Family foundation in organization: a practical guide to dissolution and liquidation
A family foundation in organization represents a unique legal construct – a temporary, transitional stage spanning from the execution of the founding act or testament announcement until registry entry with the District Court in Piotrków Trybunalski. What happens to assets when a family foundation fails registration?
Family foundation in organization
This entity’s legal status demands special clarification. While lacking full legal personality, the law grants it legal capacity to manage assets in its own name and ensure their protection. It can acquire rights including real estate ownership and other property rights, incur obligations, sue and be sued. This structure mirrors the “defective legal personality” already familiar in Polish law through capital company regulations during their organizational phase.
During this crucial period, representation falls to the founder, their designated attorney, or – in exceptional cases where the foundation arose from a testament – a board appointed by the testator.
Practically speaking, a family foundation in organization functions fully operationally. It can open bank accounts, acquire assets, and conduct asset management, albeit with limitations – it may manage assets but cannot dispose of foundation assets constituting founder’s fund coverage. During this period, obtaining identification numbers (REGON, NIP) and establishing bank and brokerage accounts remains possible.
This transitional status, though deliberately designed by legislators, may prove a source of serious legal and tax complications in practice. The situation becomes particularly problematic when circumstances necessitate dissolving a family foundation in organization that has already acquired significant assets but ultimately failed to secure registry entry. This raises fundamental questions about asset fate and settlement procedures.
When time runs out: dissolution triggers
Practice reveals that situations leading to family foundation dissolution occur more frequently than initially anticipated. Consider the Kowalski family case: they executed a notarial founding act in January with good intentions. However, through unforeseen circumstances – the main founder’s illness, documentation completion difficulties, and escalating family disputes regarding foundation structure – the registry application wasn’t submitted within the required timeframe. Only in August did the family realize their situation’s gravity, but the six-month statutory deadline had irreversibly expired.
According to Article 85’s categorical language, such situations trigger automatic ex lege dissolution. This deadline is absolute and preclusive – no extensions, restorations, or restitutions exist. Significantly, the deadline runs invariably from the original founding act date, regardless of subsequent changes, corrections, or amendments. The second dissolution trigger is a court’s final registration refusal.
Two faces of dissolution: with or without liquidation
Here we encounter a fundamental distinction introduced by Article 91, determining how a family foundation in organization’s legal existence ends. Dissolution follows two alternative scenarios, with the decisive criterion being the foundation’s ability to immediately and fully satisfy obligations toward beneficiaries and third parties.
When the Kowalski family conducted no active operational activities throughout the foundation’s organizational period, incurred no financial obligations, and the contributed assets remained intact, simplified procedures apply. This mechanism reduces to simply returning assets to entities that originally transferred them, followed by definitively ending the foundation’s existence. The foundation’s dissolution moment is marked by completing the final settlement – a factual action with far-reaching legal consequences.
Fundamental legislative design flaw
This regulation reveals a problematic aspect. Introducing simplified dissolution procedures for a legal entity unqualified for formal liquidation procedures, while making its legal personality cessation dependent on performing an impossibly precise verification factual action – the “final settlement” – constitutes a legislatively questionable solution raising fundamental dogmatic concerns.
This raises the question: how can legal practice confidently verify that given settlement truly has “final” character? How can we distinguish genuinely conclusive settlement from settlement that only apparently closes foundation activities but may reveal additional, previously unknown obligations?
Making dissolution of a defective legal entity like a family foundation in organization dependent on an impossible-to-objectify factual premise may lead to significant practical problems with broad systemic consequences. Particularly severe is the risk of discovering additional, previously unknown obligations after presumed foundation dissolution. This would create a legally paradoxical situation where a legal entity that theoretically ceased existing would need “reactivation” to settle newly discovered obligations, or more precisely, we’d need to recognize it never dissolved since previous settlement wasn’t definitive.
Such “phantom legal persons” that may suddenly materialize in legal commerce depending on unpredictable factual circumstances constitute a systemic anomaly difficult to accept from fundamental legal certainty principles. This solution introduces unpredictability elements that may cause far-reaching consequences for both commercial participants and public administration organs and courts tasked with applying law.
Step-by-step liquidation: practical challenges
Legal existence cessation procedures become more complicated when a family foundation in organization cannot immediately and fully satisfy beneficiary and third-party claims. This may result from various causes – perhaps the foundation already paid initial beneficiary benefits, contracted external professional services, or undertook other financial obligations burdening its assets. Under such circumstances, legislators mandate full liquidation proceedings, with foundation dissolution occurring only upon beneficiary assembly approval of the liquidation report.
