The Dutch Stichting: An age-old solution to modern capital management

Published 05 November 2018 by Maprima

The Stichting (or foundation in English) is a centuries-old solution for modern charity, asset protection and international structuring. The legislation is  rather concise. Paragraph 2:285 of the Dutch Civil code defines the Stichting as;

‘A legal person formed by means of a juridical act, that has no members, and that intends to  realise an objective (purpose), mentioned in its articles of incorporation, by using  capital (property) which has been brought in for this purpose.’

The entire legislation of the foundation is contained in a mere 3,500 words, yet for more than five  centuries it has proven to be a powerful vehicle for charity and non-profit purposes, private  wealth planning, asset protection and estate planning  extensively tested before court.

A key feature of the Stichting is its legal personality. It is a so-called orphan  entity, meaning that it has no shareholders or members. As a consequence, it is fully  controlled by its management board, although additional bodies, such as a supervisory or  advisory board, may be installed. There are also no specific statutory legal requirements  with respect to the appointment, dismissal, composition and nationality of the board,  allowing clients to flexibly lay down their wishes in the foundation’s article of  association and, if applicable, its bylaws.

There are no requirements with respect to minimum capital, and, in most cases, it is not subject to  taxation and is not held to publish annual accounts. Distribution of profits to founders or members  of its bodies is not allowed. This seems like a contradiction, given its use for private  wealth planning and estate planning, but there is a reason for this.

Charity and non-profit

The original role of Stichtings was as a vehicle for charity. The initiator  incorporates a foundation with a specific char- itable object (e.g. annual donations to  UNICEF), but also a general object (e.g. initiatives aimed at promoting a healthy lifestyle).  After the incorporation, the client donates funds, to be invested by the board of the foundation.  The board subse- quently makes donations to the charities as defined. If certain conditions are  met, the donations to and by the foundation are not subject to gift tax.

In the Netherlands, hospitals and schools are often organised as foundations. They receive  government funds for spending in accordance with the foundation’s goal (e.g. health care in  Rotterdam).

Private wealth planning (STAK)

To avoid dilution of ownership or control over a (family) business, the foundation can be  used to separate legal from beneficial ownership. The client will contribute shares of his company  to the foundation and will receive so-called deposi- tory receipts (certificates) in return.

Such depository receipts can be donated to family members, and the holder of these depository  receipts is entitled to dividends or other proceeds as the beneficial owner. The  foundation is the legal owner of the company’s shares, with the goal of holding the company shares  in administration for the benefit of the holders of the depository receipts. Founda- tions used for  this purpose are referred to as STAK (Stichting Administratiekantoor / administrative  foundation). For tax purposes a STAK is transparent.

The shares of publicly-listed companies can also be held in administration by a STAK. In such  case there is usually an element of protection against takeovers, since any potential acquirer  of depository receipts will be less interested if he cannot gain control over the  underlying company, which resides with the board of the foundation. It should be men- tioned that  this role of a foundation can also be used for other types of assets, such as an art collection.

Asset protection and estate planning

In the case of asset protection and estate planning, the shares are donated to the foundation. The  board, which can consist of family members or trusted relations, will hold the assets for  the benefit of the defined beneficiaries. By transferring the ownership to the foundation, they  stop being part of the cli- ent’s wealth and are thus protected from the latter’s creditors.  Further, the foundation can also be used to stipulate which assets should be transferred to  which heir. Such donations do not qualify as last will and can be made independent from  inheritance laws.

Further uses

The orphan nature of the Stichting, also makes the foundation a commonly used entity for heading  securitisation structures. Its charitable nature also makes it a suitable holding vehicle for sharia-compliant investment structures.

 This article is taken from the recent IR Digital doucment: IR GLOBAL - MEET THE MEMBERS: The Netherlands