If there is that one main point which distinguishes a foundation from a trust, it is that the foundation allows both the legal and beneficial ownership to remain within the foundation entity, which in itself is a legal entity.
A very common struggle when planning has always been the ironic fact that the settlor/founder would ideally still want to retain some form of control. With trusts, barring any revocation or reservation clauses, once the trust is settled, it is settled. Onshore in Malaysia, the concept of revocable trusts is non-existent or at best, extremely rare. Once settled in a trust, the trustee holds the power and duty to manage but always for the benefit of the beneficiaries who from the onset would already have clear beneficial rights.
In comparison, a foundation under the LFA not only allows the founder the right to revoke the foundation; the founder may also reserve powers and rights which the founder deems necessary unto himself. The founder can go on to assign all or any of the powers and rights to a third party, which can then stand in his stead and act on the founder’s behalf. The founder can also be a Council Member who supervises the Officer managing the foundation; alternately, the founder can even appoint himself to be the Officer whose duties are to carry on with the day-to-day running of the foundation. The founder can also be one of the named objects/beneficiaries. This more or less summarises the fact that the founder, even by endowing assets to the foundation, does not in fact “give” up too much control or ownership of the assets or even the management of that said asset. Moreover, the beneficiaries (even so expressly named) cannot demand for their benefits, rights or interests until the same are duly distributed to them in accordance with the constituent documents of the foundation.
The only three rigid requirements of the LFA (and seemingly, not as rigid compared to other jurisdictions) are:-
- the need for at least one officer, which may be a natural person or a corporation;
- the secretary for the foundation shall be a company registered as a Labuan trust company; and
- a person or party cannot undertake both the roles of Council Member and Officer at the same time.
Furthermore, the foundation has been marketed as a product which marries both a trust and a company. So foundations easily resonate with founders from a corporate and common law background.