Establish a foundation and pass on assets sustainably
Comprehensive information with LW-P Lüders Warneboldt
More and more entrepreneurs and private individuals are recognising the advantages that a charitable organisation offers. These make it possible to secure assets in a targeted and sustainable manner while supporting charitable projects. Whether for the long-term safeguarding of company assets or the promotion of social initiatives – a well-planned foundation opens up numerous possibilities.
At LW-P Lüders Warneboldt, we help prospective founders with comprehensive expertise in setting up and managing foundations. As a consultancy firm in which specialists from the fields of tax consultancy, legal advice, auditing and business administration work hand in hand, we solve your challenges in a focussed, determined manner and with an eye for the essentials.
With our many years of experience and expertise, we will guide you safely and competently through the entire foundation process. Contact us now for a non-binding initial consultation and let’s work together to turn your foundation idea into reality.
What is a foundation?
Definition: Basic principles and legal aspects of a foundation
A foundation is a legal entity that is endowed with capital in order to sustainably pursue a specific purpose defined in the foundation plan. This plan determines how the foundation’s assets are used to achieve its objectives. Founders, whether private individuals, companies or other organisations, often aim to create something lasting and promote their ideals. Some founders link their name to the foundation in order to leave a personal legacy.
The foundation charter, which determines the structure and activities of the foundation, must be in writing and, if shares or land are to be transferred, must be notarised. In Germany, various forms of foundation are subject to special legal requirements. Setting up a foundation is a demanding process that usually requires the support of professional assistance to ensure compliance with all legal requirements.
What types of foundation are there?
- Non-profit foundation: These foundations pursue purposes that promote the common good, such as education, science, culture or social projects. They enjoy tax advantages in accordance with the provisions of the German Fiscal Code (§§ 51 ff. AO).
- Family foundation: These foundations serve to promote and support the founder’s family. They are often designed to secure the family’s assets for generations to come.
- Corporate foundation: These foundations pursue economic purposes, such as securing and promoting a company. They can help to ensure the long-term continuity and independence of a company.
- Trust foundation: A special form of foundation in which the assets are not transferred to a foundation with legal capacity, but are managed in trust by a natural or legal person.
The Fugger foundations: An outstanding example of long-lasting social commitment
The nine Fugger foundations are an impressive example of successful and sustainable foundations. They have existed without interruption since the 16th century and pursue the diverse purposes of their founders, including the provision of housing (Fuggerei) and medical care, as well as education, pastoral care and support for the needy.
Over the centuries, the Fugger family’s social commitment has been expanded by further foundations and endowments from others. To this day, the family’s aim is to fulfil the will of the founders and to continue the foundations in their spirit. The family senior council plays an important role in this as an honorary body, while the professional foundation administration ensures the operational implementation.
Are you interested in finding out more? Then visit the Fugger Foundations website: Fugger Foundations
Setting up a foundation: Your options at a glance
Charitable foundations serve to sustainably promote the common good. They enable you to use your assets specifically for charitable purposes and thus make a lasting contribution to society. Whether education, science, art, culture, social issues or environmental protection – there are a wide range of options and they can be customised to suit your personal values and goals.
Establishing a charitable foundation not only offers ideal fulfilment, but also tax advantages. Donations to charitable foundations are tax-deductible and the foundation itself is exempt from corporation tax. The prerequisite for tax relief is recognition of charitable status by the tax office.
Family foundations serve to secure and pass on family assets in the long term. They enable you to protect your assets from fragmentation and at the same time guarantee your family’s financial independence for generations to come.
In contrast to inheritance tax, which is payable on every inheritance, a family foundation incurs gift tax on the transfer of assets to the foundation and additional inheritance tax every 30 years (Section 1 (1) No. 4 of the Inheritance Tax Act). You can also influence how the assets are used and which family members should benefit from them and to what extent by drafting the foundation charter.
Here we have a flexible alternative to a foundation with legal capacity. It is particularly suitable for founders who wish to set up a foundation quickly and easily or who wish to entrust their assets to a trustworthy third party to manage.
