Foundations use the income from their assets for their work
The principle of a foundation is simple: a founder wants to actively pursue charitable purposes and to this end contributes his or her assets to a foundation. About two-thirds of founders in Germany are private individuals, but frequently organizations act as founders as well. Someone who establishes a foundation parts with his or her assets for good. The foundation invests the assets that have been transferred to it securely and profitably. The surplus generated in this way is used for the not-for-profit purpose. The donated assets themselves must be preserved as the foundation’s capital stock. After all, the foundation is meant to last for all eternity and can generally not be dissolved.
Active commitment for the commonwealth
The founder determines the purpose of a foundation at the time the foundation is established. This purpose is now set in stone and must not be substantially altered afterwards. A total of 95 per cent of foundations pursue not-for-profit purposes, promoting, say, educational programmes or supporting research on rare diseases. The government has precisely defined what makes a foundation not-for-profit. Only if the Inland Revenue Office recognizes a foundation as not-for-profit does it enjoy tax privileges.
The term “foundation” comprises different forms of organization and types. The most popular forms of organization are the civil law foundations with legal personality and the trust foundation . The term “foundation” can also refer to other forms of organization, such as a foundation with limited liability (Stiftungs-GmbH) or a foundation association.