The legal basis for private foundations is Private Foundations Act (PSG) 1993. It has been amended eight times since it was issued in 1993. The tax regulations for private foundations have even been amended more than 30 times.
The private foundation is as legal entity legally independent. She is a ownerless legal entity. Your assets are legally separated from those of the founder or, if there are several founders, the founder1. The private foundation can acquire rights and enter into obligations. The private foundation can therefore in particular assets — such as money, securities, investments in companies2, real estate or works of art — buy, conclude contracts and incur liabilities. Shares in the foundation cannot be issued. The sale of beneficiary status is also not possible.
On the occasion of incorporation, the founder (s) must dedicate assets of at least €70,000.00 to the private foundation. If the assets are raised not in money (€) but through tangible assets (contributions in kind), a start-up audit must be carried out. Additional assets can be acquired in a foundation addition certificate, later also through subsequent endowment by the founders or by donation from other persons.
The main purpose of a foundation It is usually to prevent the division of assets, as is often unavoidable in the case of inheritances, to hold together and secure and increase their assets in the long term, but also to ensure their supply (maintenance) through monetary or in-kind contributions (“contributions”) to the beneficiaries (beneficiaries) and, if necessary, to pay out more to the beneficiaries.
Donations of donors' assets to the private foundation represent a free transfer of assets (donation)3; this also applies in the context of inheritance law. The granting of beneficiary status to a legal heir of the founder (s) is relevant for compulsory share claims of the person concerned himself, but also for those of the other legal heirs4.
With charitable private foundations The purpose consists of charitable objectives, such as financial support for charitable institutions, research or specific activities that serve the general public or are in the public interest.
The private foundation may have one, two or more donors. Founders can be domestic and foreign natural persons, partnerships or legal entities. With the creation of the foundation, the founder loses access to the foundation's assets5 and no longer has any control rights even in the capacity of founder, unless the foundation deed provides for them6.
The founder has/have a foundation declaration (”Foundation deed“) to build. If founders state in the foundation deed that a Foundation additional deed is or can be built, certain regulations can be notarized in the additional document. The minimum content of the foundation declaration includes, in addition to the name and registered office of the foundation, the dedication of the assets (at least in the amount of €70,000.00), the purpose of the foundation, the name of the beneficiaries and final beneficiaries or the information of the body which has to identify the beneficiary; as well as an indication of whether the foundation is established for a specific or indefinite period of time.
The foundation declaration may (but does not have to) include in particular regulations on the appointment, dismissal, term of office and power of representation of the Executive Board, the foundation auditor, a supervisory board and other bodies (such as an advisory board) in order to achieve the purpose of the foundation. Furthermore, the founder (s) in the foundation deed may reserve the right to amend the foundation declaration and revoke the foundation; without this reservation, the founder may in principle neither amend the foundation certificates nor revoke the foundation.
Foundation additional deed: In the foundation addition deed, the founders may contain regulations on the remuneration of foundation bodies, more detailed provisions of beneficiaries or other beneficiaries, the determination of a minimum asset level that may not be reduced by contributions to beneficiaries, the determination of final beneficiaries, regulations on the internal organization of collegial foundation bodies and the dedication and disclosure of further foundation assets exceeding the minimum assets7. Regulations which may only be made in the foundation deed are void if they are included in the foundation addition deed8. Foundation additional documents do not have to be submitted to the commercial register court as a matter of fact.
In the foundation deed, founders may reserve the (future) amendment of the foundation documents — comprehensively (in particular with regard to the purpose of the foundation, the selection of beneficiaries and all other regulations) or even only for partial areas (for example with regard to the organization of the foundation board, the advisory board and the beneficiary meeting).
For this reason — in order to maintain the right of amendment for as long as possible — when establishing the foundation, founders often also involve their children or a legal entity, such as a GmbH, AG, a foreign foundation or institution, as co-founders. By transfering/inheriting the share rights in Mitstifter-GmbH/AG, the right of amendment can de facto be transferred to the person who receives the share rights.
