Article 3. Private foundations shall not be profit oriented. They may nevertheless
engage in commercial activities in a non-habitual manner or exercise the rights
deriving from titles representing the capital of business companies held as part of a
foundation's assets, provided that the economic results or proceeds from such
activities are used exclusively towards the foundation's objectives.
Article 4. Private foundations may be constituted to become effective at the time of
constitution or after the death of its founder, by any of the following methods:
1. By private document, executed by the founder, whose signature must be
authenticated by a notary public at the place of constitution.
2. Directly before a notary public at the place of constitution.
Whichever may be the method of constitution, it must comply with the formalities
established in the present Law for the creation of foundations.
In case of a foundation being created either by public or private document, to have
effect after the death of the founder, the formalities required for the execution of
wills shall not apply.
Article 5. The foundation charter shall contain:
1. The name of the foundation, expressed in any language with characters of the
latin alphabet, which shall not be equal or similar to that of a foundation previously
existing in the Republic of Panama, as to avoid confusion. The name must include
the word "foundation" to distinguish it from other natural or juridical persons of a
different nature.
2. The initial capital of the foundation, expressed in any currency of legal tender
that in no case shall be less than an amount equivalent to ten thousand Balboas
(B/10,000.00). [=US$10,000.00]
3. A complete and clear designation of the member or members of the Foundation
Council, to which the founder may belong, including their addresses.
4. The domicile of the foundation.
5. The name and address of the Resident Agent of the foundation in the Republic
of Panama, which shall be an attorney or a law firm, who must countersign the
foundation charter prior to its registration at the Public Registry.
6. The purposes of the foundation.
7. The manner of appointing the beneficiaries of the foundation, among which the
founder may be included.
8. The reservation of the right to amend the foundation charter whenever deemed
convenient.
9. The duration of the foundation.
10. The destination to be given to the assets of the foundation and the method of
liquidation of its patrimony in case of dissolution.
11. Any other lawful clause that the founder may deem convenient.
Article 6. The foundation charter, as well as any amendment thereto, must be
written in any language with characters of the latin alphabet, and must comply with
the regulations for the registration of acts and titles in the Public Registry, for which
purpose it must be previously protocolized by a notary public of the Republic [of
Panama]. If the foundation charter or its amendments are not written in Spanish,
they must be protocolized together with their [Spanish] translation by a certified
public translator of the Republic of Panama.
Article 7. Any amendment to the foundation charter, when permitted, shall be
executed and signed in accordance with what is established therein. The relevant
agreement, resolution or act of amendment shall contain the date on which it was
carried out, and a clear indication of the name of the person or persons executing
such amendments, whose signatures shall be authenticated by a notary public of
the place where the document is executed.
Article 8. Every private foundation must pay a registration fee and an annual
maintenance tax equivalent to those established for corporations in articles 318
and 318A of the Fiscal Code.
The procedure and method of payment, the surcharge for late payment, the
consequences of non-payment and all other complementary provisions of the
aforementioned legal principles, shall also be applied to private foundations.
Article 9. The registration at the Public Registry of the foundation charter shall
bestow upon the foundation juridical personality without the need for any other
legal or administrative authorization. Registration at the Public Registry shall in
addition constitute a means of publicity before third parties. Consequently, the
foundation may acquire and own assets of all kinds, incur obligations and be a
party to any type of administrative and judicial proceedings in accordance with
applicable legal provisions.
Article 10. Once the foundation has obtained its juridical personality, the founder
or any third party that have pledged to contribute assets to the foundation, on their
own or at the request of any person with interest in the foundation, shall formalize
the transfer to the foundation of the assets so pledged.
When the foundation is constituted to be effective after the demise of its founder, it
shall be deemed to have existed prior to such death, in respect to the donations
that he/she may have made to the foundation.
Article 11. For all legal purposes, the assets of the foundation shall constitute a
separate patrimony from the personal assets of the founder. Therefore they cannot
be sequestered, embargoed or subject to any precautionary action or measure,
except for obligations incurred, or for damages caused by virtue of actions taken
fulfilling the purposes or objectives of the foundation, or on behalf of the legitimate
rights of its beneficiaries. In no case shall such assets respond for personal
obligations of the founder or of the beneficiaries.
Article 12. Foundations shall be irrevocable, except in the following cases:
1. When the foundation charter has not been registered at the Public Registry;
2. When the opposite is expressly established in the foundation charter.
3. For any of the causes of revocation of donations.
The transfers [of assets] made to foundations shall be irrevocable by whoever has
made the transfer, unless the opposite is expressly established in the act of
transfer of such assets.
Article 13. In addition to the provisions of the previous article, when a foundation
has been created to be effective after the demise of the founder, the latter shall
have the exclusive and unlimited right to revoke it.
The heirs of the founder shall not have the right to revoke the creation or the
transfers to the foundation, even if the foundation has not been registered in the
Public Registry prior to the demise of the founder.
Article 14. The existence of legal provisions in inheritance matters in the domicile
of the founder or of its beneficiaries, shall not affect the foundation or its validity, or
prevent the fulfilment of its objectives as provided for in the foundation charter or its
regulations.
