Foundation companies provide several advantages for corporations, including enhancing business valuation, increasing cash flow, and minimizing capital gains tax when selling. In addition, corporate foundations are subject to a minimum distribution requirement (about 5% of their net investment assets) that must be used for charitable purposes. This requirement is often a significant driver of the value of a corporate foundation.
Enhances corporate reputation and image
Corporations that are owned by a foundation have a more positive public relations profile, which increases brand loyalty and improves sales, particularly when the corporate foundation works to benefit local communities or specific causes. Similarly, foundation-owned businesses can raise funds through private equity transactions, which helps the companies increase their stock price and create new wealth for the founders.
Improves succession planning
Having a corporate foundation provides a more effective legal framework for estate planning than merely making a will. This allows the founding family to ensure that their assets will be distributed as per their wishes under the terms of the Foundation companies, irrespective of succession laws and avoid lengthy probate issues on death.
Protects against lawsuits and wrongful appropriation by third parties
Foundations are separate legal entities from their owners. This makes them very valuable for wealth management in a litigious world. They can make contracts in their own name, which can be defended against lawsuits in court.
Reduces travel expenses
When a foundation is operated as a trust rather than a corporation, its board of directors and trustees may receive reimbursement for reasonable and direct costs. This includes travel for board meetings and other activities related to the foundation’s activities.
Reimbursement can be especially helpful in cases where the foundation’s board of directors and trustees must frequently travel to a remote location to carry out their duties.
In the US, a foundation must report on its spending to ensure that it does not exceed the limits of its tax-exempt status. It also must meet its legal compliance obligations, which can include monitoring and approving all financial transactions with the foundation.
A corporate foundation’s philanthropic activities can help the company achieve its mission and objectives by getting the company and its work noticed by consumers and clients, which leads to increased consumer loyalty, sales, and new business opportunities.
This is important for companies that have been targeted by disparagement from third-party groups because it allows the foundation to address the issue and help protect the company from public and media attacks.
The legal and financial structures of a corporate foundation are fairly complex, so companies should seek assistance from professional advisors. In the United States, for example, private foundations are generally not permitted to engage in certain financial transactions with the founding company without a written agreement or specific permission from the IRS.
Some jurisdictions offer favourable tax incentives for setting up foundations, including Jersey, Panama, Seychelles, and Cook Islands. These incentives can range from no taxes to a 0% capital gain tax rate, which is particularly attractive to corporate foundations that need to invest large sums of money.