Two or more founders can generally only exercise the right of amendment reserved to them jointly, unless they regulate this otherwise in the foundation deed (Section 3 (2) PSG).
Founders who are natural persons may reserve the right to revoke the foundation in the foundation deed. Legal entities or registered partnerships cannot reserve a right of withdrawal. If there are two or more co-founders entitled to withdraw, the revocation must generally be declared unanimously by all persons entitled to withdraw in the form of a notarial act. The foundation deed may also regulate this differently (for example, the main founder alone is entitled to revoke; the secondary founders not as long as the main founder lives; or, for example, by majority resolution of the founders).
As a result of the revocation, the Board of Directors must decide to dissolve the Foundation and liquidate the Foundation (including taxation of hidden reserves). In principle, the remaining assets must be transferred to the final beneficiary (s)9.
The duration of the foundation must be set out in the foundation deed. The foundation can be set up for a fixed or indefinite period of time. In the case of non-charitable foundations whose “purpose is primarily to care for natural persons,” the foundation must be dissolved after 100 years, unless all final beneficiaries unanimously decide to continue the foundation for a further period of up to 100 years10.
As further reasons for resolution The following should be mentioned:
In any case, the private foundation has a Foundation Board and the Foundation auditor to order; under certain legal requirements, also a supervisory board. “further bodies” may also be established (Section 14 (2) PSG). The frequently found”Advisory boards“are such other organs. A person or group of persons who have significant rights with regard to the private foundation are also organs of the foundation, even if the foundation deed does not express them as such12.
The Board represents the private foundation and manages its assets. The first board is appointed by the founder (s). The Executive Board must consist of at least three people; two members of the Executive Board must have their habitual residence in the EU or in the EEA.
The Board of Directors must register the newly established foundation for registration in the commercial register. Registration in the commercial register ensures the legal existence of the foundation.
Board members are appointed later in accordance with the foundation deed: The latter can delegate the appointment of board members to one or more persons — including the founders as long as they live — or to a “foundation body”13. The provision that the Foundation Board supplements itself (co-optation) is also permitted14. The appointment may also be delegated to beneficiaries or to an advisory board consisting of beneficiaries, a supervisory board or another body15. The court is responsible for appointing board members on a subsidiary basis16.
For Board members regulates the law incompatibilities: For example, no person can be appointed as a member of the Board of Directors, if their spouse or partner or if certain close relatives are beneficiaries of the Foundation. The Act also extends the incompatibility to cases in which this group of persons are only “indirect” beneficiaries (see in more detail Section 17 PSG).
The foundation deed may term of office of the foundation board in more detail. Without such regulation, the Executive Board remains in office until it resigns, dies, reaches the maximum age (age limit) set in the foundation deed, or — admissibly (usually only for good cause) — is recalled. In order to ensure the independence of the foundation board, the case law assumes that if the order period is limited, the foundation deed must in any case provide for a (minimum) appointment period of three years17. An upper limit on the appointment period is permitted: for example: “The members of the Foundation Board are appointed for at least three and a maximum of five years.”
Members of the Foundation Board can only be dismissed for important reasons in accordance with Section 27 (2) PSG. In any case, the competent court is entitled to appeal.18
The foundation deed itself can also be for dismissal of the members of the foundation board competent body provide. This body can be, for example, the supervisory board or an advisory board, but also the founder himself — even if he is a beneficiary. The dismissal of members of the Board of Trustees is made more difficult by the fact that the law generally requires a three-quarter majority of votes for the removal, but if the body entitled to recall consists of less than four members, and voting is even necessary (Section 14 (3) PSG). In addition, dismissal for reasons other than the important ones in accordance with Section 27 (2) Z 1 to 3 PSG presupposes that the beneficiaries or their close relatives are not entitled to a majority of votes in the body appointed for removal. If the dismissal is made for good cause, the important reasons must be certified before the commercial register court19.