Article 15. The creditors of the founder or of a third party shall have the right to
contest the contributions or transfer of assets to a foundation, when the transfer
constitutes an act of fraud to the creditors. The rights and actions of such creditors
shall prescribe three (3) years from the date of the contribution or transfer of the
assets to the foundation.
Article 16. The patrimony of the foundation may originate from any lawful business
and may consist of present or future assets of any nature. Periodic sums of money
or other assets may also be incorporated to the patrimony by the founder or by
third parties. The transfer of assets to the patrimony of the foundation may be
effected by public or private document. Nevertheless, in the case of real estate, the
transfer must conform with the rules for the transfer of real estate.
Article 17. The foundation should have a Foundation Council, whose powers or
responsibilities shall be established in the foundation charter or in its regulations.
Unless it be a juridical person, the number of members of the Foundation Council
shall not be less than three (3).
Article 18. The Foundation Council shall be responsible for carrying out the
purposes or objectives of the foundation. Unless otherwise stated in the foundation
charter or its regulations, the Foundation Council shall have the following general
obligations and duties:
1. To administer the assets of the foundation in accordance with the foundation
charter or its regulations.
2. To carry out acts, contracts or lawful businesses that may be suitable or
necessary to fulfil the purposes of the foundation, and to include in such contracts,
agreements and other instruments or obligations, such clauses and conditions as
are necessary and convenient, which conform to the purposes of the foundation
and are not contrary to the law, to morals, to bonus mores or to public order.
3. To inform the beneficiaries of the foundation of the economic situation of the
latter, as established in the foundation charter or its regulations.
4. To deliver to the beneficiaries of the foundation the assets or resources set up in
their favour by the foundation charter or its regulations.
5. To carry out all such acts or contracts which are permitted to the foundation by
the present Law and other applicable legal or regulatory provisions.
Article 19. The foundation charter or its regulations may provide that the members
of the Foundation Council may only exercise their powers by obtaining previous
authorization of a protector, a committee or any other supervisory body, appointed
by the founder or by the majority of the founders. The members of the Foundation
Council shall not held liable for the loss or deterioration of the assets of the
foundation, nor for any damages or prejudice caused by their decisions, provided
that the above mentioned authorization has been duly obtained.
Article 20. Unless otherwise provided for in the foundation charter or its
regulations, the Foundation Council must render an ccounting of its activities to
the beneficiaries and, when applicable, to the supervisory body. If the foundation
charter or its regulations contains no provision in this regard, the rendering of
accounts must be done annually. If the accounts so rendered are not objected
within the term established in the foundation charter or its regulations, or, if the
charter does not regulate the matter, it shall be deemed as having been approved
within ninety (90) days from the day it was received, for which purpose, record of
this term shall be made in the report rendering the accounts. Such period having
lapsed or the account approved, the members of the Foundation Council shall be
exempted from liability for their administration, unless they had failed to act with the
diligence of a bonus paterfamilias. Such approval does not exonerate them before
the beneficiaries or third parties having an interest in the foundation, for damages
caused due to gross negligence or fraud in the administration of the foundation.
Article 21. In the foundation charter the founder may reserve for himself/herself or
for other persons, the right to remove the members of the foundation Council, as
well as to appoint or add new members.
Article 22. When the foundation charter or its regulations contains no provision
regarding the right to and the causes for removal of the members of the
Foundation Council, these may be judicially removed, through summary
proceedings, for the following causes:
1. When their interests are incompatible with the interests of the beneficiaries or
the founder.
2. If they do not administer the assets of the foundation with the diligence of a
bonus paterfamilias.
3. If they are convicted for a crime against private property or public faith. In this
case, while the criminal proceedings are in progress, the temporary suspension of
the member on trial may be decreed.
4. For incapacity or impossibility to carry out the objectives of the foundation, from
the time such causes arise.
5. For insolvency or bankruptcy proceedings.
Article 23. The judicial removal of the members of the Foundation Council may be
requested by the founder and the beneficiary or beneficiaries. Should the
beneficiaries be disabled or minors, they may be represented by whoever exercise
upon them the patria potestas or guardianship, as the case may be.
The judgement of the court decreeing the removal, shall appoint new members in
replacement of the previous ones, who shall be persons with sufficient capacity,
competence and good moral standing to administer the assets of the foundation, in
accordance with the purposes established by the founder.
Article 24. The foundation charter or its regulations may provide for the
constitution of supervisory bodies, which may be constituted by natural or juridical
persons, such as auditors, protectors of the foundation or others similar entities.
The duties of the supervisory bodies shall be established in the foundation charter
or its regulations and may include, among others, the following:
1. To ensure the fulfilment of the foundation's purposes by the Foundation Council
and [to protect] the rights and interests of the beneficiaries.
2. To demand from the Foundation Council, the rendering of accounts.
3. To modify the purposes and objectives of the foundation, if and when they
become too costly or impossible to fulfil.
4. To appoint new members of the Foundation Council due to temporary or
permanent absence, or for expiration of the period of any of them.
5. To appoint new members of the Foundation Council by reason of temporary or
accidental absence of any of them.