Merely initiating liquidation raises several fundamental practical dilemmas. The first question concerns personnel: who should serve as liquidator? If the foundation has a board, the law resolves this unambiguously – board members automatically become statutory representatives as liquidators. Problems arise when no board was appointed or members refuse this function.
Legislative ambiguity in liquidator designation
In such cases, Article 91(1) states that the founder, beneficiary assembly, or registry court establishes liquidator(s). However, this formulation leaves fundamental interpretative doubt regarding authority hierarchy. The provision doesn’t clearly resolve whether listed entities possess equal authority (acting under prior tempore, potior iure principles) or whether the listing order means authority passes to subsequent entities when previous ones fail to exercise it.
The first interpretation – assuming equal authority – seems more consistent with literal provision language but simultaneously leads to systemically undesirable situations. Simultaneous action by different authorized entities may create competency conflicts for which the law provides no resolution method. Granting identical authority to several different entities without establishing collision rules constitutes a legislative deficiency that may practically lead to decision paralysis or legal disputes.
Liquidator dismissal and change issues
In the context of multiple entities authorized to appoint family foundation liquidators in organization, interpreting existing provisions regarding liquidator dismissal and changes becomes equally problematic. According to fundamental organizational principles, whoever has competence to appoint an organ or legal representative should also be authorized to dismiss them.
However, assuming equal appointment authority creates a systemically unacceptable situation where – for example – a founder could dismiss a court-appointed liquidator, leading to competency chaos.
This issue represents another area requiring legislative clarification. Legal security considerations favor adopting solutions whereby only registry courts possess competence to make representation changes during foundation liquidation periods.
Procedural standing problems
Here we encounter the most practical yet most painful problem of the entire liquidation procedure. Despite possessing defective legal personality, a family foundation in organization appears in no public registry. How can liquidators credibly demonstrate their legal authorization before external institutions – notaries, banks, public administration organs?
Commercial practice proves that significant portions of institutions aren’t prepared to service such specific legal entities. Banks may refuse financial operations, citing inability to verify representative authority. Notaries show natural hesitation before executing notarial acts for entities with undetermined registry status. Public administration offices often lack established procedures for handling such cases.
In essence, this is an entity no longer functioning based on valid founding relationships, but since family foundations maintain full legal personality during liquidation, family foundations in organization – whether during liquidation proceedings or dissolution periods without formal liquidation – should retain their defective legal personality.
Can coundation assets transfer to third parties?
This question requires categorical resolution: no formal legal bases exist enabling foundation asset transfer from a family foundation in organization undergoing dissolution to any third parties – whether newly established family foundations or other legal entities. Such asset disposition would be legally ineffective due to strictly limited authority scope granted to entities acting on behalf of family foundations during this special legal period.
Competency limitations from legal status specificity
Properly understanding the legal situation of a family foundation in organization after dissolution triggers becomes fundamentally significant. Although this entity possesses defective legal personality and retains capacity as a rights and obligations subject, when registration fails – whether through six-month deadline expiration or court’s final registration refusal – we must accept radical narrowing of authorized representative competencies.
Systemic premises favor liquidators of family foundations in organization lacking legal authorization to undertake any actions exceeding strictly conceived liquidation scope. Their authority catalog should include exclusively: first – satisfying foundation creditors within possessed assets; second – returning assets to entities entitled according to imperative family foundation law provisions.
Management provision application issues
The law states that family foundation liquidator provisions apply correspondingly to board member provisions. This prima facie grants them rights to conduct affairs and represent foundations, with impossibility of limiting these competencies with effect toward third parties, as explicitly stated. Following this logic, liquidator actions toward good-faith contractors are legally recognized as effective liquidation actions.
However, mechanically transferring these regulations to family foundation organizational grounds would lead to situations difficult to accept from systematic interpretation viewpoints. Such foundations, by definition lacking full legal personality, operating without court final rulings and lacking valid legal bases for continued functioning, would receive in liquidators full representatives possessing complete management competencies.
Proportional representation principle
Such interpretation violates fundamental corporate law principles whereby representation scope should remain in strict correlation with legal entity formalization and stability degrees. Organizational foundations, as transitional and incomplete legal creations, shouldn’t possess legal instrumentarium during liquidation matching entities with established registry status and court-confirmed operational capacity.
We must seek provision interpretations that effectively prevent legal instrument abuse – which would undoubtedly occur if liquidators could unlimitedly undertake various legal actions on behalf of entities invisible in public registries and lacking external institutional control. Only such interpretative approaches ensure balanced preservation between liquidation efficiency needs and legal commerce security imperatives.
