Association or Non-Profit Foundation – Which Legal Form Is Better for My Undertaking?
When an idealistic purpose such as community, better environment, social, sports or cultural project is to be pursued, a question arises which legal form should be used to achieve this goal. Swiss law offers here, above all, two forms, namely association and non-profit foundation. But how are they structured and what are their respective advantages and disadvantages?
What Is an Association?
The association is an organisation of individuals who are willing to pursue an idealistic – or in other words non-commercial – purpose. It can be formed in a meeting, and requires two persons. No capital is needed to establish an association. What is required is the Articles of Association which specify an association’s purpose and regulate legal matters within its organisation. In general, associations are subject to normal taxation unless an association’s capital exceeds a limit imposed by a canton or it has a non-profit mission. In such cases taxation can be abandoned.
What Is a Non-Profit Foundation?
Not being a company, the foundation consists of the equity committed to a purpose by its founder, which is called donator. Creating a foundation involves executing a Deed of Donation, which usually has to be notarised. In addition, foundations are required to have a capital of at least 50,000 Swiss francs. Upon request, a non-profit foundation can be exempt from taxation.
Advantages and Disadvantages of the Association and Foundation
Whereas an association can be set up quickly, cheaply and fuss-free, the creation of a foundation involves much more effort because, in addition to the notarisation, it also requires a high initial capital. Whether desired or necessary, the purpose of the association can be changed by its members themselves by amending its Articles of Association. The purpose of the foundation, in turn, can be modified only by making the relevant request to the supervisory body. So, this gives the donator more certainty that his or her donation will not be used contrary to his or her original intent. In addition, the non-profit foundation is exempt from taxation, which is not the case with most associations. Should an association’s continued existence turn out one day to be irrelevant, then its members can dissolve it on their own. This is not possible in foundations.
If equity is donated for a specific purpose which should preferably remain unchanged, the non-profit foundation is a more advantageous option. If, however, a purpose-oriented association of individuals is desired in which the prime focus is not on how the equity is to be used, the right solution seems to be the association, which is easy to create and flexible.
More details can be found in our Guide.
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