The Foundation Law Reform 2020

On September 28, 2020, the German Federal Ministry of Justice and Consumer Protection (BMJV) published a draft bill for the reform and standardization of foundation law.

In 2015, the BMJV had already set up a German Federal-State working group (Bund-Länder-Arbeitskreis) for this purpose, which presented a first report on the reform of German foundation law in September 2016 and, following an expert hearing in June 2018, a second report. The current draft of the BMJV has adopted large parts of the report of the Federal-State working group.

What is the goal of the reform of foundation law?

The goal of the reform of foundation law is the nationwide standardization of foundation law in the German Civil Code (BGB) and thus an end to the coexistence of federal and state regulations, which results in inconsistent application practice by the supervisory authorities of the states.

What provisions does the draft reform of the law on foundations contain?

In addition to the legal definition of the foundation, the recognition of the consumer foundation and the order that the administrative seat of the foundation must necessarily be in Germany, the draft contains the following essential regulations in particular.

Assets of the foundation

For the first time, the assets of the foundation are regulated by law. According to this, the so-called "basic stock assets" consist of the initial assets as well as donations intended to become "basic stock assets" (endowments) and assets designated for this purpose by the Foundation. The purpose of the foundation is to be fulfilled by the use of these "basic assets". In addition to the "basic stock assets", there are "other assets" which may be used, while the "basic stock assets" must be maintained undiminished. In the future, however, it should be permissible to provide in the statutes that part of the "basic stock assets" may be used up, provided that it is replenished in the foreseeable future, a relief that will make it much easier in practice.

Bodies and their responsibilities

The foundation must have a board of directors that manages the business. However, in the statutes, management tasks can be transferred to other foundation bodies with the exception of representation. In § 84 (3) BGB, the so-called "business budgeting rule", which has long been demanded in practice, is to be introduced. Management measures are often future-oriented and require forecasts. This is especially true for investment decisions. In order to protect the members of the governing body, there should therefore no longer be a breach of duty in future if the member of the governing body could reasonably assume, in compliance with the legal and statutory requirements, that he or she was acting for the benefit of the Foundation on the basis of adequate information. In addition, the founder may limit in the statutes the liability for breaches of duty of members of the executive body towards the foundation.

Amendments to the Articles of Association

In the future there shall be three possibilities to change the statutes under certain conditions.  

• The most serious interference concerns a change in the purpose of the foundation. This is therefore only permissible if the permanent and sustainable fulfilment of the purpose has become impossible in its present form or if the public welfare is endangered and if it appears certain that the Foundation can fulfil the future purpose permanently and sustainably.
• Other changes of purpose as well as changes of provisions which are formative for the foundation (name, domicile, way of fulfilling the purpose, preservation of the basic assets and the tasks of the organs) may (only) be changed if the circumstances of the foundation have changed so substantially that an adjustment becomes necessary.
• Other amendments to the Statutes may be amended if this facilitates the fulfilment of the Foundation's purpose.

Allocation, consolidation

The report of the German Federal-State working group also adopted the regulations on the affiliation (transfer of the foundation assets as a whole to an acquiring foundation) and merger (transfer of the foundation assets of several foundations as a whole to a new, joint foundation). In view of the low-interest phase and the Corona crisis and the resulting limited capacity to act of many foundations, these possibilities were also urgently expected by the practice.

• However, an amendment is only permissible if (1) the circumstances have changed substantially and an amendment to the statutes is not sufficient to adapt the transferring foundation to the changed circumstances, (2) the purpose of the transferring foundation essentially corresponds to the purpose of the receiving foundation, (3) it appears certain that the receiving foundation can continue to fulfil its purpose in essentially the same way on a permanent and sustainable basis after the amendment and (4) the rights of the persons for whom the statutes of the transferring foundation establish claims to foundation benefits are safeguarded.
• A merger of several foundations into a new foundation shall be permissible under the above conditions (1), (3) and (4).