Foundation law provides various forms of foundations for corporate succession, among other things. This legally compliant vehicle can be used to preserve and shape corporate assets over the long term. Tax benefits can facilitate transformation processes within the company.
By transferring assets to a corporate foundation, succession can be strategically managed and the continued existence of the company can be secured regardless of family or personal changes.
What is a corporate foundation?
A corporate foundation is a form of foundation that is not regulated by law. The corporate foundation (or company-affiliated foundation) has developed over the years in practice within foundation law.
The corporate foundation functions primarily as a succession planning instrument within foundation law. This allows entrepreneurs to structurally transfer their company or shares therein to a foundation during their lifetime in order to shape the long-term development of their company and ensure its continued existence.
The corporate foundation can be used in various ways or combined with other structuring options under foundation law. It offers several advantages compared to other instruments of corporate succession planning.
Under foundation law, two forms of corporate foundations can be distinguished. First, the corporate foundation, in which the foundation „directly supports" the company.
This means that the corporate foundation itself holds all the rights and obligations of the company and simultaneously provides the legal framework. In practice, this form of corporate foundation in foundation law is usually found in purely private-benefit businesses (see §§51 et seq. of the German Fiscal Code; AO) such as libraries, museums, schools, retirement homes, or residential homes.
The situation is different with the participation foundation, which is more practical and more suitable for business transactions. In this case, the company continues to be legally organized as a partnership or corporation (often as a GmbH) and continues to operate economically as such.
However, the foundation becomes the „perpetual owner" and assumes the shares in the company as assets transferred to it and to be managed in accordance with the foundation's purpose. It is not involved in the company's active business operations.
The essence of a corporate foundation under foundation law is therefore to exercise control over a company and to influence it. Ultimately, the entrepreneurial decision-making power at the strategic level lies with the foundation's governing bodies, which may also have the authority to issue instructions to the management.
A sub-category is the holding foundation, in which several companies or assets are bundled within the foundation.
Before establishing a foundation, experts in foundation law must conduct a legal review to determine whether the company in question is suitable for permanent institutionalization by transferring it to such a foundation.
Foundation law
A foundation with legal capacity is an independent body of assets that pursues a purpose defined in its articles of association on a permanent and sustainable basis with its foundation income (see §§80ff. of the German Civil Code; BGB).
Under foundation law, assets can be flexibly dedicated to a specific purpose, such as the continuation of a business, in a specific way using the foundation's articles of association. This purpose can also include charitable status (see §§51ff. AO).
Furthermore, essential characteristics of an independent foundation are that, following state recognition, it itself holds the endowed assets and is represented by a board of directors or managing director (see §80 (1) BGB).
Corporate succession in foundation law
Foundation law is fundamentally an important vehicle of the German legal system, providing flexible options for responsible planning of corporate succession.
This is particularly due to the fact that one of the essential elements of a traditional foundation, unlike other civil law institutions, is its duration (§80 (1) sentence 2 BGB). Under foundation law, a foundation generally exists for an indefinite period of time and can also exist in perpetuity and serve to fulfill the foundation's purpose (perpetual foundation).
Foundation law thus opens up considerable scope for action and control options with regard to the continued existence of the company after the death and during the lifetime of the founder. In particular, an entrepreneur can ensure that their company does not fragment in the event of inheritance, for example, by transferring it to a foundation under foundation law beforehand.
Since foundation law provides for various forms of foundation with different advantages, requirements, and purposes, a careful and sensitive examination of the intended company succession and the purpose of establishing the foundation should take place.
In addition to the provisions of foundation law, family, inheritance, tax and corporate law aspects may need to be taken into account and examined by experts when establishing and maintaining corporate foundations.
Corporate succession through a partnership foundation
Partnership foundations under foundation law are particularly well-suited for structured business succession planning. This is because the founder can exercise and transfer entrepreneurial decision-making power during their lifetime and secure the company and its internal aspects for the long term.
Securing the company itself
A particular advantage of a business foundation lies in its security. Since the company is separated from the private sphere of the entrepreneur or his family through its transfer to the foundation, and the foundation „belongs to itself," circumstances that threaten the company's future cannot have a negative impact on the company.
For example, an organization that serves as a partnership foundation is suitable if the fragmentation of the company or parts of the business is to be feared in the event of inheritance, or if the entrepreneur wants to avoid the need for clarification relevant to inheritance law.
