By Startups.ch, August 26, 2015

When dissolving a foundation, what do you need to look out for?

In principle, it is not possible to dissolve a foundation because this would violate the purpose of establishment of this legal form. This principle allows for two exceptions, through which a foundation may be dissolved.

Permanence of the foundation

When a foundation is set up, the founder must dedicate his/her assets to a particular purpose. The Foundation as a legal institution must ensure that the assets of the founder are employed indefinitely and maintained according to his/her wishes. For this reason, there exists no right to dissolve the Foundation. The principle “Once a foundation, always a foundation” applies (Sprecher/von Salis-Lütolf, Die schweizerische Stiftung, p. 186).

This rule has two exceptions:

• The founder may determine in the deed of foundation when the Foundation must be dissolved.
• The Foundation may be dissolved by the competent supervisory authority by law.

Dissolution in accordance with the deed of foundation

The founder may specify in the deed of foundation objective conditions governing when the Foundation must be dissolved. The foundation may be dissolved after a certain period of time, or after a certain condition is fulfilled (e.g. a family trust: the foundation is to be dissolved once all eligible children have reached the age of 18). It is important that the dissolution does not depend on the Foundation’s bodies, but is made clear from the deed of foundation.

Statutory dissolution

According to art. 88 of the Swiss Civil Code, the Foundation may be dissolved by the competent supervisory authority when its purpose:

• is illegal or immoral from the outset,
• after the establishment of the Foundation and, due to changes in the deed of foundation, has become unsustainable or
• has become illegal or immoral.

If the purpose was illegal or immoral from the outset, the Foundation cannot be established (see blog entry). The purpose may become unsustainable especially when the Foundation’s assets are exhausted or beneficiaries no longer exist. The purpose can become retroactively illegal through a change in the law or a change in the practice of the courts.

Any individual who has an interest may seek the dissolution of a foundation or institute proceedings him/herself (art. 89, Swiss Civil Code).

Special case: Pension, health and providence foundations

Pension, health and providence funds (e.g. pension funds) may be established by the Swiss Code of Obligations in the legal form of a foundation (art. 331, Swiss Code of Obligations). The dissolution of such foundations is protected by the special legal provisions of art. 89a of the Swiss Civil Code.

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