However, the trust foundation is not an independent legal entity. The foundation’s assets are managed in trust by a natural or legal person who adheres to the founder’s instructions. This type of foundation is not subject to foundation supervision and therefore offers more room for manoeuvre.
Corporate foundations are a strategic means of strengthening corporate social responsibility (CSR) and promoting the company’s image. They enable you to link your company with charitable projects in the long term and thus make a contribution to society.
They can pursue various purposes, such as promoting education and research, supporting social projects or protecting the environment. The structuring options are varied and can be customised to suit your company’s objectives. By setting up a corporate foundation, you not only demonstrate your social commitment, but also benefit from tax advantages.
For founders: advantages of setting up a foundation for your asset succession
Set up a foundation and save taxes
Foundations enjoy privileged tax treatment in Germany. Charitable foundations are exempt from corporation tax (Section 5 I No. 9 KStG) and are not subject to trade tax (Section 3 No. 6 GewStG). In addition, donations to charitable foundations are tax-deductible (§ 10b EStG). In the case of family foundations, gift tax can be minimised through clever structuring.
Preserving assets in the long term and preserving values
A foundation makes it possible to preserve assets over generations and protect them from fragmentation. By defining the purpose of the foundation and the foundation bodies in the articles of association, you can ensure that your assets are used in your best interests even after your death.
Shaping social influence and bringing about change
With a foundation, you can bring your values and convictions to society in a sustainable way. You have the opportunity to support projects and initiatives that are close to your heart and thus make a contribution to social, cultural or scientific progress. Your foundation can thus become an instrument for bringing about positive change in the world.
Requirements and legal framework of a foundation
The establishment of a foundation in Germany follows a strictly regulated process that requires the fulfilment of defined requirements and compliance with the existing legal framework.
The purpose of the foundation must be formulated precisely, clearly and in line with the common good. It can include charitable, benevolent or ecclesiastical objectives and must be permanent and sustainable. The precise definition of the foundation’s purpose is critical, as it forms the basis for all of the foundation’s activities.
The minimum capital required to set up a foundation varies depending on the federal state and the purpose of the foundation. As a rule, capital of at least 25,000 euros is required, although this amount may be higher in some federal states. Funding can be provided in cash or in kind.
The foundation charter is the basic document of a foundation and defines key aspects such as the purpose of the foundation, the composition and tasks of the foundation bodies (executive board and foundation council), the rules for asset management and the utilisation of income. Notarisation is required for its legal validity.
The Board of Directors acts as the executive body of the foundation and is responsible for realising the foundation’s purpose. It represents the foundation externally and makes the necessary decisions to fulfil the foundation’s tasks. The Board of Trustees fulfils a supervisory function and advises the Executive Board on strategic decisions.
A foundation only acquires its legal capacity when it is recognised by the responsible foundation authority. For this purpose, a formal application including all the necessary documents must be submitted. The authority checks whether the foundation fulfils the legal requirements, in particular with regard to the foundation’s purpose and capital, and issues the certificate of recognition if the assessment is positive.
The 4 steps to setting up a successful foundation
Setting up a foundation is a complex process. Take a structured approach to the foundation process and seek professional support.
- Planning and advice: Successful foundations start with careful planning. This includes the precise definition of the foundation’s purpose, the selection of the appropriate foundation form and the development of an effective strategy for realising its tasks. The involvement of experts in foundation law, tax law and asset management is essential in order to identify and minimise risks at an early stage.
- Drafting the articles of association: The articles of association, the fundamental legal document of every foundation, must be formulated with the utmost precision. It defines the purpose of the foundation, regulates the structure and responsibilities of the foundation’s bodies and sets out in detail the guidelines for asset management and the use of funds. Clarity and precision in the drafting of the articles of association are crucial for the effectiveness and longevity of the foundation.
- Recognition and registration: The foundation statutes must then be submitted to the relevant foundation authority. This authority checks the legal conformity and non-profit status of the articles of association and issues the certificate of recognition if all requirements are met. Once recognised, the foundation becomes legally capable.