Technical character of liquidation actions
Consequently, all actions possible regarding family foundation organizational assets have strictly technical character and result directly from statutory liquidation procedure provisions. This action spectrum limits to two basic categories: returning assets to founders or other entities that originally contributed them, and executing financial obligations previously incurred by organizational foundations during their activities.
Any attempt to transfer organizational foundation assets to third parties should be evaluated as ultra vires action, exceeding liquidation authority scope. Such legal actions would bear absolute invalidity defects due to lacking legal authorization from statutory representatives making dispositions (liquidators).
Assets from family foundations in organization that failed registry entry therefore undergo exclusively return according to strict family foundation law rules, without possibility of any redirection toward purposes other than those legislatively provided within liquidation procedures.
Tax consequences of failed registration
Retroactive CIT exemption loss
Family foundations in organization that won’t achieve registry entry within statutory six-month deadlines or face court’s final registration refusal undergo severe tax sanctions through lost rights to corporate income tax exemptions. This consequence has retroactive character – operating ex tunc, covering entire foundation functioning periods from creation moments.
This regulation’s practical implications are far-reaching. Foundations become obligated to comprehensive tax settlements and tax payments on all income achieved throughout their entire functioning periods – counting from founding act execution dates until definitively establishing registry entry impossibility. This obligation covers all foundation asset operations, regardless of whether realistic registration completion prospects existed during their realization.
This sanctioning legal construction may lead to situations where foundations – acting in good faith with justified registry entry expectations – ultimately bear significant tax burdens from operations originally intended as tax-neutral.
Asset return: tax neutral
Contrarily, returning assets contributed to cover foundation funds that ultimately didn’t arise shouldn’t trigger tax consequences under income tax laws. Assets in such situations physically return to original disposers – entities that contributed them – and from economic viewpoints should be treated as own asset returns.
“Substance Over Form” principle application
Fundamental tax law principle application becomes crucial here: economic content primacy over legal form (substance over form). Following this interpretative directive, we must recognize that analyzed actions essentially never occurred in tax senses. Situations can be described as follows: assets were temporarily transferred to entities meant to eventually transform into full owner-beneficiaries, but ultimately – facing realization impossibility – had to return assets to original owners without gaining any real disposition possibilities.
Given the above, asset return operations should be treated as technical-administrative actions restoring legal states existing before organizational foundation creation, thus lacking any taxation consequences for entities recovering their assets.
VAT effects
VAT taxation questions for family foundations in organization that ultimately failed registry entry require deepened legal analysis considering this legal construction’s specificity.
No “Goods Supply” definition realization
For family foundations in organization that weren’t ultimately registered, legal situations occur requiring special VAT law qualification. Economic substance analysis leads to conclusions that neither original asset transfers to organizational family foundations nor subsequent returns realize “goods supply” definitions under goods and services tax laws.
Fundamentally significant here is that organizational family foundations never acquired real rights to dispose of transferred assets as owners. These entities possessed only limited asset management authority without disposal or any definitive disposition possibilities. Consequently, after dissolution triggers arise, founders or liquidators acting on behalf of organizational foundations possess exclusively technical obligations to return assets to original owners, without any decisional freedom regarding asset disposition methods.
No transaction economic substance
Key arguments favoring no VAT tax obligations include complete lack of transaction economic substance that might characterize classical goods supplies. Asset transfers to foundations aimed to realize specific economic purposes – creating durable asset structures serving foundation goal realization. However, this purpose becomes definitively thwarted through circumstances described in family foundation law Article 85, leading to situations where original transaction economic assumptions cannot be realized.
Practical consequences and corrections
Above analysis leads to conclusions that asset returns from unregistered family foundations in organization aren’t subject to VAT taxation. Moreover, if original foundation asset contributions involved VAT invoices, corrections become necessary since ultimately no taxation basis events occurred.
Above considerations regarding VAT tax neutrality for organizational family foundation asset returns apply exclusively to situations where original foundation asset transfers were subject to goods and services taxation. We must emphasize that not every family foundation asset contribution involves VAT tax obligations – taxation depends on entire factual circumstances, particularly transferred asset character and transferring entity taxpayer status regarding deduction rights for original asset component acquisition.
Exception: asset disposal before liquidation
However, situations change radically when organizational foundations disposed of asset portions before liquidation procedure commencement.
Under such circumstances, no legal bases exist for invoice corrections since economic goods transfers to third parties actually occurred. Additionally, such operations may generate income subject to income taxation, further complicating entire liquidation procedure tax settlements.
A separate topic concerns organizational family foundation asset disposal extent – for this publication’s purposes, we assume this is possible regarding assets not designated for founding fund coverage, with disposal actions falling within managing possessed assets in own names and ensuring their protection.
