laws on Private Foundations make no reference whatsoever to the Protector’s liability vis-vis third parties who have an interest in the Foundation.
- The Beneficiary
The Foundation’s aims and objectives consist, in the last instance, in benefiting the foundation’s “Beneficiary” or “Beneficiaries”. Such Beneficiaries have the right to receive the earnings or interest earned by the Foundation Assets, and to receive the Foundation Assets upon fulfillment of the conditions set down in the Foundation Charter.
The Beneficiaries may be natural persons or bodies corporate and are appointed in the Foundation Regulations.
The Beneficiaries may sue the Foundation in exercising their legitimate rights concerning the Foundation Assets, demand the judicial removal of the Foundation Council members, demand the rendering of accounts and object to any acts of the Foundation that impair their rights.
The Beneficiaries shall have rights concerning the Foundation Assets beyond any legal provision on hereditary matters cited by the Founders’ heirs (save for exceptional cases of lawsuits initiated in jurisdictions whose inheritance laws are of public order and the Foundation’s Assets are located in such jurisdictions).
The Beneficiaries are not the Foundation’s owners or creditors, such that they may not claim rights from it aside from those granted in the Foundation Charter, the Regulations and/or the resolutions of the Foundation Council.
Our Standard Foundation Regulations provide that no certificates or documents on the right to benefit shall be issued, and such right may not be given in guarantee of any kind. The client may opt to amend such provision.
In no case may the Foundation Assets be used to answer for the Beneficiaries personal obligations. By the same token, the Beneficiaries shall not be answerable for the Foundation’s obligations.
- Third Parties
A Foundation’s personal elements are those outlined above. However, in exceptional cases, there are “third parties” that because of specific acts are involved in a Foundation and acquire rights and obligations vis-vis the Foundation or the Founders.
“Third parties” are any parties not indicated previously, who that are not directly involved in the Foundation or whose rights and obligations are not developed, but whose participation in the Foundation have juridical effects.
Thus, a Foundation may be directly created by the Founder or through “third parties” that act as “trustees” or as “special attorneys in fact”. In either case, these parties have the obligation to exercise the rights inherent to their status of “nominee Founders” pursuant to the instructions of the clients appointing them.
In certain cases, there are “third parties” that undertake to donate assets to the Foundation. These parties must formalize the transfer of assets as per their undertaking, as such commitment constitutes one of the Foundat