Fiduciary Foundation – a new legal form for professional asset management in Hungary
The provisions of the Act XIII of 2019 on the fiduciary foundations (hereinafter as: the Act) are entered into force on 29 March 2019. Besides, the provisions on the foundations in general, the Hungarian Civil Code and further sectoral provisions are applicable.
This form can be founded either as a new legal person, or with the Act-conform modification of the Charter document of an existing foundation. It is good to know that legal representation is essential during the establishment, regarding the formal requirements of the Charter document and the obligatory representation in the incorporation procedure.
The minimum value of the asset is 600 million HUF (six hundred million Hungarian forints) that shall be provided to the fiduciary foundation before the incorporation procedure. The asset shall be defined in detail, be identifiable by parts and can be given to the foundation as cash or as non-cash contribution as well.
Contrary to foundations in general, the fiduciary foundation can do economic activity, namely the asset management.
As a sub-type, there is the possibility for the founder (settlor) to establish a fiduciary foundation with public interest (i.e. financing or supporting either of the following activities, or maintenance of a legal entity with either of the following activities: education, higher education, research, healthcare, caritative, social, related to protection of family, children or of young people; cultural or sports), in case of an open range of beneficiaries.
As an advantage, a fiduciary foundation with the objective public interest can receive the charitable status by law during the establishment, if the founder requests so. Without such a request, a fiduciary foundation (without public interest) can only get the charitable status if later it fulfils the necessary requirements as in general.
Quasi as a disadvantage, in case of this sub-type there are limitations, such as restriction for beneficiaries and their close relatives (as they may not hold a seat on the board of trustees) or for the founders and their close relatives (as they may not have majority in the board of trustees), and any modification of the objective of the foundation may be done under the general rules of the Civil Code.
The obligatory organs of a fiduciary foundation are the board of trustees as the managing body (5 natural persons at least), the supervisory body (3 persons at least) as the monitoring body on behalf of the owners, and a statutory auditor. Depending on who exercises the founder’s rights, a further organ shall be nominated for external auditing. If the founder’s rights are exercised either by the board of trustees or by the foundation itself, it is obligatory to have an ‘asset auditor’ as an external organ for the supervision of the asset management activity. This person can control the conformity of the activity with the Investment policy, has an access for the foundation’s documents and registers, and he is entitled to bring an action for judicial oversight of the legal person if necessary.
Regarding the corporate documentation, besides the general requirements of a foundation the Charter document shall contain the objective and the policy of the asset management, however a separate Investment policy shall be prepared for defining the portfolio of assets, risk analysis, decision-making process of asset management.
The practice shall give an answer to the applicability of this new legal form, however the possibility for combining the advantages of the foundation and that of the Hungarian trust is given to the settlors.