Systemic legal construction problems
Family foundation organizational dissolution analysis reveals fundamental constructive defects in new regulations, making this area among the most problematic in entire family foundation laws. Although legislators formally determined proceedings procedures, they practically left unanswered several key systemic questions, leading to legal uncertainty and application difficulties.
Dogmatic defectiveness of legal entity “disappearance” construction
The regulation’s most painful weakness is the concept whereby defective legal persons – organizational family foundations – may simply “disappear” (difficult to find more adequate terms for this legal phenomenon) through performing factual character actions like “final settlement.” Linking legal personality cessation with executing actions impossible for precise verification raises serious concerns from legal dogmatic viewpoints.
This construction leads to fundamental questions: how can we confidently determine that given settlement truly has “final” character? What happens to foundation legal personality when additional, previously unknown obligations emerge after presumed dissolution?
“Phantom legal persons” problem
Above questions lead to even more disturbing phenomena – possibilities of “phantom legal persons” existing in legal commerce whose legal status depends on accidental factual circumstances. Such entities may suddenly materialize in legal systems depending on new obligation discoveries, creating unpredictability situations contrary to basic legal certainty principles.
Properly constructed legal systems should avoid creating such defective legal personalities with undetermined status.
Tax law systemic inconsistency
Additional problem layers involve lacking systemic consistency regarding tax effects of organizational family foundation dissolution. On one hand, such foundations must – according to corporate income tax law Article 6(9) – settle income taxes on all income achieved during their functioning periods, indicating treatment as actual tax subjects throughout existence periods.
On the other hand, regarding asset returns, we assume complete tax neutrality for these actions, treating them as if family foundations never existed in legal and economic reality. This approach dichotomy – simultaneously recognizing and negating entity existence for different tax purposes – leads to internal system contradictions.
Pragmatic approach versus systemic consistency
However, we must emphasize that facing statutory regulation imperfections, we primarily seek tax effect interpretative solutions remaining closest to transaction economic senses. Such pragmatic approaches, though not achieving full systemic consistency of adopted theoretical assumptions, avoid most irrational tax consequences for commerce participants.
This conscious theoretical inconsistency represents prices we must pay for attempting rational functioning within imperfectly constructed legal systems, where achieving results consistent with transaction economic logic becomes priority, even at dogmatic construction elegance costs.
Summary
Facing presented systemic and interpretative problems, founders planning family foundation creation find themselves in significant legal uncertainty situations that will persist until established judicial lines develop in administrative and civil courts. This legal uncertainty should encourage special caution in decisions regarding asset transfers to organizational family foundations before achieving family foundation registry entries.
Risk minimization strategy
Rational strategies under current legal conditions seem to adopt conservative approaches limiting organizational foundation assets to functional minimums necessary for operational activities. Larger asset transfers – particularly those including significant value assets or complex legal structures – should be postponed until after obtaining final family foundation registry entries.
Such approaches, despite seeming overly cautious and limiting asset planning flexibility, avoid legal and tax complications. In registration process failures, founders avoid necessities for resolving complex problems related to settling significant assets within organizational foundation liquidation procedures.
Legislative reform necessity
Final conclusions from conducted analysis establish urgent needs for legislative intervention aimed at removing current regulation’s most serious constructive defects. Priority reform areas should include: first – precisely defining simplified dissolution moments by abandoning problematic “final settlement” concepts favoring formal rulings or entries; second – unambiguously determining liquidator appointment authority hierarchies by granting registry courts exclusive competence for representation changes; third – removing inconsistencies in treating organizational foundation dissolution tax effects; fourth – clarifying organizational foundation authority scope for asset disposal with clear distinctions between founding funds and activity-acquired assets; fifth – introducing protective mechanisms preventing liquidator representative authority abuse.
Founder and Managing Partner of Skarbiec Law Firm, recognized by Dziennik Gazeta Prawna as one of the best tax advisory firms in Poland (2023, 2024). Legal advisor with 19 years of experience, serving Forbes-listed entrepreneurs and innovative start-ups. One of the most frequently quoted experts on commercial and tax law in the Polish media, regularly publishing in Rzeczpospolita, Gazeta Wyborcza, and Dziennik Gazeta Prawna. Author of the publication “AI Decoding Satoshi Nakamoto. Artificial Intelligence on the Trail of Bitcoin’s Creator” and co-author of the award-winning book “Bezpieczeństwo współczesnej firmy” (Security of a Modern Company). LinkedIn profile: 17,000 followers, 4 million views per year. Awards: 4-time winner of the European Medal, Golden Statuette of the Polish Business Leader, title of “International Tax Planning Law Firm of the Year in Poland.” He specializes in strategic legal consulting, tax planning, and crisis management for business.
