Private foundation as corporate shareholder: control, board and conflicts of interest

Under section 17 PSG the foundation board manages and represents the private foundation. For a corporate holding this includes preparing shareholder resolutions, exercising voting rights and appointing representatives for meetings. The board acts for the foundation rather than as a messenger for individual family members.

The articles of association, any shareholders agreement, the foundation declaration and the board rules must reflect the same allocation of powers. A right to appoint corporate management may be strategically important. It must still be clear who selects, instructs, supervises and removes each person.

Material shareholder decisions need a prepared record. It should cover the proposed resolution, economic effects, alternatives, potential conflicts and any approval required from another foundation body.

The foundation may use reporting duties, supervisory bodies and shareholder rights to control the company. The foundation board should receive financial indicators, liquidity data, investment plans, material contracts and compliance risks on a fixed schedule.

Control is not day-to-day management. A foundation board that continually directs employees of the portfolio company blurs accountability. Corporate management must retain its statutory and contractual responsibility.

Section 22 PSG may become relevant where there is unified management or a direct holding above 50 per cent. Its supervisory board duty depends on further conditions, especially employee numbers and foundation activity extending beyond mere administration of shares.

Conflicts often arise from dual roles. A foundation board member may also be a managing director, supervisory board member, co-shareholder or adviser of the portfolio company. Before a decision, each person should disclose the role held on every level and the interest connected to it.

The conflict changes information, deliberation and voting. A conflicted person should not control the decision record. Independent valuations, competing offers or a separate committee may be needed so that the foundation makes its own decision.

If the private foundation contracts directly with a board member and has no supervisory board, section 17(5) PSG requires approval by all other board members and the court. Our article on self-dealing involving foundation board members explains this special route.

A participation file should show what information was available and what assumptions supported the decision. This is particularly important for capital measures, share sales, management appointments and exceptional financing.

In its case law on business decisions, the Austrian Supreme Court requires an adequate information base and the absence of extraneous interests. A later adverse result does not by itself prove a breach. Missing information or concealed self-interest may remove the protected scope of judgement.

Under section 29 PSG every member of a foundation body is liable to the foundation for loss caused by a culpable breach. Regular reports, defined escalation thresholds and traceable resolutions therefore protect the foundation first.