Jersey's Foundations Law comes into effect on 17 July, creating a new vehicle that fuses features from Jersey companies and trusts. Giles Corbin outlines the regulations drafted after four years in the boardroom

After four years of private client industry consultation and drafting, the Foundations (Jersey) Law will come into force on 17 July, 2009. Foundations will provide Jersey with an alternative financial planning vehicle to companies and trusts for the management, preservation, enhancement and distribution of wealth.

Demand has been strong. We have already drafted the constitutional documents, being the charter and regulations, for several Jersey Foundations in preparation for their creation when the law comes into force. The pipeline for further instructions looks very encouraging.
A Jersey foundation is an entirely new Jersey entity, designed to blend highly attractive features of both Jersey companies and Jersey trusts. In some senses, it can be regarded as an incorporated trust. It will, like a company, have its own legal personality, as evidenced by a registered number with the Jersey Financial Services Commission, and will be able to own property, sue and be sued in its own name. Procedurally, however, it will act with the flexibility of a trust.

Its constitutional documents will consist of a public charter and private regulations. The charter will be lodged with the registrar of companies in Jersey and contain certain basic items of information as required by law. The regulations will typically identify those who are to benefit under the foundation, establish the foundation's council (which is to administer the foundation's assets and carry out its objects), and identify the foundation's guardian (whose duties will include ensuring that the council carries out its functions). The foundation may have an unlimited duration.

A key feature of the law is the flexibility it allows as to the precise terms of each foundation, in that, although the law dictates matters which must be included in the charter or regulations, it leaves it entirely to the founder to decide the precise manner in which such matters may be dealt with.

By way of example, the law requires that the regulations provide for the appointment, retirement and removal of council members, but does not dictate who is to have powers to appoint and remove members, or the manner in which a retirement should take place. The founder may decide these matters.

An application for the incorporation of a foundation in Jersey may only be made by a 'qualified person', being a person (or, typically, a registered Jersey trust company) registered under the Financial Services (Jersey) Law 1998 to conduct financial services business of this type. We understand that a good number of Jersey licensed trust companies are currently extending their licenses to the new OA class of business to enable them to form and provide services in respect to foundations.

The application for the incorporation of a new Jersey foundation must be accompanied by a copy of the proposed charter and a certificate signed by the qualified person confirming (among other things) that a qualified person will become a member of the council on incorporation, that the qualified person making the application is in possession of regulations approved by both the founder and the qualified person and that a person (natural or legal resident in any part of the world) has been selected to act as the guardian. A Jersey foundation does not need to have any initial property to come into existence unlike the patrimony requirement of many other foundation jurisdictions.

In requiring that only a qualified person may incorporate a foundation and that the council of members must always include a qualified person, the objective is to ensure that Jersey's extensive regulations to prevent and forestall money laundering are observed from the outset and on a continuing basis.

The founder of a foundation is the person (natural or legal) who instructs a qualified person to apply for the incorporation of the foundation, regardless of whether or not that person donates any assets to the foundation. The founder may be both a member of the council and the guardian. A person who donates assets to the foundation after incorporation will not be regarded as a founder unless the regulations of the foundation so provide. The founder may retain rights under the foundation and may assign those rights to any other person (natural or legal). The identity of the founder need not be disclosed on the foundation's publicly available charter.

The objects of the foundation may be to benefit one or more persons or a class of persons or to carry out specified charitable or non-charitable purposes.

The objects must be specified in the charter, save that in the case of the objects benefit a person or class of persons the charter may simply provide that the person or class of persons may be determined in accordance with the regulations. For the private client market, this will be the most attractive practice.

A beneficiary under a foundation has no interest in the foundation's assets; is not owed any fiduciary duty by the foundation or by the council, the guardian or any other person appointed under the regulations of the foundation to carry out a function; and (unless provided otherwise by law or the charter or regulations) has no right to any information about the foundation.
Each foundation will have a council with the role of administering the foundation's assets and carrying out the foundation's objects. Considerable flexibility exists as to the membership and organisation of the council, save that the council must include at least one qualified person. A qualified person who is a member of the council may also act as the guardian. It is permissible for the charter or regulations to limit the liability of the council members, except in the case of a member's fraud, wilful misconduct or gross negligence.

A Jersey foundation must have a guardian, whose duty it is to take such steps as are reasonable in all the circumstances to ensure that the council carries out its functions. The founder or the qualified person, but no other council member, may be the guardian. Where an action of the council is not permitted by the charter or regulations, the guardian will have power to sanction or authorise such action, unless the regulations provide otherwise.

The Royal Court of Jersey will have a similar judicial role in respect of foundations as it does with trusts, including powers to give directions on the administration of foundations, to dismiss and appoint council members and amend its constitutional documents. Applications may be made to the Royal Court by a "person with standing", which includes the foundation itself, the founder, the guardian, a beneficiary, a creditor or the attorney general.

Jersey foundations may be used as a vehicle for holding family wealth for future generations and to control the cascade of that wealth and future management of underlying businesses or assets for the benefit of those successive generations. They may also be useful wherever it is desirable to separate ownership from control, which opens up a number of commercial applications. Foundations may also be used to fulfil the function of a self-orphaned private trust company, or to be the orphaned owner of shares in a private trust company.

Looking to the future, Jersey foundations will provide a flexible alternative to Jersey trusts and, when combined with the island's reputation as a leading jurisdiction for private client work, Jersey's new foundations offering is expected to be particularly attractive to those from non-trust or civil law jurisdictions as well as to any other person reluctant to transfer assets outright to a trustee of a trust.

Giles Corbin is a partner at Mourant du Feu & Jeune.