Foundations in Cyprus

Introduction

Foundations are non-governmental organizations whose primary function is to serve one or more purposes of public interest. In addition, Foundations are non-profit organizations, that is, they do not pursue commercial activities or financial gain and cannot distribute any profits to the Founder or the members of the Board of Directors. Any income generated from their activities shall be used exclusively for the continuation and fulfillment of the Foundation's purposes.

The purpose of this document is to summarize important points regarding the registration and operation of Foundations that Founders and members of the Board of Directors should take into account.

Defining the Purpose of a Foundation

First of all, the Foundation's public-benefit purpose, as well as the means to achieve it, must be clearly defined from the outset and described in detail in the Articles of Association.

Indicatively, the purposes of a Foundation, according to the Associations and Foundations and Other Related Matters Law of 2017 (104(I)/2017), may include the prevention of poverty, the promotion of education, the promotion of health, the promotion of civic and community development, the promotion of the arts, culture, cultural heritage or science.

It is recommended that the Foundation focus its activities on one or two purposes to enhance the effectiveness and quality of the Foundation's work.

The Importance of the Articles of Association

The Articles of Association of a Foundation, in addition to its purposes, identity and scope of action, determine the basis of its operation.

The Articles of Association must address issues such as the responsibilities of the governing bodies, decision-making procedures, the distribution of responsibilities and the management of financial resources.

For example, the members of the Foundation are required to keep accounting books in which all transactions of the Foundation are recorded and to prepare the annual accounts at the end of each financial year.

Transparency and Internal Governance

The correct drafting and transparency in the Articles of Association are of major importance since they describe the rules and internal operating procedures of the Foundation and determine the geographical and functional scope of its activities.

A good practice in the governance of a Foundation is to involve multiple persons and levels of oversight to avoid the concentration of power in a single person.

Best Practices for Foundation Management

In addition, good practices include:

• Replacing members of the Board of Directors after they complete two (2) terms;
• The detailed recording of the minutes of Board meetings by the Secretary of the Foundation;
• The keeping of separate financial records of income and expenses for each activity.

Beneficial Ownership Disclosure Requirements

From 2022 onwards, Foundations are required to disclose their beneficial owners for transparency and regulatory compliance purposes.

Conclusion

Founders are encouraged to work with their legal advisor to draft the Foundation's Articles of Association and incorporate good practices into their operating procedures.

The inclusion of principles of good administration and governance substantially enhances the credibility and transparency of a Foundation. In this way, the organization is protected from abuse, arbitrariness and deviations from its mission and values, ensuring its integrity in the long term.

Author

Amaryllis A. Papantoniou, Partner