6. To increase the number of members of the Foundation Council.
7. To approve the acts adopted by the Foundation Council, as indicated in the
foundation charter or its regulations.
8. To guard the assets of the foundation and oversee their application to the uses
or purposes stated in the foundation charter.
9. To exclude beneficiaries of the foundation and to add others in accordance with
the provisions of the foundation charter or its regulations.
Article 25. The foundation shall be dissolved due to:
1. Reaching the day in which the foundation must terminate, in accordance with the
foundation charter.
2. The fulfilment of the purposes for which it was constituted or if their fulfilment
becomes impossible.
3. Being in a state of insolvency, cessation of payments or due to bankruptcy
proceedings having been declared judicially.
4. The loss or total extinction of the assets of the foundation.
5. Its revocation.
6. Any other cause established in the foundation charter or in the present Law.
Article 26. Any beneficiary of the foundation may contest any acts of the
foundation that may damage his or her rights, by enouncing such circumstance to
the protector or to other supervisory bodies, if any; or if there are none, by directly
promoting the respective judicial claim, before a competent court of the domicile of
the foundation.
Article 27. The acts of constitution, amendment or extinction of the foundation, as
well as the acts of transfer, transmittal or encumbrance of the assets of the
foundation and the income arising therefrom, or any other act in connection
therewith, shall be exempt from all taxes, contributions, duties, liens or
assessments of any kind, provided that such assets are:
1. Assets located abroad.
2. Money deposited by natural or juridical persons whose income does not derive
from a Panamanian source or is not taxable in Panama for any reason whatsoever.
3. Shares or securities of any kind, issued by corporations which income is not
derived from Panamanian sources or when such income is not taxable for any
reason whatsoever, even when such shares or securities be deposited in the
Republic of Panama.
The acts of transfer of real estate, titles, certificates of deposit, securities, money or
shares, carried out in fulfilment of the purposes or objectives, or for the extinction
of the foundation, in favour of relatives within the first grade of consanguinity and of
the spouse of the founder, shall also be exempted from all taxes.
Article 28. Foundations constituted in accordance with a foreign law may become
subject to the provisions of this law.
Article 29. Foundations referred to in the previous article that opt to become
subject to the provisions of this Law, shall present a Certificate of Continuation,
issued by such bodies as their internal regime may call for, and which shall
contain:
1. The name of the foundation and the date of its constitution.
2. Data about its registration or deposit [of the charter] at its country of origin.
3. An express declaration of its desire to continue its legal existence as aPanamanian foundation.
4. The requirements stipulated under Article 5 of this Law, for the constitution ofprivate foundations.
Article 30. The certification containing the resolution of continuation and otherrequirements mentioned in the preceding paragraph must have the following documents attached there to:
1. Copy of the original act of constitution of the foundation expressing its desire to
continue in Panama, along with any subsequent amendment.
2. A power of attorney granted to a Panamanian attorney to carry out the
necessary procedures to make effective the continuation of the foundation in
Panama.
The certificate of continuation, as well as the documents attached thereto referred
to in this article, shall be duly protocolized and registered at the Public Registry in
order for the foundation to continue its legal existence as a private foundation in
the Republic of Panama.
Article 31. In the cases foreseen in article 26, the responsibilities, duties and rights
of the foundation acquired prior to the change or domicile or legislation, as well as
the proceedings already initiated against it or those that the foundation may have
promoted, shall continue in force, and such rights and obligations shall not be
affected due to the change of jurisdiction authorized by the aforesaid legal
provisions.
Article 32. The foundations constituted in accordance with this Law, as well as the
assets comprising its patrimony, may be transferred or become subject to the laws
and jurisdiction of another country, as may be provided by the foundation charter or
its regulations.
Article 33. Registrations related to private foundations shall be made at the Public
Registry in a special section to be named "Section of Private Foundations". The
Published by Legalinfo-Panama.com
Executive Branch through the Ministry of Government and Justice shall issue the
regulations applicable to such section.
Article 34. To avoid the unlawful use of private foundation, all legal provisions
contained in Executive Decree No. 468 of 1994 and any other rule in force aiming
at fighting money laundering derived from drug-trafficking, shall apply for their
operation.
Article 35. The members of the Foundation Council, of the supervisory bodies, if
any, as well as the public or private employees who might have any knowledge of
the activities, transactions or operations of the foundations shall at all times
maintain secrecy and confidentiality in this respect. Breaches of this duty shall be
sanctioned with a six months imprisonment and a B/.50,000.00 fine without
prejudice of the corresponding civil liability.
The provisions of this article shall apply without prejudice of the information which
must be disclosed to the official authorities and of the inspections that they must
carry out in the manner established by the law.
Article 36. Any controversy for which there is no special procedure in this Law,
shall be resolved through summary proceedings.
The foundation charter or the regulations of the foundation may establish that any
controversy arising in connection with the foundation shall be resolved by arbiters
or arbitrators, as well as establish the procedure they should abide by. In the event
no such procedure has been established, the rules in respect to such matters, as
contained in the Judicial Code, shall apply.
Article 37. This law shall be effective from the date of its publication.
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