19.09.2022 | KPMG Law Insights

Implementation of the new foundation law: The clock is ticking!

The foundation law reform adopted in 2021 with the Act on the Unification of Foundation Law (government bill: BT-Drs. 19/28173; printed resolution: BR-Drs. 569/21) comes into force on July 1, 2023. By then, existing foundations should have adapted their statutes to the new foundation law. Even those who want to establish a foundation today should already take the new law into account.


Which aspects should always be checked and observed?

In the following, we outline those topics in the articles of incorporation that existing foundations should definitely review in light of the reform of foundation law to determine whether they need to be adapted. These aspects typically also have to be taken into account when a foundation is established before the reform comes into force.

Regulations on amendments to the Articles of Association

As one of the most important issues, the regulations on amendments to the Articles of Association should be examined. This is because the new foundation law will in future provide for simplified requirements for amendments to articles of association, whereas existing articles of association usually do not contain these simplifications in their articles of association due to the currently applicable foundation law. Whereas up to now in many state foundation laws the basic requirement for amending the foundation statutes has been a significant change in circumstances, in the future the basic requirement will be a change in the foundation statutes. only the amendment of the formative provisions of the foundation’s articles of association are subject to this aggravated condition. In addition to the purpose of the foundation, the formative provisions should also include the manner in which the purpose is to be fulfilled, regulations governing the administration of the foundation’s assets, and the name and registered office of the foundation. However, the founder may also stipulate deviating provisions. Other provisions of the Articles of Association may be amended in the future if the amendment serves to fulfill the purpose of the Foundation. Foundations should therefore compare their articles of association with the new foundation law and eliminate old terminology (such as “impossibility”) and overly narrow requirements for amendments to the articles of association and adapt them to the new foundation law.

Provisions on the addition and merging with other foundations (“foundation mergers”)

For the first time, the law on foundation mergers (“mergers” of several foundations into an existing foundation or into a new foundation) is also regulated in a uniform manner throughout Germany. For this reason alone, the existing provisions of the articles of incorporation should be adapted to the new foundation law, insofar as this can be reconciled with the founder’s intentions.

Regulations on the foundation’s assets

The new foundation law provides for a uniform concept of assets and a uniform definition of foundation assets: These consist of the so-called basic assets (= “inviolable core assets”) and other assets that are available to fulfill the foundation’s purpose. Articles of association should be reviewed to determine whether they already reflect the new terminology and the changed structure of foundation assets resulting from the reform of foundation law. Experience has shown that many foundation statutes only speak of “foundation assets”, which are to be permanently maintained, and do not distinguish between the different types of assets. Furthermore, provisions on so-called reallocation gains, i.e. gains from the reallocation of the basic assets, should be scrutinized. This is because, under the new law, these reallocation gains may always be used to fulfill the foundation’s purpose, unless this is expressly excluded in the foundation’s articles of association or the preservation of the basic assets is not ensured. The changed rules for consumption foundations and the new possibility of a so-called partial consumption foundation should also be examined more closely. The asset structure of the new foundation law offers more freedom and flexibility overall.


What does this mean for foundations and donors?

According to the legislator, existing foundations may adapt their articles of association to the new law until July 1, 2023, subject to simplified conditions. Foundations and benefactors should use this opportunity to modernize their statutes. In any case, the above aspects should be reviewed. When adapting the foundation statutes, it is then advisable to also take a look at the regulations on the organization of the foundation bodies and, if necessary, to modernize them (e.g. with regard to digital options for passing resolutions and liability (limitation) regulations). This applies both to charitable (tax-privileged) foundations and to family foundations, which can be important for medium-sized entrepreneurs, entrepreneurial families and wealthy private individuals in the context of asset and company succession. The new regulations should also be taken into account today when setting up a foundation in order to make the foundation statutes more future-proof.

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Mark Uwe Pawlytta

Head of Succession and Foundation Law

THE SQUAIRE Am Flughafen
60549 Frankfurt am Main

tel: +49 69 951195012

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