This also provides a useful succession instrument for founders who either have no descendants or none who are interested in continuing the company.
One example is the Hans Wilsdorf Foundation (Fondation Hans Wilsdorf), which belongs to the world-renowned Swiss watchmaker and luxury brand Rolex. It is named after Rolex founder Hans Wilsdorf, who died childless in 1960.
Its purpose is, on the one hand, to „secure, preserve, and profitably manage the assets entrusted to it in accordance with the founder's instructions and wishes," and, on the other hand, to support charitable causes in the areas of social welfare and health, education, culture, humanitarian action, and ecological integrity.
Securing internal corporate circumstances
With the help of corporate foundations, foundation law provides founders with a safeguarding instrument for internal corporate circumstances. These are often part of the founder's life's work. This includes the entire corporate culture and structure, specific products, and, if applicable, jobs or work processes.
One example of this is the multinational Swedish furniture group IKEA, which has a unique product and business concept. This was secured for eternity with the help of the corporate foundation Interogo Foundation.
„The primary purpose of the Interogo Foundation is to ensure the independence and longevity of the IKEA concept and to manage and direct Interogo Holding. The Interogo Foundation is an independent company; there are and can be no individual beneficiaries. The funds held by the Foundation may only be used in accordance with the Foundation's purpose," it states on its website.
Commitment to the foundation's purpose
These advantages arise, among other things, from the special nature of foundation law, according to which the foundation's governing bodies are only bound by the founder's instructions as set out in the articles of association. This means that decisions regarding the use of funds or the company's structure can only be made in accordance with the founder's instructions and the foundation's purpose.
Compared to a conventional holding structure, the special holding foundation also offers the advantage that the founder can use the foundation's articles of association to establish guidelines for the company's future, which can extend beyond his or her lifetime and remain in effect forever. A conventional holding structure does not offer such permanence.
Thus, an entrepreneur who wishes to implement succession planning for their company responsibly and purposefully benefits from a high degree of security and structure for the company's continued existence. At the same time, day-to-day work within the company can continue with the necessary expertise, and tasks can be distributed efficiently.
Non-profit status and tax benefits
Another advantage of corporate foundations under foundation law is the opportunity for founders to act in the spirit of non-profit activity and do good.
Regarding the significance of corporate foundations under foundation law for the general public, Dr. Manfred Knof, former member of the board of trustees of the Commerzbank Foundation, said: „The corporate foundation represents our social responsibility. […] Acting responsibly toward one's fellow human beings is the fundamental principle of foundation commitment and essential for the future viability of our modern society."
The legal prerequisite for non-profit status is that a foundation purpose is defined within the framework of the foundation's deeds, which is aimed at pursuing non-profit, charitable, or ecclesiastical purposes (see §51 AO).
Specifically, the recognition of the non-profit status of the investment foundation entails tax benefits, such as exemption from income taxes (corporate and real estate taxes) and inheritance/gift taxes upon transfer of assets to the foundation. Tax relief for donations and value-added tax can also be granted.
On the one hand, these savings mean that the company's assets can be preserved, as there is no risk of tax burdens upon transfer or inheritance. On the other hand, they can be used for non-profit purposes and benefit the general public. This can also initiate and finance transformation processes within the company.
When recognizing and maintaining non-profit status, legal expertise in foundation law must be sought in order to preserve the created potential in the long term. In this regard, sensitivity to the making of non-profit donations and the founder's wishes is essential.
Flexibility
In addition to the flexibility provided by foundation law through the establishment of statutes, it also offers flexibility in terms of design.
For example, it is generally conceivable to establish the corporate foundation as a private-benefit family foundation to financially secure the family or descendants of the founder.
If a founder wishes to engage in philanthropic activities and support their descendants over several generations, and believes that this is best achieved by maintaining the company, they can establish a double foundation. Distributions can be made to family members without losing the company's non-profit status (see §58 number 6 AO).
Résumé
The corporate foundation offers a way under foundation law to plan the company's long-term and strategic future existence and protect it from fragmentation, sale, or the need for private and family clarification.
„The corporate foundation secures the existence of a company across generations." According to dtb-partner and expert in foundation law and non-profit organizations, Bertold Schmidt-Thomé, „At the same time, tax advantages can be taken advantage of, allowing entrepreneurial values to be permanently combined with public-interest or family-oriented goals."
Status 06.08.2025