It is mandatory by law to appoint a foundation auditor. His task is20to audit the annual financial statements, including accounting and management report, compliance with the foundation deed and additional document — i.e. in particular compliance with the purpose of the foundation and the legality of the contributions. The existence of incompatibilities and discrepancies must also be examined. The foundation auditor has a “duty of speech.” In accordance with Section 20 (1) PSG, the foundation auditor is to be appointed primarily by the court, if necessary by the Supervisory Board.
Around 11% of all foundations have a supervisory board. The foundation deed may provide for the appointment of a supervisory board. Appointing a supervisory board is required by law if
No supervisory board obligation However, in such group constellations, the activity of the private foundation is limited to the administration of company shares of controlled companies (Section 22 PSG).
The first members of the supervisory board are appointed by the founder (s); after the foundation has been entered in the commercial register, the commercial register court is exclusively responsible for the appointment of supervisory board members. Employee representatives are seconded to the Supervisory Board in accordance with Section 110 ArbVG.
incompatibility: Anyone who is a member of the Foundation Board or a foundation auditor cannot also be a member of the Supervisory Board. Beneficiaries or their relatives may not make up the majority of the members of the Supervisory Board. In addition, membership of supervisory boards of private foundations or comparable bodies is limited to ten (Section 23 PSG).
Role of the supervisory board is to supervise management and management by the Executive Board. The supervisory board's right of information and inspection is similar to that of the supervisory board of public limited companies. The Act regulates five cases in which the Board of Trustees must obtain the approval of the Supervisory Board for certain transactions of the Foundation, namely for
The Supervisory Board represents the Foundation in carrying out legal transactions with the members of the Board of Management. The foundation declaration may expand the scope of responsibility of the Supervisory Board (Section 25 PSG). The Act does not provide for a specific term of office for members of the Supervisory Board. The foundation deed may regulate this. Supervisory Board members are dismissed (exclusively) by the court (Section 27 PSG).
Beneficiaries are those people who receive donations from the Foundation in whatever form — for example in money, benefits in kind, options for use (such as an apartment)21 etc. — receive (should). The beneficiary is who is referred to as such in the foundation declaration or who is identified as a beneficiary by the “body” appointed by the founder, otherwise by the foundation board22. Who is a beneficiary must be disclosed to the tax office by the Foundation Board and registered for registration in the Register of Beneficial Owners in accordance with WieREG. Beneficiaries have a judicially enforceable right to information and book inspection, including access to the annual financial statements, the foundation deed and the foundation addition deed23. Beneficiaries may also request the judicial removal of a board member — e.g. a member of the board — for good cause in accordance with Section 27 (2) PSG or, if a reason for dissolution has occurred, apply for the dissolution of the foundation by the court24.
The foundation deed may grant beneficiaries stronger legal status, in particular a person (also) staffed by beneficiaries Advisory Board, secondment rights for the Advisory Board and a Beneficiary Assembly provide.
Beneficiaries and their close relatives cannot be members of the foundation board at the same time25. Beneficiaries and their close relatives may not be the majority of Supervisory Board members26 Set. Whether beneficiaries have further rights, in particular the legitimation of the application to initiate a special audit27 or as a body to appoint members of the foundation board or dismiss them, depends on the structure of the foundation deed.
A distinction must also be made between current beneficiaries28 and potential beneficiaries: The latter only have an entitlement right to obtain beneficiary status; however, they do not yet have the beneficiary rights29.
Final beneficiary (s) is/are the person or persons to whom any remaining assets after liquidation of the private foundation30.
Foundations often set up an advisory board as a supervisory body. Beneficiaries are usually represented on the advisory boards and should supervise the activities of the foundation's board of directors. Such advisory boards often have ordering and recall rights, reservations of consent, the right to comment and the right to make suggestions on the amount of contributions.
