To pass down a family business in Taiwan through trusts, currently, there are two choices: establishing private shareholding trusts or public charitable trusts. Through these two means, the effects of solidifying business operations and passing down the family business may be achieved.
To pass down a family business in Taiwan through trusts, currently, there are two choices: establishing private shareholding trusts or public charitable trusts. Through these two means, the effects of solidifying business operations and passing down the family business may be achieved.
With respect to using charitable trusts in the design of a family estate structure, we often see the family business owners donating shares of family businesses or other properties to a charitable trust and transferring shareholders’ rights to the supervisors of the charitable trust. It is often family members who are assigned the positions of the supervisors of such trusts so that the family can attain the purpose of controlling the trust. In addition, in order to operate the trust and realize charitable purposes, charitable trusts will also establish effective assistive committees such as advisory committees, consultants, operation committees, distribution committees, etc. to assist the trustees or supervisors in managing charitable trusts.
Lately, however, since charitable trusts are often criticized as the way for family businesses to control the shareholding of the businesses and are in fact the acts of “fake charities; true tax-evasion; true investments.” The competent authorities began to amend the provisions in the Trust Law regarding charitable trusts so that charitable trusts may be truly “open and transparent” and “for charitable purposes.” As such, the amendment draft to the Trust Law announced by the Ministry of Justice on August 15, 2019, provides that all charitable trusts need to disclose the donor roster, certain relatives to the settler shall not hold the position of supervisor of a charitable trust, the charitable businesses shall follow their mission statement in their annual spending in which charitable spending shall not be less than 50% of their total spending. And if the total assets are greater than a certain amount, a CPA’s attestation is required.
Therefore, in the future, family businesses that intend to use charitable trusts as shareholding vehicles should pay attention to the possibility of having to disclose the assets and related usage of the charitable trusts to the public. Competent authorities may actively audit-related operations and assets of the charitable trusts. Family businesses that would like to keep their holdings private will find it difficult to use charitable trusts as shareholding vehicles.
