New regulation on Foundations in Spain

The draft Law on Foundations will substitute the Law on Foundations 50/2002 of 26th December 2002. The novelties include the ability to dissolve an inactive Foundation or a Foundation that does not fulfill its purposes, the implementation of means against fraud and the creation of a unique Foundations Registry and a Protectorate (Protectorado) responsible for applying the sanctions regime introduced by this law.

How to constitute a Foundation in Spain

A party interested in creating a foundation must go to the Protectorate to solicit a report about the suitability of the purpose and activities and about the adequacy and sufficiency of the endowment of the foundation. The endowment eliminates the possibility of subsequent disbursements. The request must be resolved within a maximum period of three months. Once the Protectorate delivers a favourable notice, the interested party will be able to go the notary to set up the foundation.

Through the Directorate General for Registers and Notaries, the notary will set up the foundation and solicit its registration into the Foundations Registry, an organ part of the Ministry of Justice.

The Foundations Registry, which will be public and its content will be presumed accurate and valid, which will include all the relevant acts of all the foundations operating in the Spanish territory. It will allow a foundation to fulfill its publicity and transparency obligations, which permit better control of the use of the grants and tax benefits the foundation has obtained. The Commercial Registry will maintain the Foundations Registry.

Foundation’s life in Spain

The law reinforces the endowment requirements and eliminate the possibility of subsequent disbursements; regulates some governance rules that govern the actions of the foundation’s board members and establishes the duty to promote the adoption and the diffusion of good governance rules. On the web page, the foundation must publish information about the foundation’s activities, the annual accounts, the foundation’s costs and the grants and state aids the foundation has obtained.

One of the novelties will be the ability of the Protectorate to designate, prior to proposal of the board, new board members of the foundation when the registered number of board members will become less than the legal minimum.

Moreover, and as another control measure, the purposes of the foundations cannot be mentioned in general terms in its bylaws.

Furthermore, the new law will put a stop to the existing dispersion in the General Spanish State Administration, unifying the protectorate as the sole office and revising its functions in order to adapt them to the reality of the foundations. The Protectorate becomes the guarantor body carrying out the founder’s will and the general purposes that foundations must fulfill.

Terminating a Foundation in Spain

The reform provides the possibility of dissolving a foundation if it is inactive or if it does not fulfill its purposes or does not fulfill its obligations with regard to the Protectorate and the Register.

Failure to present its accounts every year or its acting plans during three successive accounting years is a further cause of dissolution. The aim is to reduce the significant percentage of inactive registered foundations.

How to avoid fraud committed by foundations in Spain

To combat fraud and to avoid the use of a foundation to develop activities not associated with the foundation’s purposes, as well as creating business relations based on the establishment of the foundation, the law distinguishes between activities used to achieve the foundation’s purposes and commercial activities used as a means to finance the foundation.

Only foundations that meet the legal requirements will benefit from grants and tax benefits often received by non-profit entities.

In this way, the law clarifies the obligation to allocate at least 70 percent of the foundation’s obtained income to the purposes of the foundation, already established in the law of 2002. All the employment agreements undertaken with people or entities linked with the foundation are also regulated.

Sanctions regime enforced on foundations in Spain

The law introduces a sanctions regime operated by the Protectorate. The responsible parties are the board members and the secretary of the board, if not included in the first category, if their individual responsibility is determined in the infraction committed. The infractions will be divided between minor, serious and very serious, and will be sanctioned by sanctions ranging from warnings to fines between 1.000 to 30.000 Euros or the loss of the position as a board member or other administrative body, and the incapacity to carry out these positions for a period of five to ten years.

This article is not considered as legal advice

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