A new law has come into force to strengthen the supervision of Finnish foundations and increase transparency of their activities.
The law, which updates the existing 80-year-old statute, clarifies the distinction between activities that are permitted or prohibited for a foundation, establishes an effective framework for developing its administration and operations, and creates a better procedure for internal and external monitoring.
A foundation’s purpose must not be to achieve economic benefits for its founder or related parties but to be beneficial for society.
Furthermore, the new law is more prescriptive in relation to a foundation’s management.
The board of directors is now the sole, compulsory management body – previously, a foundation’s articles could allow for other decision-making structures such as independent committees and delegation, but this is no longer possible.
The foundation can, however, decide to have a supervisory board and managing director, if required or allowed by its articles.
Other decision-making committees may also be set up, but these may operate only under the board’s control.
Key amendments within the law further define the broad concept of a related party, and the concept of permitted and prohibited related-party transactions.
The concept of related parties, which lacked clarity under the previous law, is expanded to a very broad range of people and entities with connections to the foundation.
Related parties include members of the foundation’s board of directors and supervisory board, their close relatives and spouses, and entities they control.
The foundation’s annual report must provide information on grants and benefits issued to related parties, as well as financial transactions with those parties.
Foundations, although not required by the new law, are likely to need to monitor this activity, given the broad scope of related parties and transactions.
A foundation may now engage in investment and business activities to finance its activities, even if this does not directly contribute to its purpose, as long as its articles allow this.
A newly established foundation must draw up an investment plan for its first three years.
Setting up a foundation is now easier because the two-stage authorisation procedure has been abandoned, although the minimum basic capital required goes up from €25,000 to €50,000.
Liisa Suvikumpu, chief executive at the Council of Finnish Foundations, said: “The new law is a great opportunity for foundations to refresh themselves, think big and be more effective.
“It enhances good governance and best practice in foundations because of the greater demand for openness and transparency, and it modernises the governing bodies and responsibilities within foundations.”
She said the new law did not mean much change for established foundations following the Council of Finnish Foundations’ good governance rules but made it slightly easier to create new entities.
But Suvikumpu warned: “The immense length of the law, from five chapters previously to 15 now, means fewer people can really digest and understand in depth all the details, widening the gap between foundations and the average person.
“Foundations will start to seem even more distant, demanding special knowledge before someone enters a position of trust within them.”
The new act took effect on 1 December 2015.
Foundations have three years to conform with the new regulations and register any required changes in their articles.
Finnish foundations are still supervised by the National Board of Patents and Registration.