Written by Sébastien Lachaussée
Created by the Law n°2008-776 of August the 4th 2008 called « modernisation de l’économie » (“modernization of the economy”), or LME, the endowment fund is a legal structure aimed to simplify and rationalize the patronage under French law. Defined by the article 140 paragraph 1 of the LME, the endowment fund is “a non-profit-making private law entity that receives and manages, through capitalization, assets and rights of any kind that are contributed to it free of charge and irrevocably, and uses the income from the capitalization in order to carry out work or a mission of general interest, or redistributes this income to assist a non-profit-making legal entity in the performance of its work and missions of general interest”
Endowment funds, ARUP and FRUP
Endowment funds existence is an addition to pre-existing entities, with which an unfortunate duplication can legitimately be feared: non-profit organizations considered as public utility (“associations reconnues d’utilité publique”, or ARUP) and foundations considered as public utility (“foundations reconnues d’utilité publique”, or FRUP).
But actually, the endowment fund carries a real interest towards those two entities: a true flexibility of creation and management. Only one member is required as founder in order to create an endowment fund, two hundreds for an ARUP. Also, endowment fund articles are free, unlike ARUP’s and FRUP’s articles, compelled to be conformed to model statutes. Those entities must, during their creation process, have enough assets, to reach their public-interest goal (for the ARUP) or to reach self-sufficiency (for the FRUP). The endowment fund is quite the opposite: no minimal amount is required for its initial endowment. Ultimately, while both the ARUP and FRUP required a decree of the State Council to enact their creation, a simple declaration at the prefecture suffices to create an endowment fund. Concerning the rules applicable to donations and legacies, granted to the endowment fund, once again flexibility is the legislator’s choice, since they are not submitted to prefectorial authorization.
An endowment fund can receive “assets and rights of any kind”: it can receive equally tangible or intangible assets, buildings, of any value. One noticeable exception: an endowment fund cannot, except derogation granted by ministerial decree, receive public funds (article 140 III paragraph 3 of the LME). Assets are granted to the endowment fund for free and irrevocably. Therefore, granting an asset to an endowment fund is a decision not to be taken likely. But it is possible to grant the usufruct of a property for a limited period.
The endowment fund “uses the income from the capitalization in order to carry out work or a mission of general interest” or to assist a non-profit-making legal entity to accomplish its own missions of general interest. Thus, it can act in a personal capacity, or to assist a third party legal entity to fulfill its own mission of general interest.
Endowments cannot be utilized, except otherwise specified by the articles providing its modalities (article 140 III last paragraph). But if the fund decides not to keep the endowments, for example by selling them, it looses most of its tax benefits.
The fiscal regime of the endowment funds is identical to the foundations fiscal regime, except that endowments made cannot benefit from the article 885-0 V bis A of the General Tax Code (“Code General des Impôts”) allowing a reduction of the wealth tax (“impôt sur la fortune”). Thus, endowment funds are exempted from transfer taxes on donations and legacies received. They are also exempted from corporate taxation, for their activities incomes as well as for their incomes of their assets. Under three requirements: a selfless, disinteresseted management, a preponderancy of non-profit-making activities, and a 60 000 Euros, pre-tax, maximum amount for the incomes provided by profit-making activities during a single calendar year (article 206 1 bis of the General Tax Code). Also, if the endowment fund articles displayed the possibility to utilize its capital endowments, the fund is submitted to the corporate tax. Where relevant, the corporate tax applies at the reduced rate of 24%, or 15% on dividend distribution (article 219 bis of the General Tax Code).
Furthermore, donations made by individuals or companies for the benefit of endowment funds confer right to the patronage’s fiscal regime provided by the articles 200 and 238 bis of the General Tax Code. The article 200 states that individuals can benefit of a reduction of their income taxation equal to 66% for the donations and payments, in the limit of 20% of their taxable income. The article 238 bis 1 g states that companies can benefit of a tax reduction equal to 60% of the amount of their payments (in the limit of 5/1000 of their total turnover) made for the endowment funds. The tax reduction of the article 200 is submitted to the following requirement: the endowment fund must issue a tax receipt (resolution of June 26 2008). For all that is not related to patronage, the fiscal regime of the endowment funds is identical to the regime applicable to organizations (Taxes Official Gazette 4 H 5-06 of December 16 2006).
Executive and Board remuneration
The endowment fund is a legal entity, of private law, non-profit-making. Like organizations, It may not distribute any profit to its members.
Still, it should be also noted that, in application of the Tax instruction dated December 18 2006 (French Official Gazette 4 H-5-06), organizations’ executive remuneration is allowed if some rules are observed (financial transparency, democratic functioning, adequacy of remuneration to the executive suggestions) for the entities which annual turnover exceeds 200.000 euros, in the limit of a remuneration equal to three social security ceilings (8.655 euros in 2010). Also, a member of the Board can, without fulfilling those rules, be employee if he has less than a quarter of the voting rights and if he does not serves at the Bureau. This legislation applies to both organizations and endowment funds.
In conclusion, the endowment fund is a very useful legal entity for patronage, but, as any new legal entity, it requires an appropriate legal advice in order to be used serenely.