The private foundation must be entered in the commercial register. The commercial register court is responsible for monitoring the collection of assets. It also checks the foundation deed for legality. Even later, the commercial register court has important functions for the foundation, such as the appointment of the foundation auditor and, in principle — unless the foundation deed regulates otherwise — also the board of directors of the foundation; if required, also the appointment of the supervisory board. In general, the commercial register court has the task of recalling foundation organs for important reasons. Where appropriate, it also decides on a special audit. The court also decides on the admissibility of the amendment of the foundation deed by the Board of Directors and on the dissolution of the foundation. The court also decides on the registration of an amendment to the foundation deed and the foundation addition deed by the founders and thus regularly checks the admissibility of the intended amendments to the foundation deed — but not the foundation addition deed, which notifies the court only of the fact of the amendment, but not the content.
The foundation certificate to be drawn up by the founder (s) and any additional documents must be in the form of a notarial act. If the notarial act or its appendices are not read31if the notarizing notary is also a member of the board of directors of the foundation concerned and is therefore excluded from certification32 or if the founder is incapacitated33, are the foundation declaration, the additional deed or their amendment legally ineffective34.
The private foundation upon death is established by a final declaration of foundation — i.e. a final will in the form of a notarial act35. Establishing a foundation therefore requires (at least) the cooperation of two notaries or one notary and two witnesses; the same applies to any additional foundation deed36.
Legal transactions with which the founder wants to protect his own assets from access by his creditors (“asset protection”) by transferring his assets to the foundation can be appealed due to intent to discriminate and because of free disposition to the detriment of the founder's creditors in accordance with the provisions of the Insolvency Code (Sections 28 and 29 IO) and in accordance with the Contestation Order (Sections 2 and 3 AnFo).
If all or almost all of the founder's assets are transferred to the foundation, the foundation, as acquirer of the assets, is liable to the founder's creditors for the debts existing at the time of transfer of his assets (Section 1409 ABGB). Liability only applies to liabilities that the Foundation knew or needed to know. In addition, this liability is limited to the value of the acquired assets.
The transfer of the founder's assets may also constitute “offsetting” to the detriment of the founder's creditors, i.e. to “protect” them from his creditors. In this case, the founder and also the foundation board as contributors — assuming intentional commission of the crime — may make themselves liable to court action for fraudulent Krida (§ 156 StGB).
Foundations and their boards of directors are also subject to the criminal prohibition of money laundering and terrorist financing. The court may declare assets obtained as a result of a criminal offence forfeited (Section 20 StGB).
If the founder has reserved the right to amend the foundation deed and to revoke the foundation, creditors of founders who have an executive order against the founder may seize his rights to amend and revoke the foundation and have themselves transferred to exercise them. In order to obtain satisfaction of their claims, they can then revoke the foundation themselves if the founder is the ultimate beneficiary37.
1 On the subject of “asset protection” and on contesting the dedication of the founder's assets due to a challenge to donations under the Insolvency Code and the Contestation Order, and on the forfeiture if the assets originate from criminal acts, see below.
2 However, PS may not engage in commercial secondary activity that goes beyond mere secondary activity and may also not participate as a personally liable partner in a registered partnership or take over the management of a trading company (§1 (2) PSG).
3 Cf. Arnold, PSG4 § 4 Rz 28a ff; his argument that the PS is only created by the dedication of the assets in the foundation deed and therefore could not be a donation is not convincing: It is excessively conceptual and fails, because the recipient — the PS — is created with registration in the commercial register and the free transfer of assets to the PS in exactly the same “legal Second” only takes effect.
4 J. Reich-Rohrwig, Inheritance Law2 193 ff; Zollner/Pitscheider, Aspects of Beneficiary Status under Compulsory Share Law, An initial assessment of the changes by ErbrÄG 2015, PSR 2016, 8; Welser, Inheritance Law Commentary Section 781 ABGB, paragraph 33 et seq.
5 Supreme Court 6 Ob 60/01v, GesRZ 2002, 27; 6 Ob 85/01w, SZ 74/92; 1 Ob 214/09s, GesRZ 2011, 53; RIS Justice RS 0115134.
6 See J. Reich-Rohrwig/Wallner, Improving the rights of founders and beneficiaries of a private foundation, ecolex 2005, 536.
