The private law Establishment is a legal form unique to Liechtenstein which has no counterpart in other legal systems. The law defines the Establishment as "a legally autonomous, organized, permanent under-taking dedicated to economic or other objects and entered in the Public Register, which has holdings of material and possibly personal resources."
The popularity of the Establishment can be explained first and foremost by its flexibility, but also by the tax advantages which it offers when compared to a stock corporation. Depending on the wishes of the client an Establishment may be structured like a one-person company, a foundation or a corporation.
2. The Various Forms of the Establishment
2.1. The Typical Establishment
The typical Establishment is a one-person company which is managed by a single person. All rights are exercised in accordance with his instructions. He controls, directly or indirectly, all organs of the Establishment or carries out the functions of these organs himself (cf. no. 5 below).
2.2. The Establishment Organized Similar to a Foundation (Establishment Without Founder's Rights)
This type of Establishment has no Founder's Rights. The Board of Directors exercises the rights of the founder (cf. no. 5.1. below). Thus, the possibility that inheritable rights are created is precluded (cf. no. 4 below). The client gives management certain instructions, as he would in a foundation, with respect to how management should carry out its functions. Apart from that the client has no influence over the Establishment, unless he binds the members of the Board of Directors to his instructions by a Mandate Agreement. The Board of Directors is the sole body of the Establishment, unless an audit authority has also been appointed.
2.3. The Establishment Organized Similar to a Stock Corporation
This type of Establishment is formed by several people together who own shares in the Establishment - an arrangement similar to a stock corporation. The supreme body of the Establishment is the assembly of the Founder's Rights holders. For tax reasons (distributions to the Founder's Rights holders are subject to a four percent withholding tax) this type of Establishment is seldom chosen.
3. The Formation of the Establishment
The formation of an Establishment is undertaken by a natural person or legal entity acting as founder. The client need only give instructions; his identity is not made public.
In practice the formation of the Establishment normally proceeds as follows:
- 3.1. Formation Instructions
- 3.2. Preparation of the Articles
- 3.3. Submission to the Public Register
- 3.4. Entry in the Public Register
3.1. Formation Instructions
In the formation instructions the trustee or lawyer is authorized to form an Establishment in a fiduciary capacity according to guidelines given by the client. Consequently, the trustee or lawyer undertakes the formation in his own name and thereby preserves the anonymity of the client vis-à-vis the authorities and other third parties.
3.2. Preparation of the Articles
The articles must be in writing and signed by the (legal) founder.
The articles must - at a minimum - specify the following:
- the name of the Establishment, which must contain the word
"Anstalt" (the English or French equivalent is permitted),
and the seat of the Establishment;
- the objects of the Establishment, alternatively the nature of its
business;
- the estimated value of the Establishment's assets in the event
they do not consist of cash, and the manner of their procurement and
composition;
- the powers of the supreme body; and
- the bodies charged with the management and, if desired, the
auditing of the Establishment, and how the Establishment will be
represented.
3.3. Submission to the Public Register
Like other legal entities an Establishment must be notified to the Public Register. The founder must submit the following documents to the Public Register:
- the articles;
- the formation document (i.e. formation resolution or declaration,
formation deed) if this is not contained in the articles;
- a declaration that at least one half of the Establishment's
statutory capital has been paid in or is covered through
non-monetary assets which form the capital of the Establishment, and
how the balance of the capital will be raised or guaranteed. If the
capital of the Establishment consists of money, the statutory
minimum capital (CHF 30'000.--, or CHF 50'000.-- if divided into
shares) must be fully paid in. Establishment capital in the form of
funds must be deposited with a Liechtenstein or Swiss Bank, which
must certify the deposit; and
- a list of the members of the Board of Directors including the
names and addresses, or company names and seats, of the members.
Upon registration in the Public Register, which customarily takes place two to three days after notification, the Establishment comes into existence and acquires legal personality. As a consequence the liability of the Establishment is limited to its capital.
4. The Founder's Rights
If Founder's Rights are created (as they are in the typical Establishment and the Estab-lishment organized similar to a stock corporation) the Founder(s) of the Establishment is (are) the owner(s) of the Founder's Rights. Since the trustee or the lawyer customarily acts as legal founder of the Establishment for reasons of anonymity, he transfers the Founder's Rights to his client, the economic owner, by means of a deed of cession once the Establishment has been formed.
The Founder's Rights are simply administrative rights and, as such, are not attachable assets. However, if the founder is simultaneously the beneficiary of the Establishment, property rights may be associated with the administrative rights.
The Founder's Rights represent the totality of the powers given to the founder of an Establishment. The law provides that the Founder's Rights may be ceded, inherited or otherwise transferred at any time, but not pledged or otherwise encumbered (unless beneficial rights are associated with the Founder's Rights).
Even if the capital of the Establishment is not divided into shares, the Founder's Rights can belong to several people.
5. The Organization of the Establishment
5.1. The Supreme Body
The supreme body consists of the holder(s) of the Founder's Rights. The law does not prescribe a minimum or maximum number of holders of the Founder's Rights. If there are several holders of the Founder's Rights, resolutions of the assembly of such holders must be passed unanimously unless the articles provide otherwise. The powers of the supreme body are customarily the following:
- appointment and removal of the Board of Directors and the
auditors;
- determination of the signing authority of management personnel and
the liquidators;
- acceptance of the balance sheet, determination of the annual
profits/losses, passage of resolutions concerning the application of
the profits/losses;
- discharge of the Board of Directors and the auditors;
- issuance of by-laws and amendments to the articles and the
by-laws;
- appointment of beneficiaries and determination of their rights;
- appointment and removal of the representative; and
- winding up of the Establishment, appointment of the liquidators
and passage of resolutions concerning the application of the
liquidation surplus.
