Dr. Christoph Mecking

1. Dr. Christoph Mecking Expert Seminar 3 Legal provisions for independence and autonomy of foundations. Foundation's management and governance structures The situation in Germany Warsaw, February 26, 2009

2. Legal requirements concerning governance structure of the foundations • German Foundation Law consists of the §§ 80 – 88 BGB (Book of the Federal German Civil Law) and in the Foundation Law of the 16 states • It is mainly statute law: the founder decides upon the governance structure, the law gives only basic guidelines • The only mandatory organ is the board

3. The role of the founder • Most founders are very committed to „their“ foundation • After ist legal establishment, the foundation is completely legally indepentent from the founder • Many founders wish to exert some power over the foundation and will either make themselves board members or will select the board members

4. Internal relations between various foundations´ organs • Other organs, such as the supervisory council or the board of trustees, are non-obligatory • They are often established in especially large foundations • Mostly, they have the task of controlling or advising or forming principle guidelines • When there is more than one organ, it is important to clearly define every organ´s duties to avoid conflicts

5. Separation of government from management • It is common to employ a management in order to relieve the board from some of its work • The management will handle the everyday work • The board can concentrate on its role as advisor and controller

6. Remuneration • Work in a foundation can either be voluntary or paid • Where payment is made, it has to be adequate to the amount and quality of the work and to the foundation´s financial ability • To find out what wage would be adequate, it helps to take a look at business companies that do not work in the nonprofit-sector: the wages of employees in equal positions help as an orientation

7. Conflict of interest • Work in foundations must never be guided by selfish motifs • Conflicts of interest are under any circumstances to be avoided • It is advisable to include in the statutes a passage stating that any possible conflict of interest must be revealed by the person it concerns

8. Relations with donors • Donations to a foundation can be made by anyone – the founder, companies, people etc. • Whether a foundation may accept endowments depends on its statutes • In some German States, it is the law that the statute must contain an explicit regulation on the matter • Sometimes the Foundation Inspectorate must approved before the foundation may accept an endowment

9. The rights of third parties • Foundations are under legal supervision by the Foundation Inspectorate which controlls the compliance of the law and of the statutes regulations • They are also under the control of the Financial Inspectorate when it comes to taxes and their preferential treatment in taxes • Mostly, the statute explicitly excludes rights of third parties such as the beneficiaries

10. Liability of foundations´ organs • Employees of foundations are liable if they breach duties resulting from their employment • The foundation can then demand compensation according to § 280 I BGB • The false or not at all investment of foundation assets is a breach of duties and the employee is liable for it, even if he transferred the duty to an external, such as a bank

11. Merger, split-off and conversions • The German law of Conversion does not apply to foundations • Foundations can be transformed for example by uniting two foundations or by changing the statute, especially the purpose of the foundation • The decision to transform a foundation can be made by the organ to whose responsibility it is made in the statute, or by the Foundation Inspectorate, § 87 BGB

12. Bankruptcy, insolvency, dissolution and destination of remaining assets • The foundation must be dissolved if the purpose is fulfilled, has become impossible or in case of insolvency • The statute can give an organ the right to decide upon dissolving the foundation • When the foundation is ended, the assets become property of whomever the statute names or, if no such regulation exists, of the Exchequer

13. to keep in touch Rechtsanwalt Dr. Christoph Mecking M.A. Kurfürstenstraße 56 D-10785 Berlin (Tiergarten) Telefon  +49 30 263 93 763 Telefax +49 30 263 93 767 Mobil +49 172 38 49 488 c.mecking@stiftungskonzepte.de www.stiftungskonzepte.de