• Yvonne Döbler

Foundation - fast, flexible, digital.

Stiftungen Aufmacher

Philanthropy. The hurdles are high: lawyers, notaries, the foundation and also the financial supervisory authorities are involved when it comes to setting up and running a foundation. This costs time, money and often returns. "But there is another way," Felix Oldenburg is convinced. With "project bcause", the former Secretary General of the Association of German Foundations has launched an attempt to transport the "old" model of the foundation into the digital age.

"In an ideal world," says Felix Oldenburg, "an impact portfolio is just as natural as one for equities. And it can be managed just as digitally via an app. In such a world, anyone can support projects for the common good with even the smallest amounts at the click of a button, achieve an impact on society as a whole, and deduct their commitment from their taxes. Everything becomes simple - and engagement with assets increases enormously."

The real world has looked different so far. Foundations continue to be established, but most start with little capital. "Overall, foundation capital is lagging far behind asset growth," informs the former Secretary General of the Association of German Foundations. "I've wondered for some time what that might be due to. People are very committed, after all. If they're not endowing as much as they used to, even though the social challenges are getting bigger, there must be something wrong with the structure."

Oldenburg's thesis: the real hurdle for founding foundations is the legal form and the many requirements. To verify this, he starts a dialogue in the Corona Year 2020 and talks to over 100 wealthy people from the Berlin online scene, among others. He wants to know: What would have to happen for them to engage in philanthropy? "In summary, everyone agreed that what is on offer for this is not up to scratch. Going to a tax advisor, going to a lawyer, they don't have time for that at all," Oldenburg says.

During this time, he also talks to Gesche Joost, a professor at the University of the Arts in Berlin and a member of the board of the German National Academic Foundation: "At first, we were just philosophizing: How would the new giving have to be organized?" she recounts. This conversation is one of many in the "Dialogue New Giving" that Oldenburg has launched: Some high-net-worth individuals are participating at the invitation of German President Frank-Walter Steinmeier to find out how hurdles can be reduced so that commitment becomes easier.

Almost at the same time, Lukas Bosch becomes aware of Oldenburg's activities, radios him via LinkedIn and asks for a conversation. Bosch is a behavioral economist, social entrepreneur, and scion of one of Germany's oldest entrepreneurial families: "Donating," says the 26-year-old, "is so complicated, I have to talk to lawyers and notaries, take tax aspects into account, put money in a bag and lock it away for all time, and then this money also has to be managed in such a way that it doesn't do justice to the foundation's mission. I don't want that, the younger generation doesn't want that."

"Endowment must be simple, so digital and fast, transparent and effective - that's what donors want," almost Oldenburg summarized.

Digital and fast, the way wealth management happens today.

Globally, via tablet or smartphone. Transparent, because donors want to know at all times how the projects they are funding are doing. Effective, because impact is the driving force behind their commitment. And the initiators of the dialogue have gained yet another insight: What donors today apparently no longer care about is legacy. "The entry in the foundation register, which keeps one's name alive beyond death, has lost its significance, since founders can make their commitment known at any time in social media," explains Oldenburg.

This wish list of donors will give rise to project bcause in 2021: "Anyone who wants to donate can open an account with us starting next year with a capital commitment of at least 30,000 euros. This money will be transferred to a sub-account of a trust foundation and will be tax-effective as soon as the donor wants it", Oldenburg tells. The sub-account can be used at any time to let money flow into the public welfare-oriented impact area. The trust foundation thus serves the donors as a legally secure structure and pool for meaningful projects in order to finance the realization of projects with like-minded people. At the same time, the foundation takes over the handling of the commitment, so that the administration and management of the assets are in professional hands.

An example: "If the donor suggests that money from his capital account should flow into a certain private equity fund, the trustee implements the transaction. The resulting income automatically goes into the engagement account and can be used again," explains Oldenburg. It is not possible to use the proceeds for one's own asset accumulation, since it is a matter of social commitment.

Since the trustee never manages other people's capital, but moves the foundation's assets, bcause does not require any elaborate licenses. "We can thus limit the costs, which is particularly important in the low-interest environment," finds Oldenburg.

Perhaps project bcause is best described as a digital philanthropy service provider of the kind that has existed in the US for many years: Each user can control every single transaction themselves via an online interface. The business model provides for a basic monthly fee, regardless of assets. Oldenburg has already been able to win 20 investors for his start-up, and there are already over 600 interested parties on his waiting list to open an account. The initial investors are pre-financing the development of the company. In the first seed round, 2.5 million euros have been raised - "but we will probably need more until technology and content are up to date and we are at break-even".

Oldenburg is convinced: "Only giant foundations need a special construction. The standard case of foundations can be organized differently, namely efficiently and cost-effectively completely digitally." Bcause could ensure that the foundation world comes close to an ideal world: "If we succeed in making an engagement depot the norm for everyone, we will have transferred the foundation idea from wealthy people to everyone. We could run tens of thousands of custodial accounts - what a huge potential for the charitable sector."

