Everyone knows what a foundation is. Few people can tell you. Legally, a foundation is a separate capital. Actually, it is a fortress, a construction difficult to penetrate from outside. By definition, a foundation does not have members. By definition, a foundation does not have a shareholder. A foundation does have a board and the board is the boss. In many cases, the board of the foundation itself determines who the (next) board members are. Nobody outside the foundation can influence that. Thus, the foundation is about the most undemocratic legal form we know.
Purpose
The bylaws of the foundation are the only restriction for the board beside the law. The board has to observe those. The bylaws of a foundation always contain the purpose of the foundation. This may be for instance the founding of an orphanage, or the establishment and operation of a nursing home or a home for the elderly. A foundation can also be aimed at developing sports or tourism. If the purpose of the foundation is promoting tourism in Curaçao, the board cannot decide to engage in care for the elderly. The board would then act in conflict with the bylaws and consequently against the law.
Contrary to what many people think, a foundation not always needs to have an idealistic purpose. Also (only) houses can be placed in a foundation. The purpose of the foundation can be the operation of those houses. A foundation can also make a profit, but in that case one has to pay (corporate income) tax.
Supervisory Board
Because foundations and boards of foundations often are secure fortresses, a so-called “Supervisory Board” model has been introduced in many somewhat larger foundations under the influence of stricter standards concerning corporate governance. It is funny that this has not been laid down by law. A board of a foundation has to decide itself that it wants to introduce this Supervisory Board and then modify the bylaws accordingly. If a foundation has a Supervisory Board model, there will be a Board of Supervisory Directors above the board, so to speak, which has an advisory and controlling task, just like in a limited liability company. In that way, the fortress will be somewhat more accessible to external ideas and criticism.
Right to institute an inquiry
The Curaçao legislator also introduced a so-called right to institute an inquiry for foundations in 2004. Based on it, stakeholders have a statutory right to ask the board of the foundation questions concerning the policy and the course of business at the foundation. If these questions are not adequately answered, this stakeholder can request the Court to cause an inquiry to be conducted with the foundation. If this inquiry would lead to the conclusion that there are well-founded reasons to assume mismanagement of the board, the Court can take measures. In that case, board members can even be removed by the Court and others appointed. This legislation also opens a door to the fortress of the foundation. It is funny that this possibility has not or hardly been used in our Caribbean history as yet. Who takes a good look around must be surprised about that.
Do you have a question about corporate governance yourself? Please e-mail it to governance@vaneps.com and perhaps your question will be discussed in the next column!