7 Section 9 (2) Z 8 to 14 PSG.
8 Supreme Court 6 Ob 100/22g, Ecolex 2022/645, ZFS 2022, 96 (Eiselsberg) = PSR 2022, 135 (Zollner) = JEV 2022/22 (Kalss); 3 Ob 177/10s, Ecolex 2012, 54 (Rizzi) = GesRZ 2011, 317 (Wurzer/Foglar-Deinhardstein) = PSR 2011, 183 (Rassi/Zollner) = ZUS 2011, 140 (Schäfer) = EvBL 2012/22 (Clavora).
9 Section 36 (4) PSG.
10 Section 35 (2) (3) PSG.
11 SECTION 35 PSG.
12 For example, if you are entitled to appoint and remove members of the Foundation Board: Supreme Court 16.09.2020, 6 Ob 141/20h = ecolex 2021, 554 (Rizzi/Michtner).
13 EBRV to Section 15 (4) PSG; Vienna Higher Regional Court 31.5.1999, 28 R 244/98b GesRZ 1999, 259.
14 Supreme Court 6 Ob 164/12d, GesRZ 2013, 368.
15 Arnold, PSG4 § 15 Rz 87 MWn.
16 Section 27 (1) PSG.
17 6 Ob 195/10k, GesRZ 2011, 239 (H. Torggler) = ecolex 2011/176 (critical Rizzi) — excluding “special exceptional cases”. A slight fall below the minimum working period is irrelevant: OGH 6 Ob 211/20b, 6 Ob 228/20b, PSR 2021, 39, JEV 2021, 43; 6 Ob 227,20f, PSR 2021, 184, JEV 2021, 108.
18 Officio, but also at the request of beneficiaries or other board members.
19 Supreme Court 6 Ob 101/11p, Ecolex 2012/215, ZfS 2012, 34 (Lenz; Leitner-Bommer/Oberndorfer) = PSR 2012, 32 (Murko/Zollner) = ZUS 2012, 30 (Schäfer) = ZUS 2012, 83 (Knauder) = PSR 2013, 16 (Zollner); aA J. Reich-Rohrwig, Ab Appointment of the Foundation Board following the amendment to the PSG by BBG 2011, ecolex 2011, 419ff.
20 SECTION 21 PSG.
21 For tax purposes, see StiftR 2001, paragraph 238.
22 § 5 PSG.
23 SECTION 30 PSG.
24 Section 35 (3) PSG.
25 Section 15 (2), (3) and 3a PSG.
26 Section 23 (1) PSG.
27 SECTION 31 PSG.
28 N. Arnold Ecolex 2000, 877 (878); Supreme Court 6 Ob 180/04w, Ecolex 2005, 453.
29 Supreme Court 6 Ob 180/04w; Ecolex 2005, 453; 6 Ob 24/21d, GesRZ 2021, 408 (Briem); Arnold, PSG4 § 5 Rz 26.
30 § 6 PSG.
31 Supreme Court 6 Ob 122/21s, Ecolex 2022/317, GesRZ 2022, 288 (B. Maier)
32 Supreme Court 1 Ob 14/14m, NZ 2014, 244 (Hoyer) = GesRZ 2014, 324 (Weigand).
33 See J. Reich-Rohrwig, insolvency of founders, ecolex 2011, 687; OGH 3 Ob 120/14i, ecolex 2015.875, PSR 2015, 35 (Loibner) = GesRZ 2015, 138 (Hochedlinger) = EvBL 2015/118 (Frauenberger pillar).
34 FN 30-32
35 Supreme Court 6 Ob 45/04z, Ecolex 2005/18.
36 In detail, see Sections 8 and 39 PSG.
37 Supreme Court 3 Ob 16/06h, 3 Ob 217/05s, GesRZ 2006, 196; 6 Ob 136/09g, GesRZ 2010, 59; 3 Ob 177/10s, GesRZ 2011, 317.
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