PANAMA FOUNDATION: CHARTER ELEMENTS

Panama Foundation Charter Elements

The Foundation Charter and the Foundation By-laws are the two important elements of a Foundation of Private Interest.  In particular, Panamanian Foundation Law is quite flexible in the requirements it imposes on each of them.  A brief explanation follows.

The Foundation Charter.

The Panama Foundation Charter can be viewed as the equivalent to the Articles or Memorandum of Incorporation of a Company.  said document contains an operational framework of the Foundation.

Panamanian Foundation law does set some basic requirements for the Foundation Charter. Accordingly, each Foundation Charter must include at least:

• the name of the Panama Foundation;
   
• its initial capital of US$10,000.00, or more;
   
• the identities of the Council members;
   
• its domicile or country of registration;
   
• the name and domicile of its resident agent;
   
• the purpose for its creation;
   
• the manner of appointing its beneficiaries;
   
• its duration;
   
• and the destination and distribution of its corpus if the Panama Foundation is dissolved. 
   

It may also include the powers that each entity of the Private Use Foundation will have, the manner in which they will approve their decisions and will be chosen, and the times at which such elections will be made.  Panamanian Law requires that the Foundation Charter be recorded in the Public Registry to become a legal entity.

The By-laws.

The By-laws constitute a private and confidential document that complements the Foundation Charter.  It does not require registration with any Registry or authority.  As such it will not be available for inspection through the Registry or any other means. The by-laws contain the names of the beneficiaries and establish the way and the proportion in which the assets and income of the Foundation will be distributed to the beneficiaries.  The By-laws may also contain any other stipulations regarding the operation of the Foundation that has not been included in the Foundation Charter.

Most Foundation laws, and particularly Panamanian law on Private Foundations, do not contain restrictions or limitations other than those outlined for the Foundation Charter, with respect to the contents of either document.  Thus, either document can be structured according to the needs of the Founder.

Foundations are comprised of three key entities: The Founder, the Foundation Council and the Beneficiaries. There also exists a fourth, albeit optional, figure: The Guardian (aka Protector).

The Founder

The Founder is the person in charge of the organization and creation of the Foundation and is the equivalent of a Settlor in the case of a Trust. 

To guarantee that the identity of the Founder is preserved, Panamanian law is flexible enough that a nominee Founder may be appointed.  In such a case, the Foundation Charter will be drafted to assign all controlling authorities and decision-making capabilities to the Foundation Council, the Protector or both, and none to the Founder.  Since Panamanian Foundation law authorizes transfers to the Foundation by third parties, the client can then transfer his or her assets once he or she is content that the Foundation Charter does assign the control exclusively to the Council, the Protector or both.  The client can then be appointed in either capacity, although high tax nations may deem this as control, and should not be entered into lightly.

The Foundation Council.

Each Foundation requires a Foundation Council that will be in charge of overseeing the fulfillment of the Foundation objectives.  Said Council, in its operational form, can be compared to the Board of Directors of a Company.  The Council is in charge of the administration of the assets of the Foundation and can enter into any acts, contracts or other legal business convenient or necessary to the purposes of the Foundation, while always observing the limitations imposed by the Foundation Charter. 

The Panamanian Foundation Council can be comprised of individuals or legal entities.  In the case of individuals, the minimum number of members is three.  In the case of a Company or legal entity of any other fashion, only one member is required. 

The Foundation Protector or Guardian

Panamanian Foundation law also allows for an additional degree of control over the Foundation through the use of a Protector or Guardian.  The Protector is the individual/entity responsible for the supervision of the Council.  Hence, it may be assigned the ultimate control over the structure and management of the assets of the Foundation.  Said inspection and control is exercised each time that the Foundation Charter and the By-laws call for the approval of the Protector in decisions taken by the Council.  The client himself or through a Company, can also exercise the role of the Protector if he prefers. 

If combined, the use of nominee Council members and the Protector, or the use of a Company issuing bearer shares in either capacity, will allow a client to retain control over the Foundation, while ensuring a reserve of himself or any individuals that actually exercise said control.

Hence, a Panamanian Foundation Charter may be structured in such a way that decisions related to the sale or disposition of the assets of the Foundation, such as the investment of the same, will have to be adopted by resolution of the Council with the prior approval of the Protector.  The Council with the prior approval of the Protector makes other important decisions, such as the designation of new beneficiaries or their replacement, amendments to the Foundation Charter and the by-laws, and the dissolution of the Foundation.

The Foundation Beneficiaries 

The Beneficiaries of a Panama Foundation are limited to receiving the income and assets of the Foundation and do not possess any further rights other than those established in the Foundation Charter or in the by-laws.  The designation of individual beneficiaries and any details of the way that assets will be distributed to them may be stated in the by-laws.  The identity of the beneficiaries is kept strictly confidential, in that the by-laws is a private document that does not require registration before any Registrar or governmental entity. 

Either three individuals or Companies may be appointed as beneficiaries of a Panamanian Foundation of Private Interest. 

Based on the foregoing qualities, the Foundation of Private Interest must be considered as a reliable, flexible and discreet instrument, ideal for use as a vehicle through which to channel investments and accumulate and organize controlling shares of subsidiary (IBC) companies with minimal or no tax liability, while at the same time protecting them from third party claims and distributing them in accordance with the estate, financial wishes of the Founder.

Without doubt, no offshore estate planning or corporate holding scheme may be complete if it does not consider at the top of its list the use of a Private Use Panama Foundation.

The Can-Offshore Panama Foundation Charter is drafted to be compliant with the laws of the individual's country, for example a Canadian Charter, or an American Charter are different to suit each countries regulations.