Operating a private foundation: Where permitted ancillary activity ends

Section 1(1) PSG describes a private foundation as a legal entity to which assets have been dedicated. Those assets may be used, managed and realised to pursue a lawful purpose determined by the founder. The provision is the starting point for deciding whether an activity can still be attributed to purpose pursuit and asset management.

Section 1(2)(1) PSG draws the line at commercial activity that goes beyond a mere ancillary activity. The statute does not set a fixed revenue, employee or time threshold. The specific operation must be assessed as a whole. A description in the foundation deed cannot replace that assessment.

The practical review should begin with the actual operation. What services are offered, who appears to customers, how regularly are contracts accepted, which resources and employees are used, and what importance does the activity have for the foundation? These facts provide the basis for the legal classification.

The foundation's own service can qualify as a mere ancillary activity only when it remains subordinate to purpose pursuit and asset management. The review concerns the real operation. Recurring orders, an own customer base, continuing staff deployment and a prominent public presentation can increase the activity's weight. None of these factors decides the case alone.

The foundation board should describe the activity before it starts. The file should state the service, target group, contractual relationships, resources, expected duration and connection with the foundation purpose. It should also identify who provides the service and who bears the economic risk.

An activity that develops into an independent business operation requires a fresh review. Its original classification as a side project does not settle the later position. Changes in scale, staff, orders or public presentation should therefore be included in ongoing monitoring.

Section 1(1) PSG expressly refers to the management and realisation of dedicated assets. Holding a shareholding and exercising the related property rights must therefore be distinguished from the foundation's own commercial service operation. The shareholding is managed as an asset, while the company carries on its own business.

The boundary matters when the foundation moves beyond asset management and enters the company's operating business. Own customer contracts, own employees, own invoicing or a public service operation by the foundation point to an additional activity review. Economic proximity to the company does not resolve the legal classification.

The foundation board should record which rights are exercised as shareholder rights, who conducts the company's day-to-day business and which decisions remain with the foundation. A specific structure must be assessed together with the foundation deed and the company documents.

Section 1(2)(2) PSG prohibits a private foundation from taking over the management of a trading company. The review concerns the actual management function. A reference to a shareholding or an advisory role does not answer who conducts the day-to-day business and acts for the company externally.

Section 1(2)(3) PSG also excludes the position of an unlimited-liability partner in a registered partnership. This personal liability position must be distinguished from a capital investment and from the ordinary exercise of shareholder rights.

The structure must therefore be read at several levels: foundation deed, shareholding and partnership agreements, appointments, powers of attorney, signing rules and actual work processes must fit together. An intermediary or a different title does not provide a reliable solution where the foundation in practice assumes the prohibited function.

The review should collect the current foundation deed, evidence of dedicated assets, shareholding and partnership agreements, and office and power-of-attorney documents. For the foundation's own activity, the file should include a service description, sample contracts, resource planning, public presentation and a clear overview of ongoing business relationships.

The foundation board resolution should disclose the legal classification. It should explain which lawful purpose the activity or shareholding serves, which limits apply and how the foundation will identify an expansion beyond ancillary status. A general reference to usefulness gives the monitoring little structure.

If doubts arise, the actual roles and work processes must be reconstructed. Key questions concern the contracting party, invoicing, decisions on customer orders, staff deployment and personal liability. The documents should show how the chosen structure works in practice.