Foundation in Poland: Can a Foundation Make Money?

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Foundations, like associations, are entities belonging to the so-called NGO’s (Non-Governmental Organisations) sector. Their primary objective is to achieve socially useful goals. Can this legal form be used to make money, and if so, under what conditions?

What is the economic activity of a foundation under Polish law?

A foundation, according to Article 1 of the Law on Foundations, may be established to pursue socially or economically useful purposes. Statutory activities do not have to be charitable; they can also lead to making money. Such activities can be carried out in two ways:

  • as carrying out economic activities;
  • as fundraising as a public benefit organisation (so-called PBO).

Conducting business activity by a foundation

The possibility for a foundation to carry out business activities is guaranteed by Article 5 section 5 of the Law on Foundations. In accordance with this provision, business activity may be carried out by the foundation to the extent that it serves its purposes. In such a situation, the value of the foundation’s assets earmarked for such activity may not be less than PLN 1,000.

A reservation concerning the possibility of conducting business activity should be included in the content of the foundation’s statutes. In the absence of such a provision, it will be necessary to amend the organic document. However, the literature points out that business activity cannot be the only or even the main goal of the foundation, as it will always be a socially or economically useful goal, and business has a servile role with respect to it. This also has to do with expenditure, which must remain in reasonable proportion to the statutory purpose and the activity.

It is worth pointing out that once a foundation has been registered in the National Court Register (in the category of ‘other entities’, similarly to religious associations or societies), it has the right to conduct business activity on the same rights as other entrepreneurs, which is guaranteed to it by the Law on Freedom of Business Activity, repealed by the currently in force Law on Entrepreneurs. The profit-making nature of this activity does not change the fact that the income from it should be used to realise the statutory objectives (vide: judgment of the Court of Appeal in Warsaw of 12 February 2020, ref. V ACa 233/19). It is now accepted that the subject matter of the activity does not have to coincide with its statutory activity; what matters is its size and the purpose of the funds thus obtained.

Exceeding the reasonable scope of business activity raises the risk of triggering the supervisory powers referred to in Article 14 of the Law on Foundations. The competent minister or district governor may set a time limit to remedy the deficiencies or demand a change of the foundation’s management. Persistent acts contrary to the law, the statutes or the purpose of the foundation may even result in the suspension of the management board and the appointment of a forced administrator.

Implementation of paid public benefit activity

An alternative to the possibility for a foundation to carry out business activities is for it to carry out public benefit activities. However, this involves the need to meet certain requirements. First of all, the scope of such activity is limited to activities listed in Article 4(1) of the Act on Public Benefit Activity and Volunteerism ( e.g. social aid, supporting the foster care system, tourism and sightseeing or ecology and animal protection). Not every statutory purpose will be a public benefit purpose at the same time.

In addition, income from paid public benefit activities can only be used back for the same purpose. Charges for services are also limited and must not exceed the costs incurred for providing them. The scope of the PBO should be clearly indicated in the statutes. A basic condition for obtaining PBO status is to have carried out public benefit activities for at least two years and to be able to demonstrate this in the body of the application.

Does it make sense to use a foundation to make money?

Entrepreneurs who are looking for an alternative to a classic company sometimes consider registering a foundation under Polish law, and it can indeed seem attractive. In the case of a foundation, as a rule there is no obligation to pay social security contributions, and exemption from income tax is also possible. The wording of the statutes is very flexible. In addition, the organisation has a legal personality and a thousand zloty is sufficient to establish it. Is this enough to effectively earn money in a foundation?

Unfortunately, a foundation can hardly be seen as a better solution than a company. First of all, it does not provide an opportunity to increase the assets of the founder and foundation members. It is also perceived quite differently – as an entity pursuing social goals rather than an entrepreneur. Finally, economic activity – even if it can be carried out – will never precede the socially beneficial goal, and it is impossible to transform the foundation into a company in the sense of the Commercial Companies Code. A family foundation may turn out to be a better model as a vehicle for making money, and at the same time optimising taxes.

Legal services for foundations – Linke Kulicki Law Firm

Linke Kulicki Law Firm offers legal assistance taking into account all legal aspects related to the running of foundations and associations. Our support is addressed both to those who are just considering starting a foundation and those who are already doing so. A qualified and experienced lawyer for foundations guarantees their smooth operation and, in the event of any problems, is able to find an effective solution. If you need help setting up a foundation or ongoing legal services for foundations, our team is able to help you.