Legal Alerts / 17 Oct 2014

Legal Alert – Government Bill to Reform the Foundation Act

The Finnish Government submitted to Parliament on 25 September 2014 a government bill (HE 166/2014 vp) to reform the Foundation Act. The Government proposes a new Foundation Act to replace the currently effective act, which has been in force since 1930. The proposed act targets to enable the most efficient, flexible and foreseeable foundation operations as possible. The intention of the legal reform is to remove unnecessary restrictions from foundations’ operations. The proposed new act is intended to enter into force as of 1 July 2015.

The proposed new Foundation Act would clarify the role of functional and on continuous basis financed foundations, emphasize the social usefulness of foundations and increase openness and further to restrict unfounded favouring of foundation’s related parties. As a part of the current reform the Act on Foundation Supervision Fees (1048/2013) was entered into force on 1 January 2014 in order to enable a more effective authority supervision of foundations.

The Government proposes enacting of new procedural provisions as well as including presumption clauses which would affect the foundations’ operations, unless otherwise stipulated in the articles of the foundation. In addition, the amount of non-mandatory provisions will increase. For instance, the founder could specify supervisory and legal provisions in the articles of the foundation to complete the statutory provisions provided in the Foundations Act. The new Foundations Act would enable the founder to make exceptions regarding, i.e. conditions of changing the purpose of the foundation, mergers and termination of the foundation. With the new act, the amending of the foundation’s articles would be made easier and more flexible. Another target of the act is to protect the specific rights given to third parties defined in the articles.

The new act also aims to improve the transparency of foundations’ operations by imposing conditions on annual accounts, annual reports and related parties. A relevant change is that the management of the foundation and its duties are defined by the provisions of the new act. In addition to the board of directors, a foundation can have both a managing director and a supervisory board in the future. However, despite of the changes, foundations continue to have the possibility to choose an ombudsman with an employee status.

With the new Foundation Act provisions regarding business operations practiced by a foundation would be included in the act. According to the new act, a foundation could also practice business operations stipulated in the foundation’s articles in order to finance its actual operations.

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