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A foundation, as a hybrid between a trust and
a company, creates unique structuring opportunities. The additional
features of a Bahamian Foundation, including the ability to use
it across private, commercial and charitable structures, open
the door for creative planning opportunities, some of which are
noted below.
To invest in Family Companies
For example, a founder has a sentimental attachment
to X Limited, which has been in his family for as long as he can
remember, and has a beauty products business which employs many
family members. He endows a foundation with the shares of X Limited
for the purpose of retaining the shares to X Limited for the benefit
of his family. By this means, the founder accomplishes his estate
planning objectives and avoids the complications which would have
ensured had he placed the shares of X Limited into an ordinary
trust.
To own a Private Trust Company
A founder creates a foundation to hold the shared
of XPTC. The founder, members of his family and his advisors may
be elected as directors of XPTC and they assume responsibility
for the management of the XPTC. The directors of XPTC may assume
a more aggressive investment strategy than an institutional trustee
would be prepared to undertake and may save some trust administration
expenses. The founder does not, however, own XPTC, the foundation
does.
To provide for Philanthropic purposes
Many individuals wish to support a philanthropic
purpose which may not be exclusively charitable.
For example, a founder may wish to endow a foundation
whose purpose is to promote
efforts to secure an animal from extinction or to benefit a specific
or sporting or entertainment event.
Of course, a foundation may be established for
charitable purposes as well.
To separate voting and economic benefits
For example, a founder endows the foundation
with non-voting shares of X Limited. The foundation will receive
the economic benefits from the non-voting shares for the family
of a founder while the voting shares continue to be held by the
founder in his individual capacity,
To provide for an employee share option scheme
Foundations can be useful in the context of employee
share option schemes.
For example, Employer A endows a discretionary
foundation for the general benefit of the employees of Employer
A, its affiliates and their dependants. The foundation is funded
by contributions from Employer A and in addition, by substantial
shareholders in Employer A and its affiliates. The foundation
benefits employees and dependants generally but also performs
vital functions with regard to share incentive or share option
arrangements.
The foundation may use its assets to acquire
shares by purchase or by subscription and either grant options
over such shares or agree to sell them to employees, possibly
extending valuable credit to the purchasing employee.
When the employee wishes to realise his shareholding,
the foundation can be a useful vehicle for repurchasing shares
and making them available to other employees. This is particularly
useful for a private company, where sales of shareholdings may
be very difficult to arrange or legally restricted. The foundation
can act as a purchaser of the first resort and the foundation
can acquire any shares that are for sale, so that it can offer
them to other employees. There may also be tax advantages for
Employer A and the employees in certain jurisdictions.
To perpetuate a particular corporate governance
philosophy
As an example, a founder endows a foundation
with its shares which compromise a controlling interest in X Limited
for the benefit of his family. The foundation council’s
mandate is to evaluate policies of corporate conduct and governance.
To provide for subordinated debt
To provide certainty with regard to the ranking
of priority amongst creditors involved in a loan transaction or
on the issue of debt securities in an insolvency.
For example, X Limited wishes to borrow from
both Z Bank and A Bank. X Limited establishes a foundation of
which both Z Bank and A Bank are beneficiaries. The charter of
the foundation could clearly provide that the rights of Z Bank
will be subordinated to those of A Bank.
To hold the benefit of warranties/collateral
In order to avoid novation issues, the foundation
would hold the benefit of warranties for a wider and/or changing
class of investors.
For example, X Limited wishes to borrow funds
from a consortium of lenders. It is anticipated that the members
of the consortium will change from time to time. X Limited endows
a foundation in which all lenders are beneficiaries in proportion
to the size of their loan. The foundation incorporates A Limited
which becomes the borrower. A Limited enters into certain warranties
and lodges collateral with the foundation fro the benefit of the
lenders; as lenders change, they are excluded or added as beneficiaries
of the foundation.
To hold assets off balance sheet in connection
with the securitisation of mortgages
A foundation provides a convenient means of packaging
financial instruments into marketable securities.
For example, X Limited wishes to sell its mortgage
portfolio to a number of investors. X Limited forms a foundation
which incorporates A Limited. X Limited endows its mortgage portfolio
to A Limited and the shares of A Limited are sold to the investors.
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