- Administration and control: After its establishment, the foundation is administered by the Board of Directors, which implements the foundation’s purpose and ensures the correct management of the assets and the targeted use of funds. The Board of Trustees acts as a supervisory body, advises the Executive Board strategically and ensures compliance with all legal requirements, which are monitored by the state foundation supervisory authority.
- Foundation register: From 2026, there will be a foundation register for the first time. The foundation must be registered there once it has been recognised.
LW-P Lüders Warneboldt is at your side as a partner to help you turn your foundation idea into reality. Arrange a non-binding initial consultation to find out more and discuss your plans.
Challenges in setting up a foundation and possible solutions
Founding and managing a charitable organisation not only offers numerous opportunities, but also confronts you as a founder with specific challenges. Our experienced team of consultants is committed to overcoming these challenges with proven solutions.
Challenge 1: Complexity of foundation law
Foundation law and non-profit law are extremely complex. Errors in the foundation or administration phase can have significant legal consequences.
Solution: Our legal experts will guide you through the entire process of setting up a foundation and ensure that your foundation fulfils all legal and tax requirements. We provide you with comprehensive advice on drafting the foundation statutes, selecting the foundation bodies and ongoing administration in order to minimise legal risks.
Challenge 2: Conflict prevention and resolution
Internal conflicts between foundation bodies or beneficiaries can significantly impair the effectiveness of the foundation’s work.
Solution: We support you in establishing a clear and transparent governance structure that clearly regulates responsibilities and decision-making processes within the foundation. We also advise you on the implementation of effective conflict resolution mechanisms to proactively address and efficiently resolve potential disputes.
Conclusion: Setting up a foundation - your legacy for the future
The decision to set up a foundation is of considerable importance. It offers you the opportunity to secure your assets in the long term, assume social responsibility and promote your values in the long term. With careful planning and professional support, your foundation can become a lasting success.
LW-P Lüders Warneboldt is your reliable partner in the realisation of your foundation ideas. We offer comprehensive advice and support in all legal, tax and strategic aspects of setting up and managing a foundation.
Contact us now for a non-binding initial consultation and let us realise your vision together.
FAQ - Frequently asked questions about setting up a foundation
Setting up a foundation often raises many questions. We have compiled the most frequently asked questions from our clients and answered them in a compact and understandable way.
In Germany, any natural or legal person can set up a foundation. This includes private individuals, companies, associations and even existing foundations.
To establish a foundation, a clearly defined and legally permissible foundation purpose is required, which can be charitable, benevolent or ecclesiastical. In addition, a minimum amount of capital is required, which must be sufficient to guarantee the fulfilment of the foundation’s purpose. A comprehensive foundation plan that outlines the objectives, measures and financing of the foundation is just as essential as a written foundation charter that serves as the legal basis.
The costs of setting up a foundation vary depending on its complexity and scope. The main cost factors are notary fees for notarising the foundation charter (if required), fees for state recognition and, if applicable, fees for legal and tax advice.
A foundation is an independent legal entity under private law that can act on its own responsibility, acquire rights and enter into obligations. It pursues a specific purpose that is defined in its articles of association.
The main purpose of a foundation is to fulfil its statutory purpose, not to make a profit. The foundation business is geared towards the sustainable protection and utilisation of the foundation’s assets to achieve the foundation’s purpose.
Charitable foundations benefit from considerable tax advantages, including exemption from corporation and trade tax. Donations to charitable foundations are tax-deductible, which is advantageous for both founders and donors.
The purposes of foundations are diverse and must be charitable, benevolent or ecclesiastical. They can include areas such as education, science, art, culture, environmental protection, development aid or support for the needy. The choice of the foundation’s purpose reflects the founder’s personal values and interests.
Yes, you can set up a GmbH with 12,500 euros. Although the GmbH Act requires a minimum share capital of 25,000 euros, only half of this, i.e. 12,500 euros, must be paid in before registering with the commercial register.
Yes, it is possible to set up a UG (haftungsbeschränkt), also known as a “mini-GmbH” or “1-Euro-GmbH”, with a share capital of just 1 euro. However, special regulations apply to the UG, such as the obligation to build up reserves until the minimum share capital of a GmbH is reached.