5.2 The Board of Directors
The Board of Directors may consist of one or more natural or legal persons. It is appointed by the supreme body for a maximum duration of three years and its tasks are the managment and representation of the Establishment. Additionally, it has all the powers and obligations which are not transferred to or reserved for another body.
At least one member of the Board of Directors authorized to manage and represent the Establishment must be a Liechtenstein resident and either possess a professional license to act as a lawyer, legal agent, trustee or auditor, or hold a government-recognized business qualifi-cation.
The Board of Directors may grant powers of attorney to third parties including the economic beneficiary. Customarily, the Board of Directors grants only special powers of attorney with a limited duration because its members are liable for the attorney's actions.
The members of the Board of Directors are liable to the Establishment and in exceptional cases to the holder of the Founder's Rights as well as to the creditors of the Establishment for negligent or intentional breach of duty.
5.3. Audit Authority
An Establishment which undertakes commercial activities (independent, ongoing activities carried on for profit where the type and size of the company render necessary the facilities of a commercial business and orderly accounting), or whose objects as laid down in the articles allow it to engage in commercial activities, must appoint an audit authority. In all other cases the appointment of an audit authority is only necessary if prescribed in the articles.
The audit authority is appointed by the supreme body. It may not serve for longer than one year when first appointed, and for not longer than three years if and when its mandate is renewed.
Members of the audit authority may neither belong to the Board of Directors nor be employees of the Establishment.
The audit authority has the following duties:
- verification of the annual accounts prepared by the Board of
Directors with respect to procedural correctness and accuracy
through an audit of the company books;
- submission of a written report to the supreme body concerning the
balance sheet and profit and loss account submitted to it by
management; and
- obligation to report to the supreme body if any irregularities or
infringements of legal or statutory provisions have been discovered.
The audit authority is liable to the Establishment and in exceptional cases to the holder of the Founder's Rights as well as to the creditors of the Establishment for negligent or intentional breach of duty.
5.4. Other Bodies
The following is a list of other bodies which may be provided for in the articles, but which are only advisable under particular circumstances, for instance if the Establishment's capital is large and diversified:
- Supervisory Board
The supervisory board is appointed pursuant to the provisions concerning the Board of Directors and has the function of permanently supervising management and collaborating in the administration of the Establishment.
The names of the supervisory board members may be entered in the Public Register, but this is not compulsory.
- Directorate
The articles may provide that the management and the representation of the Establishment may be assigned by the Board of Directors to one or more persons who can be either members of the Board of Directors or third parties. If these persons are charged with the entire management of the Establishment they are collectively referred to as the directorate. In this case the Board of Directors essentially has the function of a supervisory board.
- Committee(s)
The Board of Directors may appoint from among its members one or more committees. The latter will typically supervise the course of business, prepare the transactions to be dealt with by the Board of Directors, report to the Board of Directors concerning all important questions, in particular concerning the drawing up of the balance sheet, and supervise the implementation of the Board of Directors' resolutions.
6. Legal Representative
Liechtenstein legal entities must appoint a legal representative who in turn must be a Liechtenstein resident or a company permanently resident or domiciled in Liechtenstein. The legal representative is entered in the Public Register. The legal representative is obligated by law to receive declarations and communications of all kinds from the Liechtenstein authorities, including service, and to keep files in safe custody.
7. The Beneficiaries
The articles or regulations of the Establishment may provide for beneficiaries, which is to say persons who shall receive the income from the Establishment's assets or the assets themselves. Details concerning the beneficial interest are laid down in the articles and regulations.
The beneficial interest may be qualified, limited or tied to a condition. Unless otherwise provided, the beneficial interest can be revoked at any time.
The beneficiaries are usually named in the regulations since the latter document is not deposited with the Public Register and the anonymity of the beneficiaries can thus be preserved.
If neither the articles nor the regulations provide for beneficiaries, the law presumes that the holder of the Founder's Rights is the beneficiary.
Unless the articles provide otherwise, the beneficiaries have the right to request information from the Board of Directors and are entitled to inspect all books of account where their own rights are concerned.
The articles or regulations may provide that if certain persons cease to be beneficiaries, then other persons are appointed as their successors. The latter are called remaindermen. Generally, they have the same rights and obligations as the beneficiaries.
8. Liquidation of the Establishment
The Establishment may be dissolved at any time by a resolution of the supreme body. In this resolution the supreme body appoints one or more liquidators. The liquidators publish the liquidation resolution three times in an official publication (the two major Liechtenstein newspapers) and invite possible creditors to file their claims. After a fixed period of six months, within which the creditors may file their claims, the assets may be distributed to the final beneficiaries of the Establishment. Once the assets have been distributed the Establishment will, on application of the liquidators, be deleted from the Public Register, and the legal personality of the Establishment terminates.
9. Legal Sources
Persons and Company Law (Personen- und Gesellschaftsrecht) of January 20, 1926, Liechtenstein Law Gazette 1926/4, in particular Articles 534 to 551.