Private Foundations (“foundations” or “foundation”) in Panama came to life by means of Law No. 25 of 1995, based on the most part on Law No. 19 of 1926 of Liechtenstein, which popularized family and charity foundations in Europe.
A foundation is a legal entity that is created by means of a document called Foundation Charter by one or more individuals or legal entities called Founders, who obligate to transfer, to the foundation, assets of any kind that, under the management of a governing body called Foundation Council, that will be subject to the realization of specific purposes of private interest for the benefit of one or more private persons or legal entities called Beneficiaries, who can be the Founders themselves, designated in the Foundation Charter or in a private document called Regulations, thus preserving the Beneficiaries identity, private.
A foundation incorporates aspects of both trusts and corporations providing its users with a unique and secure estate planning device:
The fact that a foundation has beneficiaries like a trust and does not have stockholders like a corporation allows the foundation to be used in place of a will for all assets that are transferred to it by the founder or third parties.
Through the formation of a foundation, the founder or founders establish, permanently, or for a definite term, the destination of the foundation’s assets, indicating the ends towards which such assets must be used, as well as their beneficiary or benefciaries. Hence, for example, the foundation may provide that the founder, in his lifetime, will be the only beneficiary of the foundation and that, after his death, the beneficiaries will become the persons he so designates, specifying the assets of the foundation or the portions thereof that correspond to each beneficiary. The possibilities in this respect are endless.
The Foundation Charter
The Foundation Charter (similar to certain extent to the Articles of Incorporation of a corporation) is the document through you form a foundation and the following is the minimum information that must be included in it:
For the foundation charter to be amended or modified, this must be stated so in the Foundation Charter. For a foundation to be subject to amendments the founder must express this in the foundation charter.
The duration of the foundation. It can be of perpetual or definite duration. Usually it is set to be perpetual since you can dissolve it with anticipation.
The foundation charter must indicate the destination of the foundation’s assets and the manner of their liquidation, in the event of dissolution.
The Foundation Charter may include other rules deemed convenient by the founder.
The Capital of the Foundation
The capital of the foundation can consist of assets of any kind such as bank accounts, securities, real estate, art, jewelry, royalties, etc. The foundation may own shares and other securities of business corporations, but the foundation cannot dedicate itself to carry out such business activities on a regular basis, as would a company that requires a commercial license to operate.
The capital or assets of the foundation are an estate separate and distinct from those of the founders and beneficiaries. Said assets may not be subject to legal seizures, attachments or subject to any personal legal action against the founders or beneficiaries.
One or more individuals or legal entities of any nationality and with residence anywhere can act as founder of a foundation. The founder may be part of the Foundation Council, may be a beneficiary and a protector of the foundation.
The Foundation Council
Unless otherwise stated in the Foundation Charter or in the Regulations of the foundation, the Foundation Council will have the following general obligations and duties:
The Protector or Supervising Committee
The founder may name a Protector or Supervising Committee for the foundation. Unless otherwise stated in the Foundation Charter or in the Regulations, the protector may have the following general obligations and duties:
The regulations are private by-laws of the foundation issued by the founder or by the private person or legal entity that the founder so designates for this purpose. The regulations may contain any other provisions that need not be in the foundation charter, such as other duties and rights of the foundation council, the designation of the protector and his faculties, the designation of the beneficiaries and their benefits, a detailed description of the purposes of the foundation and the causes of dissolution, to mention a few.
The acts of organization, amendment or termination of the foundation, as well as the acts of transference or transmittal or encumbrance of the assets of the foundation and the income they generate, or any other act in connection therewith, shall be exempt from all taxes, contributions, duties, liens or assessments, provided they relate to the following:
Foundations must pay the Panamanian Government a small fee at the moment of registration and an annual duty of US$400.00 during the foundation’s existence.
It is not necessary to travel to Panama to form a foundation. For those who do not live in Panama they may have a Panamanian lawyer or law firm present the Foundation Charter before a Panamanian Notary Public. The time required to register a foundation in the Public Registry Office is approximately one working week.
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