What are Private Interest Foundations?

Private Interest Foundations are intended to promote national and international trade, the Panamanian legal system has included legal mechanisms regarding corporations and private interest foundations.

These laws address aspects related to the acquisition of goods, confidentiality and tax benefits for corporations depending on their activity.

Each legal entity operates under different procedures. Corporations operate in accordance with the provisions of Law No. 32 of February 26, 1927, while corporations operate under the provisions of Law No. 25 of June 12, 1995.

A private interest foundation can be defined as a legal entity whereby a founder transfers his property to a legal entity (a foundation) to protect and manage it in favor of a beneficiary like himself or a third person.

Protecting the inheritance

Unlike other legal entities, such as corporations and trusts, foundations do not have shareholders or partners and do not require transferring assets to a third party since the interested party can set up its own private foundation.

Private interest foundations are non-profit entities, but they may carry out non-usual commercial activities related to their objectives in accordance with the provisions of its own articles of incorporation.

Private Interest Foundations shouldn’t be confused with non-profit associations such as cultural, sports, consumers and religious associations, unions, health insurances and other foundations which are part of the so-called “third sector.”

Unlike what happens with corporations where shareholders are registered in (confidential) private documents, the founder’s directives, his name and the names of other who make up the founding council in addition to the officers such as the legal representative and the resident agent, are public, since the Foundation Act is registered in the Public Registry.

In order to promote trade, Panamanian legislation includes benefits to corporations and foundations in fiscal and commercial aspects, but in terms of patrimonial, family and hereditary planning, the benefits are greater for private interest foundations since the founder may order that, upon his death, all or part of his assets are transferred to a relative, friend or natural or legal person avoiding a tedious and prolonged probate proceedings.

The inheritance is untouchable

Among other significant differences between both legal entities there are differences related to legal entities and societies. In a limited company, the assets of the company and its shares are managed with their own legal status and their shareholders are liable only up to the amount of their shares, while in a foundation, the donated assets are autonomous, separated from the founder’s personal inheritance.

Private interest foundation provides a series of benefits:

• It is possible to open bank accounts in the name of the foundation in any country in the world.
• The foundation may own real or personal property of any kind.
• A foundation is ideal to protect and preserve family businesses and assets.
• It facilitates transferring assets between members of a family without probate proceedings.
• It allows nominal founders and the nominal founding council to remain anonymous.
• All information related to the foundation is confidential.
• The assets of the foundation are separated from the personal assets of the founder.
• The founder and the members of the foundation can appear as shareholders in any corporation or offshore company, inside or outside Panama.

To summarize, a private interest foundation offers large benefits -as an alternative to the will- to protect assets and the patrimony of the family, these include tax benefits and other benefits to carry out commercial activities that generate profits to use them in the objectives of the organization.

Candanedo y Correa is a law firm based in Chiriqui, Panama; with over 12 years of experience in law and advisory services. We have the knowledge, experience and we’re more than willing to advise you and help you to constitute your private interest foundation or any other service you may need. Contact Us!