PURPOSE OF ESTABLISHING A FAMILY FOUNDATION
A Polish family foundation (polska fundacja rodzinna) was recently introduced into the Polish legal system by the Act on the family foundation of January 26, 2023. It is a legal institution aimed at supporting the financial interests of family businesses by managing and protecting family assets while considering long-term goals, such as development and continuation of the family business and financial security for family members. It also serves as a tool facilitating the succession of companies run by relatives.
Interestingly, a family foundation is not only a concept allowing to achieve the desired future business goals in the case of succession. Due to the construction of the legal regulations related to the family foundation, it has also become an instrument of current corporate governance.
The decision to establish a family foundation not only affects the way the family business will be managed in the future, but, as it turns out, it also affects the present relations between the actors engaged in corporate governance of the existing companies.
FAMILY FOUNDATIONS IN THE STRUCTURE OF JOINT-STOCK COMPANIES
Since the introduction of family foundation into Polish law, it has become possible for family foundations and joint-stock companies run by families to complement each other. In the most common scenario, a joint-stock company has the role of an operational vehicle, and a family foundation becomes a strategic owner of the business and a guardian of family business values. The relationship between a family foundation and a joint-stock company in Poland is mainly based on the structure of ownership and asset management.
According to the Act on the family foundation, a family foundation may hold shares or stocks in capital companies, including joint-stock companies. In practice, this means that the foundation may be a shareholder or the sole shareholder of a joint-stock company, it may exercise ownership supervision over the company, including appointing members of the bodies, approving the strategy and adopting resolutions.
income from the operations of a joint-stock company (e.g. dividends) may be transferred to the foundation and used in accordance with its statute, e.g. for the benefit of beneficiaries.
A family foundation, as a shareholder, can play an active role in determining the company’s dividend policy – for example, by supporting solutions that enable sustainable profit distributions while maintaining capital for development investments.
FAMILY FOUNDATION AS A SHAREHOLDER – HOLDING PREFERENCE SHARES
A family foundation may hold preference shares in a joint-stock company. Preference shares can provide the foundation with greater influence over company decisions (e.g., through a greater number of votes), guarantee better profits (which translates into benefits paid to beneficiaries) and secure the family’s influence over strategic decisions in the family business. The practical consequences are that the foundation can maintain control over the company, even with a smaller block of shares. Thanks to the privileged shares, it can ensure the stability of ownership and management in the next generations.
Transfer of preference shares to a family foundation may result in a significant shift in control dynamics within the company. The Foundation may effectively become the controlling shareholder despite not owning a majority of the shares. As a result, the Foundation could independently influence or determine key corporate decisions, including the appointment of management and the approval of strategic resolutions at shareholders’ meetings.
the Foundation could effectively pass or block resolutions independently, potentially limiting the influence of other shareholders. The transfer of preference shares may constitute a deliberate strategy to consolidate control, aimed at ensuring long-term stability, succession planning, or shielding the company from external influence. However, the concentration of voting power also raises considerations about transparency, accountability, and the protection of minority shareholders.
FAMILY FOUNDATION AS A SHAREHOLDER: INFLUENCE ON THE COMPANY’S LIFECYCLE
In the joint-stock companies, the statute may grant an individually designated shareholder personal rights. In particular, they may concern the right to appoint or dismiss members of the Management Board, Supervisory Board or the right to receive specified benefits from the company.
a family foundation, as a shareholder, may have the personal rights assigned. For example, if the right concerns the appointment of the members of the Supervisory Board, it can ensure supervision of the company by individuals related to the founder’s family or chosen experts.
The election of Supervisory Board members in a joint-stock company is one of the key mechanisms of shareholders’ influence on corporate governance and the manner of exercising supervision over the company’s management board. From the perspective of corporate governance, the foundation may use the right to appoint trusted persons representing the family’s interests and the foundation’s strategy, in order to influence the composition of the Supervisory Board to ensure continuity of intergenerational management.
The Foundation, as a shareholder holding an appropriate number of shares may request that an Extraordinary General Meeting be convened and submit draft resolutions, placing specific matters on the agenda of a Meeting that has already been convened. This means that even minority shareholders who have no real voting power in the day-to-day functioning of the company may initiate Extraordinary General Meeting proceedings if such a need arises – e.g. in connection with management actions that raise doubts or the need to replace members of the Supervisory Board. This is an important safeguard against arbitrary action by the majority shareholder, who could otherwise block initiatives that are contrary to their own interests.
These provisions strengthen the position of minority shareholders by allowing them to have a real influence on the content of resolutions adopted by the General Meeting. This is of particular importance in public companies, where the ownership structure is often dispersed.
The foundation may also exercise the right to appeal against resolutions of the General Meeting by bringing an action to set aside or declare invalid a resolution if it is contrary to the law or the interests of the foundation as a shareholder.
The possibility to challenge resolutions of the General Meeting of a joint-stock company is a key element of the system for protecting shareholders’ rights and the mechanism for supervising the legality of the company’s bodies’ activities. These provisions enable both shareholders and members of the company’s bodies to challenge resolutions that are contrary to the law or the articles of association, as well as those that violate the company’s interests or shareholders’ rights.
Shareholders who are entitled to appeal a resolution include, among others, those who: voted against the resolution and requested that the objection be recorded, were unjustifiably prevented from participating in the General Meeting, were not present at the Meeting if it was improperly convened or a resolution was passed on a matter not included in the agenda. This means that a family foundation as a shareholder of a joint-stock company may also appeal a resolution if the aforementioned conditions are met.
conclusion
The analysis of Polish regulations governing family foundations indicates that the legislature has introduced numerous solutions that enable the use of this institution not only as a stabilizer of ownership structures of family businesses, but as a mechanism allowing to interact with commercial companies in general.
The possibility of contributing shares to a foundation may allow for the consolidation of control over the enterprise in a single entity governed by its statutes and internal bodies.
As a shareholder of a family company, the family foundation can exercise corporate rights in a manner aligned with the family interests, thereby increasing strategic consistency in company operations. In practice, this means professionalization of ownership supervision and greater resistance of the company to internal and external crises, which translates into increased stakeholder trust and durability of the business model.
the text comes from the diploma thesis by Iga Reguła-Szeląg entitled „Polish family foundation as an instrument of corporate governance” presented at the Warsaw School of Economics.