Daria Averyanova, a lawyer at Lawitt Hamilton Tax&Legal, has become an author of an article on the civil-legal status of private foundations

Civil-legal status of private foundations: innovations in civil legislation.
Author: Averyanova D.P.

In 2022, a new form of non-profit organization was introduced into civil legislation - a private foundation.

In Article 123.20-4 of the Civil Code of the Russian Federation, the legislator understands a personal foundation as a unitary non-profit organization established for a certain period or indefinitely by a citizen or after his death by a notary, which manages the property transferred to it by this citizen or the property inherited from this citizen, as well as other property in accordance with the management conditions approved by it [1].

The creation of a personal foundation allows for the confidentiality of the founder and beneficiaries of the private foundation and for the protection of the asset transferred to the private foundation from claims by the founder's creditors. It appears that the creation of such an institution in the civil law system has effectively made it possible to implement a system of "trust" management in Russia[2] - an analogue of "trust" in foreign jurisdictions. The concept of "trust" is enshrined in the Hague Convention, which defines it as a system of legal relations where the trustee is obliged to manage or dispose of one or more assets (trust fund) in accordance with the conditions governing this legal relationship (trust conditions), in the interests of the beneficiary or to achieve socially useful goals[3].

The stability and attractiveness of a private foundation as a system for preserving assets is achieved through the clear recording of the relationship between the fund and the foundation established in the charter of the private foundation, as well as in the conditions of managing the private foundation[4].

The interaction of the founder of a private foundation and a private foundation as a non-profit organization is determined in the charter of a private foundation when creating management bodies. Thanks to the competence, which can be expressed in the implementation of supervision over the activities of the bodies of a private foundation, the approval of the private foundation's performance of legally significant actions, such as regulating the activities of a private foundation, amending the charter, approving the annual financial statements of a private foundation, the founder of a private foundation receives a significant lever of control over the activities of a non-profit organization. It seems that the exercise of these powers corresponds to the interests of the founder, since it allows him to retain control over the transferred asset.

The retention of control by the founder is also reflected in the rules for forming the value of assets received by the fund for further operations with them, which affects tax and accounting costs. The complete transfer of the right to determine beneficiaries to the founder of the private foundation also allows emphasizing the dependence of the private foundation on its creator.

The relationship between a private foundation and its founder is based on confidentiality. In accordance with the amendments introduced by Federal Law No. 237-FZ of 08.08.2024 "On Amendments to Part One and Article 1202 of Part Three of the Civil Code of the Russian Federation", information on the creation of a personal foundation, its constituent documents, as well as information on the founder is no longer public. And also taking into account the amendments to Federal Law No. 98-FZ of July 29, 2004 "On Commercial Secrets", information on the property, expenses, amount and structure of income, as well as the number and remuneration of employees of the personal foundation is not disclosed[5]. Thus, information on the property of the personal foundation and its founder is not subject to public reporting.

It seems that the issues of maintaining control over the activities of a private foundation by the founder, as well as guarantees of confidentiality of information about the private foundation, its founder and property should determine the specifics of protecting the rights of creditors of the private foundation, as well as creditors of the founder of the private foundation.

Let us pay attention to the distinction made by the legislator between the liability for the obligations of a private foundation and its founder, as well as the risks of the founder’s creditors.

The legislator provides that a private foundation bears subsidiary liability with its property for the obligations of its founder, and the founder bears subsidiary liability with his property for the obligations of the foundation created by him only for three years from the date of the foundation’s creation. This period may be extended by court order, but not more than five years. Thus, creditors during the three/five-year period have the right to make claims against the founder or the foundation only if it is proven that the property of the foundation/founder is insufficient to satisfy the creditors’ claims. This is a deviation from the general rule enshrined in Article 56 of the Civil Code of the Russian Federation, according to which “the founder (participant) of a legal entity or the owner of its property is not liable for the obligations of the legal entity, and the legal entity is not liable for the obligations of the founder (participant) or the owner”[6]. For the founder of the fund, limited liability is a very big advantage in terms of asset preservation, since after the five-year period, it is no longer possible to satisfy the founder's creditors' claims at the expense of the asset transferred to the personal fund. The asset of the personal fund becomes completely separate from the property of the founder, although it remains under his control, since it is the founder who develops the rules for managing the private foundation.

The issue of confidentiality also concerns the beneficiaries of the private foundation - they are specified in the terms of management of the private foundation and are not subject to disclosure. This allows creating a system of non-publicity not only of the income of the beneficiaries, but also of their participation in the management of the private foundation.

A closed and inaccessible to third parties list of beneficiaries allows them to be protected from creditors. Clause 6 of Article 123.20-6 of the Civil Code of the Russian Federation states that the beneficiary is not liable for the obligations of the private foundation, and the private foundation is not liable for the obligations of the beneficiary[7]. It seems that such a legislative solution corresponds to the goals of creating a private foundation. The creation of a private foundation, first of all, satisfies the founder's interest in creating a property management system that would ensure its safety and increase. The possibility of creditors of beneficiaries appealing to a private foundation does not correspond to these interests.

At the same time, there are currently two problems that require a solution: (1) determining the risks associated with the withdrawal of property through a private foundation, and (2) the problem of confidentiality – the difficulty of accessing information for the creditor, since, in accordance with the changes, creditors may not know about the creation of a private foundation by the debtor, which increases their risks.

In such a case, it is correct to create a system of guarantees of creditors' rights, such as notifying the founder's creditors about the creation of a private foundation.

Undoubtedly, the new provisions of the legislation, clarifying the civil-law status of private foundations, are necessary and timely. At the same time, it seems necessary to supplement the legal regulation by establishing guarantees of the rights and legitimate interests of the creditors of the founder of the private foundation.

[1] Civil Code of the Russian Federation (part one) of 30.11.1994 N 51-FZ // Rossiyskaya Gazeta. No. 238-239. 08.12.1994.

[2] D.J. Hayton. Law Relating to Trusts and Trustees, Butterworths.1995. P. 44.

[3] Model Rules of European Private Law" (translated from English) // scientific editor N.Yu. Rasskazova. Statut, 2013.

[4] From 2022 to September 2024, the Ministry of Justice of the Russian Federation (hereinafter referred to as the Ministry of Justice) was responsible for the registration of private foundations. Unfortunately, during this time, the Ministry of Justice did not develop a separate model charter for a private foundation. Since a private foundation is a new organizational and legal form for the Russian legal entity system, when creating it, it is important for the founder to have a structure for implementing the main provisions enshrined in the Civil Code of the Russian Federation. Due to the lack of a model charter for a private foundation, it seems possible to turn to the model charter of a socially useful fund, according to which the private foundation is structured.

[5] Federal Law of 29.07.2004 No. 98-FZ "On Commercial Secrets" // "Rossiyskaya Gazeta". No. 166. 05.08.2004.

[6] Ibid

[7] Ibid.