Tax optimization of internal succession options: Contribution to a foundation or trust

Case 1 Company foundation

Contribution of shares of the company to a corporate foundation

Mr. Muster is the third generation of his family to manage a company with 100 employees. He took over the company from his father and had to pay off his two siblings accordingly. As the main asset in his father's estate was the company and Mr. Muster himself did not have enough of his own assets, he was unable to pay off his siblings immediately. However, you agreed that he could stagger the compensation payment over 10 years or give you shares for part of the compensation payment. Mr. Muster continued to run the company successfully and was able to pay out his siblings within the agreed time.
Mr. Muster himself has 3 adult children who are in dispute with regard to the continuation of the company. Mr. Muster would like to ensure that the family business is maintained in the long term with a uniform orientation and also against the will of individual family members of the family.
He has heard time and again about company foundations and would like to know what exactly these are and whether the company foundation would be a suitable solution for him.

• Shares no longer belong to the family - no longer in the estate
• Perpetuation of the company
• No succession problems
• Protection against takeovers
• Family Governance - family members can have an active role, but are not in the operational business of the company
• Questions of inheritance law - compulsory portion must be regulated upon contribution
• Disadvantage - no more dividend payments to family possible
• Possibly high tax consequences in case of contribution

Case 2 Non-profit foundation

Contribution of shares of the company to a charitable foundation

The facts of the case are basically the same as in case 1. Mr. Muster would like to contribute the company to a charitable foundation and at the same time ensure that the company is continued in accordance with family tradition.

• Shares belong to foundation
• Dividend is used for charitable purposes
• Family members can take an active role in the charitable foundation
• Questions of inheritance law - compulsory portion must be regulated upon contribution
• At best tax-free at the time of contribution
• Disadvantage - at best a burden for the foundation board
• Disadvantage - no more dividend payments to family possible

Case 3 Dual structure - corporate foundation and charitable foundation

Contribution 1% share capital with 99% voting rights to a company foundation and 99% share capital with 1% voting rights to a charitable foundation

• The company is managed by the company foundation, while the income is mainly paid to the charitable foundation
• Family can retain influence on companies via company foundation
• Questions of inheritance law - compulsory portion must be regulated upon contribution
• Possibly lower taxes at the time of contribution
• Disadvantage - no more dividend payments to family possible

Case 4 Anglo-Saxon trust

Contribution of shares of the company to an Anglo-Saxon trust

The facts of the case are the same as in case 1. Mr. Muster is thinking of transferring the company to a trust rather than a corporate foundation.

• Family can have influence on companies through trustee
• Questions of inheritance law - compulsory portion must be regulated upon contribution
• At best tax-free at the time of contribution, since the trust is fiscally transparent