The law regulating foundations in Malta is contained in Act XIII of 2007 1. In reality, foundations are not new to the Maltese legal sphere: they have been employed by various sectors of society in a multitude of contexts but this use had, prior to the enactment of Act XII of 2007, been done in a somewhat disorganized fashion being dependent on judicial pronouncements.
There are various types of Foundations including governmental or private ones, those intended for a social purpose or otherwise and those that are non-profit making and those that are intended for profit. In essence, the Act makes various amendments to the Civil Code and particularly creates a schedule to the Code that specifically deals with the various issues appertaining to organizations.
The Government of Malta also enacted a separate Act of Parliament – the Voluntary Organizations Act, 2007 (VOA)2 – that specifically regulates voluntary organizations and their administration. The VOA will work in conjunction with the Civil Code for those cases where the particular organization qualifies as a ‘voluntary organization’ (or non-profit making) as defined in the Law.
Accordingly, profit-making foundations are regulated by Civil Code whereas those foundations that also qualify as voluntary organizations are regulated further by the VOA.
1 Enacted on the 24th of July, 2007.
2 Act No. XXII of 2007 enacted on the 16th October 2007.
Private Foundation – definition
3 It should be noted that the focus is on “universality of things” as distinct from the definition of an association where the emphasis is on the members or associates that form the association and not its patrimony.
Assets of the foundation
Formalities for setting up a foundation
A foundation may only be constituted by:
- virtue of a public deed “inter-vivos” published by a public notary and registered in the Public Registry; or
- a will that may be public or secret.
4 In a statement that is attached to the application form for registration. A foundation that has been duly registered will not lose its eligibility to remain registered if, subsequent to registration, the value of its assets is reduced to less than €1165.
The instrument establishing the foundation should contain “ad-validitatem” the following information:
the name of the Foundation, which shall include the word “foundation”;
the registered address in Malta;
the purposes or objects;
the constitutive assets with which it is formed;
the composition of the board of administration and the names of the first administrators and, if not yet appointed, the method of their appointment;
the legal representation of the Foundation;
the term for which it is established, if any;
if the administrators of the foundation are not residents of Malta, the name and address of a person resident in Malta who has been appointed to act as the local representative of the foundation in Malta.
Furthermore, in the case of Private Foundations, the instrument must contain:
- the names of the beneficiaries; or
- instead of such a declaration, a declaration that the Foundation is constituted for the benefit of beneficiaries.
In this case, the beneficiaries must then be indicated in a written instrument that need not form part of the deed, called the “beneficiary statement”. This instrument must be signed by the founder and addressed to the administrators. It is also required that it be authenticated by the Notary Public who publishes the instrument establishing the Foundation.
The founders are required to sign the Foundation’s statute. A person subscribing to the statute after a Foundation is established is deemed to have consented to all its provisions and to all the rules that may have been validly promulgated by the Foundation until such date. The written consent of the administrators named in the statute to act as administrators of the Foundation should be delivered to the Registrar of Legal Persons prior to registration of any Foundation.
The only exception is in the case of Foundations:
- used as a collective investment vehicle; and
- used in a securitization transaction, where the term may be unlimited.
Registration and Legal Personality
5 In contrast with foundations, associations need not be registered.
Formalities required for registering a private foundation
A Foundation may be endowed with commercial property or a shareholding in a profit making enterprise, a franchise, a trade mark or other asset which gives rise to income, as well as a ship as long as the Foundation is only the passive owner of such assets.
A Foundation may be used as a collective investment vehicle and issue units to investors therein, for the passive holding of a common pool of assets, the management of which is delegated to a third party, including a pension or employee benefit arrangements.
A Foundation may be used as a vehicle for the purpose of a securitization transaction, borrow monies against the issue of bonds and do all relative and ancillary acts.
Rights of Beneficiaries
Appointment of Beneficiaries
Addition or exclusion of Beneficiaries
The right of the Beneficiary to alienate his/her interestSubject to the terms of the Foundation, a beneficiary may, by instrument in writing, sell, charge, transfer or, otherwise, deal with his interest in any manner.
The terms regulating the interest of the Beneficiary
6 Similar rules apply where the benefit consists in an annuity or pension or the use and enjoyment of property and the enjoyment of fruits there from.
Disclaiming the Benefit
Foundation in favor of a Class of Persons
7 For example, a woman who is over 55 years of age shall be deemed to be no longer capable of bearing a child.
Termination of the Foundation other than by death of the beneficiary
If the Foundation terminates for any other reason at Law (saving death of the beneficiary discussed in the preceding paragraphs), the assets of the Foundation devolve on the founder or on the heirs.
Changes to the instrument of establishment of a Private Foundation
The Law allows the founders to freely amend the instrument establishing the Foundation and to substitute, add or remove beneficiaries. Naturally, any changes made to the instrument cannot retroactively render invalid anything already carried out by the administrator(s). The Law also prohibits any changes from affecting or interrupting acts that are “in progress” or commitments that have been given and are not yet fulfilled by the administrators.
Augmentation of the Foundation’s fund
8 In those cases where an endowment is stated to be revocable, complexities may arise, particularly at the stage when that endowment is revoked. The Law strives to foresee the issues that may arise and solve them. The first point the Law makes is that the fact that an endowment is stated to be revocable does not imply any limitation on the use or appointment of the capital or income by the administrators. In the case that the grant is revoked, the grantor will only be entitled to the balance of the capital that may have remained unutilised. Revocation of an endowment does not affect or invalidate acts already carried out or interrupt acts in progress, nor affect commitments made and not yet fulfilled. Revocation of an endowment is suspended until such time as the administrators certify to the Registrar that all commitments have been fulfilled and are deemed to refer only to such amount as ould not have been utilized in fulfillment of such commitment.
Remuneration of Administrators
9 The Foundation could, however, provide otherwise, in which case this would not be possible.
Termination of the office of Administrator
FoundersThe founder10 may exercise supervision over the administration of a Foundation. The founder is also entitled to intervene in the matter of appointment of administrators or in the disposal of the assets when these issues are being dealt by a Court of Law11. A founder may be an administrator of a foundation. The founder may also be the beneficiary of a Private Foundation during his lifetime. However, if the founder is a beneficiary, that founder may not, at the same time, act as the sole administrator of such a foundation.
10 Together with any other person or persons who may be designated in the instrument establishing the foundation.
11 This will include the right to obtain a copy of the accounts held by the administrators, a copy of the inventory or descriptive notes of property.
Supervisory Council & Protectors
12 The Supervisory Council or the Protectors can be vested with the power of appointment, removal, substitution or addition of administrators. The exercise of any action or discretion on the part of the administrators may also be made subject to their express consent (Article 37(4)(5)).
Right to information
13 If a minor, to his lawful guardian or representative.
14 Including the accounts of the foundation and the conduct of the administration.
Revocation of a Foundation
15 The express reservation by the founder of the right to revoke a foundation cannot be exercisable by the heirs or spouse of the founder unless the deed of foundation expressly provides otherwise. Creditors of the founder may not exercise the right to revoke a foundation.
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