With the recent surge in Decentralized Autonomous Organization projects, entrepreneurs are searching for innovative legal structures to ensure their project succeeds. One intriguing and viable solution is a Cook Islands Foundation - providing an enticing alternative compared to traditional options such as Swiss Foundations and Associations, Cayman Island Foundations, or Marshall Islands LLCs. This blog provides you with a quick overview of this captivating option.
Incorporation Documents
The incorporation process for a foundation has several steps to ensure legally sound operations, including the formalization of documents such as the Foundation Instrument, which specifies name and purpose along with details like registered agents. Additionally, there are Foundation rules established by a council of a foundation that governs internal proceedings, responsibilities, etc., as well as granting powers required in any rule-based system. Finally, a Certificate of Establishment is issued upon registration.
Key Roles
Founder: instructs a trustee to apply for the establishment of a foundation; dedicates assets to a foundation; has rights and obligations under foundation rules.
Beneficiary (optional): exists in case a foundation has the provision of a benefit to a person; has no interest in foundation assets (however, can be entitled to a benefit under foundation rules); default beneficiary receives foundation's assets in case of dissolving.
Dedicator (optional): a person other than a founder who dedicates assets to a foundation; thus, it is possible to transfer assets to a foundation without being considered a founder.
Enforcer (optional): controls the council; has powers according to foundation rules.
Council of a foundation (obligatory): carries out foundation's objects, manages property; consists of at least one member; approves financial statements; member of a council can be fined for offenses (section 83 (3) of the Foundations Act 2012); apart from a founder and trustee a person cannot be both a member of a council and an enforcer; council members may be natural persons or legal entities from any country.
Registered agent (obligatory): a Cook Islands registered trustee company that provides a registered office for a foundation; can be a foundation council member.
A quick look at the main legal issues regarding Cook Islands foundation
A foundation is brought into being once an initial endowment of a property has been gifted, and there are no minimum capital requirements.
Non-charitable objects are allowable, and should the foundation be without assets, it must be dissolved under Section 70 (1) of the Foundations Act 2012.
There is no default option for the voluntary dissolving of a foundation; the respective provision should be established in foundation rules.
Direct commercial trading that does not support the attainment of stated objectives isn't permitted according to section 35(3) of said act.
Foundation officials may be legally accountable for liabilities arising from their operations.
Foundation has legal personhood, without shareholders and with the inclusion of a register of beneficiaries being optional under the Foundations Act 2012.
Trustees act as reporting institutions according to Financial Transactions Reporting Amendments 2017 – similar laws seen in other jurisdictions following FATF Recommendations.
Finally, foundations exhibiting broad control over their activities can constitute high-risk indicators within this jurisdiction.
All transactions must exceed 10 000 NZD (estimated 5 600 USD) for monitoring measures to apply accordingly.
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DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your own legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. Any action taken based on the information discussed should be reviewed with a professional. The author is not liable for any loss from acting on the information discussed.
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