A foundation is an incorporated legal entity and has characteristics found in limited companies and trusts. Similar to a company a foundation has a separate legal personality which means it is capable of holding assets  and can sue or be sued in its own name. While a foundation may not directly engage in commercial trading that is not incidental to its objectives, it has the ability to hold a trading subsidiary. Similar to a trust, a foundation can be for the benefit a person or a class of persons or to carry out a specified purpose, or to do both.

When the foundation is set up to trade it usually does so through an underlying company owned by the foundation.

Foundations are often used for:

• asset protection – By placing assets into a foundation, these will fall outside the Founder’s estate and out of the reach of creditors, adverse claims and divorce claims.
• planning for succession in business;
• confidentiality – While a foundation’s instrument is public record, any matters the founder wishes to keep private, can be added to the foundation’s rules which are not public.
• inheritance planning and probate mitigation;
• tax mitigation;
• charities – Charitable Foundations are widely used to benefit a wide range of charities.
• to hold specific assets,
• wealth planning and wealth preservation – A foundation can be created to benefit successive generations of family members. It permits the foundation’s Founder to benefit, as well as the spouse, children and grandchildren during the life and after the death of the Founder.

A foundation is created by the preparation of two documents – the Foundation Instrument and the Foundation Rules. The Foundation Instrument is held on public record and details the reason for the foundation and sets out its objects.  The document sets out the name of the foundation, the names and addresses of the foundation’s council members’ and the name of the Isle of Man Registered Agent appointed to act on the foundation. The Foundation Rules are a private set of rules establish for the internal governance of the foundation.

The foundation is created by the registration of the Foundation Instrument following an application to the registrar

The foundation is managed by a council, which administers the assets of the foundation and ensures that the foundation performs its objects.  A council member can be a natural person or a corporate body. The Founder can be a member of the Foundation Council and the Enforcer and is thus able to retain an element of control over the foundation’s assets. Although not a requirement an Enforcer can be appointed to ensure that the foundations objects are met.  The registered agent must know where the foundation’s records are kept. The foundation is required to prepare accounts and to file an annual return.