He convinced Lukas Bosch with this. He is part of the founding team of bcause. And Gesche Joost is also inspired: "I have never experienced so much unwavering commitment to a cause as at bcause. Every single one of our supporters has a personality and is used to taking up space for themselves - but no one does. Our meetings are always about the success of the cause. They are already very special people who get involved here and drive project bcause forward."

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More opportunities for philanthropists.

"There is a lot of interest in philanthropy and discussion about how to rethink wealth and the common good," informs Kirsten Hommelhoff, Secretary General of the Association of German Foundations. In the context of this discussion, the foundation plays an important role "as a form of organization that has proven itself over centuries and continues to make immensely important contributions in our country and to our society today". To ensure that this remains the case, the Federal Association has been working for a long time to amend the law on foundations. Because the world is changing - but a foundation has not been able to react to this until now because foundation law was too rigid and too complicated. In times of zero interest rates, there were also too few opportunities to generate income with which the foundation's purpose could be fulfilled.

On 1 July 2023, a new foundation law will now come into force, which will also apply to existing foundations and will meet the changed requirements of foundations. Kirsten Hommelhoff has summarised the most important changes:

// 01. Changes to statutes and structure

The amendment of articles of association, the merger or the dissolution of foundations will be facilitated in future if a foundation can no longer effectively fulfil its purpose in the long term. This will contribute to making foundations more flexible.

// The amendment of the purpose will be possible in the future if a foundation can no longer fulfil its purpose in a permanent and sustainable manner. This is the case, for example, if sufficient funds are not available and cannot be acquired in the foreseeable future. Amendments to so-called formative provisions of the articles of association - i.e. the seat, the manner in which the purpose is to be fulfilled, regulations on the administration of the basic assets - will also be feasible in future. Amendments to the articles of association that are not formative can already be adopted today if they facilitate the achievement of the foundation's purpose.

// In future, a perpetuity foundation can be converted into a consumption foundation by amending the articles of association. Prerequisite: The foundation can no longer fulfil its purpose in the old legal form and this can be changed by means of a conversion.

// In future, it will be easier to dissolve foundations if they can no longer fulfil their purpose definitively and permanently.

Tip: Review and amend your articles of association before the new regulations come into force if they do not meet your current needs or provide for stricter regulations than the future law.

// 02. Foundation assets and reallocation gains

The legislator redefines the concept of assets in a new and uniform way. In the future, a nationwide distinction will be made between the (untouchable) foundation assets and the so-called other assets.

// In the future, increases from the reallocation of the basic assets - so-called reallocation gains - are classified as other assets and can be used to fulfil the foundation's purpose. Reallocation gains arise when extraordinary income is generated, such as the lifting of hidden reserves when real estate or securities are sold. Previously, only income - interest, dividends - could be used to fulfill the foundation's purpose.

However, there are two exceptions. Firstly, if the articles of association contain a passage prohibiting this, the provisions of the articles are binding. Secondly, if the preservation of the foundation's assets is endangered by the expenditure for a specific purpose, any profits from the reallocation of assets may not be used for the foundation's purpose.

Tip: If you have a clause in your articles of association that limits the use of reallocation gains, you should amend the articles of association on this point at an early stage.

// The new foundation law makes the management of the foundation's assets more flexible. In future, the articles of association may stipulate that the basic fund assets are to be used temporarily for the fulfilment of the foundation's purpose - with a simultaneous obligation to replenish them.

// 03. liability of the foundation bodies

The existing liability regulations for executive boards and advisory boards (governing bodies of the foundation) are supplemented by the Business Judgement Rule. The aim is to guarantee more legal certainty for the acting persons, in particular with regard to the investment of assets.

// In the future, there will be a discretionary power of the members of the governing bodies that is free of liability.

// The liability of board members can be limited in the articles of association.

// In future, members of governing bodies will not act in breach of duty when making decisions of a predictive nature if, "taking into account the legal and statutory requirements, they could reasonably assume that they were acting in the best interests of the foundation on the basis of appropriate information".

// Honorary board members are only liable for intent and gross negligence. The articles of association may provide for further exemption from liability.

This gives boards of directors discretionary scope within which to make their decisions. At the same time, foundations must define the scope. They may do so by defining bases for decisions or by requiring that professional advice be sought or that a written summary and presentation of pros and cons be provided. The documentation of the process safeguards the acting persons.

// 04. register of foundations

A public register of foundations will be introduced on 1 January 2026. New and old foundations must be registered there.

This electronic register has a publicity effect and is kept at the Federal Office of Justice. Its aim is to ensure greater transparency and legal certainty. Members of the executive board are identified as representatives of the foundations in business dealings - possibly with restrictions on their power of representation entered there. The certificates of representation that had to be issued in the past (problem of up-to-dateness) will then no longer be relevant.

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Author: Yvonne Döbler

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