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  • Writer's pictureBeatrice Schulter

Is Swiss foundation law up to date?

The most important information for NGOs on possible adjustments in Swiss foundation law

On 30 January, the Center for Foundation Law of the University of Zurich held the 5th Zurich Foundation Law Day. At this well-attended event, representatives from academia and practice discussed the developments and challenges of the current legal environment for foundations as well as possible upcoming reforms in foundation law, inheritance law, supervisory law, regulation, transparency and compliance.

Why is Swiss foundation law important for NGOs?

Swiss foundation law is important for NGOs from two perspectives: On the one hand, the legal form of a foundation is a popular legal form for operational organizations, alongside the association. In particular, changes in supervisory law, licensing procedures and regulations have a direct impact on these NGOs.

On the other hand, changes in legislation may have an influence on the allocation strategy of grant-making foundations, which is important for resource development and fundraising for all NGOs.

Some facts and figures

There are currently over 13,000 charitable foundations in Switzerland with a capital of around 100 billion Swiss francs. 59% of these foundations are grant-making foundations. Last year 349 new foundations were established. At the same time, 216 foundations were liquidated. On the one hand, this means that the foundation landscape is renewing itself more and more, and that a foundation may even close down if its continued existence no longer makes sense. On the other hand, the number of foundations is growing, which means that the sector is in an ongoing process of renewal. In French-speaking Switzerland there were again a particularly large number of new foundations; Prof. Georg von Schnurbein of CEPS at the University of Basel speaks of a foundation boom in this part of the country.

Possible adjustments from 2021

Possible changes in foundation law will be discussed and decided under the Luginbühl parliamentary initiative until the autumn session 2021 of Parliament.

In order to increase the transparency of the non-profit sector in Switzerland, the initiative proposes to establish a national register for non-profit organisations (foundations and associations). The criticism is that there are already national and cantonal registers of foundations, and that a further register may mean additional administrative work for the organisations. However, the tenor is nevertheless positive: Such a register - if the relevant data is clearly recorded and made available - holds many opportunities. In addition to increasing transparency about which charitable foundations exist, what they do and what assets and funding values they hold, it shows potential donors which organisations (foundations and associations) are really tax-exempt and helps NGOs to make their fundraising more effective.

The current Foundation Law states (Art. 84.2) "The supervisory authority shall ensure that the assets of the Foundation are used in accordance with its purposes". In practice, this has led to different interpretations and practices with regard to the mandate of the foundation supervisory authority, depending on the location, with a tendency for the supervisory authority to control rather than supervise foundations. The preliminary draft for the new Foundation Act of the Legal Commission of the Council of States does not envisage any adaptation in this respect. On the other hand, Prof. Dr. Dominique Jakob of the University of Zurich suggests that the authority and responsibility of the Foundation Board be more clearly defined: Art. 84.2 "The supervisory authority must ensure that the management and administration of the foundation are in accordance with the law and the statutes. It observes the principles of legal supervision, subsidiarity and proportionality"..

This raises questions regarding the liability and compensation of members of the board of trustees and executive board. In Switzerland, there is a need for around 70,000 foundation board members and 600,000 board members in non-profit associations. Up to now, organisations that compensate their board members are threatened with the loss of tax exemption. Foundation board members are also liable for the organisation with their private assets. It is therefore becoming increasingly difficult to find people who bring the necessary versatile professional know-how to foundation and association boards.

This starting position is a major hurdle for non-profit organisations: The management and strategic leadership of a non-profit organization is highly complex and the moral responsibility for donated funds is by no means less, if not greater, than the handling of funds in the profit sector - non-profit organizations have obligations to both donors and recipients, as well as to society. It is therefore incomprehensible how non-profit organisations can adequately fulfil these tasks without being allowed to use part of their funds to professionally staff their strategic management.

The possibility of compensating board members would be desirable for the professionalisation of all non-profit organisations.

However, this also means that grant-giving foundations should increasingly co-finance the costs of compensating board members at their recipient organisations, together with other basic costs. Only with strong roots can NGOs achieve a sustainable impact!

Further reading on the topic (in German and French only)

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