The Dutch foundation: What you need to know about the world’s “orphan entity”

While unique, the Dutch foundation is well-established under Dutch law and serves a wide range of purposes for corporations and investors inside and outside the Netherlands. This article provides a summary of the foundation’s characteristics and uses.

Why the Dutch foundation is important

The Dutch foundation is an important element not just of the Netherlands’ domestic economy, but of the global one. The foundation and its various types provide global investors and multinational organisations with versatile tools to manage family wealth, safely engage in philanthropic activities, obtain certain tax advantages, separate legal and economic ownership of assets, prevent hostile takeovers and more. Its versatility, clear rules and longevity help ensure it will remain a cornerstone of legal and financial stewardship in the world economy.

Historical context

The concept of the Dutch foundation traces its origins to the late Roman period, where institutions known as "piae causae" began to emerge under the later Christian emperors. These institutions had charitable or pious missions, such as caring for the poor and sick, and they managed their assets under the auspices of local churches.

Over time, these foundations evolved, establishing administrations and legal frameworks independent of religious institutions. It wasn't until 1957, however, that statutory provisions formalised the Dutch foundation, including introducing rules for entity establishment, management and governance.

Characteristics of a Dutch Foundation

A Dutch foundation is at its core a legal entity with rights and obligations but without any owner or interested person. This quality helps set it apart from legal entities in other jurisdictions and explains why Dutch foundations are often referred to as “orphan entities.”

A Dutch foundation operates autonomously to achieve its defined objectives. It is governed by a board of directors (which may include a supervisory board) whose board members enjoy limited liability. A foundation can enter into contracts, own property and engage in legal proceedings in its own name.

Incorporation process

A Dutch foundation is established through a notarial deed executed by a Dutch civil-law notary and subsequently registered in the Dutch commercial register. The foundation’s objectives must be clearly defined in the deed of incorporation. It must have at least one director (who can be an individual or a legal entity), with the option to include a supervisory board for additional oversight.

The foundation cannot include distributions to incorporators or board members. Incorporators or board members may, however, receive remuneration that is reasonable based on their responsibilities.

Dutch Foundation: Types and uses

Family foundations

A family foundation contains assets contributed by a family. Some family foundations make distributions to specific causes. These can be independent or part of a larger fund that is known as a "named fund." 
Other family foundations only distribute to family members. These are fiscally classified under Dutch law as separated private assets (Afgezonderd Particulier Vermogen, or APV). To prevent these foundations from being used for tax evasion, related tax provisions were introduced in 2010.

Claim foundations

According to its articles of association, a claim foundation represents collective interests. In the Netherlands, claim foundations are particularly significant in class action lawsuits, where they aggregate individual claims to seek justice for a larger group. These foundations must adhere to strict governance and transparency requirements to ensure they act in the best interests of the individuals they represent.

Recent legislative developments have strengthened the claim foundation’s role in protecting collective rights in the Netherlands.

Public benefit organisation (ANBI)

Foundations dedicated to promoting the general interest can qualify as a public benefit organisation (ANBI) by meeting specific criteria. Achieving ANBI status requires submitting an application to the Dutch Tax and Customs Administration.

ANBIs enjoy certain tax advantages. For example, donors to an ANBI can deduct those contributions from their Dutch personal income tax. Corporations can also benefit from ANBI deductions under Dutch corporate income tax regulations.

ANBIs are also exempt from gift and inheritance taxes, which is significant since these tax rates can reach 40 percent without ANBI status. Funds received from an ANBI for general benefit purposes are also exempt from gift tax.

Trust office foundation (STAK)

A trust office foundation, or STAK, is a special type of foundation that facilitates the separation of legal and economic asset ownership. Here is the process for transferring shares to a trust foundation:

• Shareholders transfer their shares to the STAK.
• The STAK issues depositary receipts to the former shareholders, who then become depositary receipt holders.
• The STAK assumes legal ownership of the shares and exercises control over the company — including voting rights — on behalf of the depositary receipt holders.

The depositary receipt holders retain economic ownership of the shares. All dividends and other distributions received by the STAK (the legal owner of the shares) are typically passed directly to the depositary receipt holders.

This arrangement ensures tax transparency and maintains the economic ownership of the underlying shares for the depositary receipt holders.

Foundation preference shares

Foundation preference shares is a structure designed to prevent the hostile takeover of a Dutch public limited company (NV) or a Dutch private limited company (BV). Essentially, the structure is empowered to acquire preference shares to thwart unwanted shareholder influence in the shareholders' meeting of the NV or BV. This right is stipulated in the articles of association of the protected NV or BV, which authorises the issuance of preference shares. The company's management then grants the foundation a call option to purchase the shares.

By holding these preference shares, the foundation effectively diminishes the voting rights of other shareholders. Importantly, these shares are not subject to pre-emptive rights, meaning they can be acquired without first being offered to existing shareholders. This strategic ownership grants the foundation substantial voting power, effectively deterring any unwelcome takeover attempts.

Foundation priority shares

Foundation priority shares is a structure that serves as a defensive measure against unwanted shareholder influence in Dutch public limited companies (NV) or private limited companies (BV). The foundation holds priority shares endowed with special governance rights, which include the ability to propose a binding nomination for the appointment of the board of directors of the NV or BV. By exercising this authority, the foundation ensures that decision-making power remains vested in specific individuals within the NV or BV.

Foundation in securitisation structures

A Dutch foundation is frequently employed in securitisation structures to hold the shares of a special purpose vehicle (SPV), ensuring independence from the originator of the securitised assets and creating the so-called orphan structure. If the originator defaults, the continuity of the structure is safeguarded. Operating as an independent legal structure, the SPV takes ownership of the assets being securitised, which may include receivables, loans and mortgages.

By transferring these assets to the SPV, originating entities effectively isolate the assets, shielding them from risks associated with other business activities and in some cases taking them off the originating entity’s balance sheet. The SPV can then issue securities, typically bonds or notes, backed by the cashflows generated by the underlying assets. This issuance enables investors to participate in returns from the underlying assets in a transparent and legally secure manner.

Another typical use of a foundation in a securitisation transaction is the foundation security trustee. This foundation holds the security rights of the assets for the benefit of the noteholders as described above and is independent of the SPV issuing the notes or bonds.

Finally, a collection foundation can be set up to ringfence all incoming cash payments, interest and principal from the securitised assets. Here again, this safeguards the interests of the noteholders in the securitisation transaction.

This article has been updated.