The Austrian Verein/Association is an informal alternative to the Purpose Trust

The Austrian Verein/Association is an informal alternative to the Purpose Trust

Purpose trusts can be created in several jurisdictions including Cayman and Bermuda, provided the desired purpose is sufficiently certain for it to be carried out and that the purpose is lawful and not contrary to public policy. Different from private trusts with beneficiaries which can hold trustees to account, to do their duties under the trust, the assets of a non-charitable purpose trust are held for purposes not people. Accordingly, there are no people to enforce the trust, hence the need for alternative control mechanisms such as the enforcer that has been adopted in purpose trust jurisdictions.

However, the mere identification of an enforcer does not usually resolve all the complexities and uncertainties associated with the purpose trust. The final resolution of such uncertainties often tests the courts that have to determine whether the purpose is specific enough or who eventually is able to register ‘sufficient interest’ to enforce the purpose trust in addition to the statutory enforcers? Furthermore, it is often unclear what the act of ‘enforcement’ entails?

The laws and regulations governing the Austrian Verein (association) leave much to the private autonomy of those creating it. The enforcement is left to two or more persons (members – none of whom need to be Austrians or resident in Austria) who create a Verein for any purpose (including non-charitable and philanthropic objects) provided such purpose does not seek to maximise profits for its members. The non-charitable Verein is called an ‘Idealverein’ (idealistic association) and, as is the case in all associations, its members have limited statutory rights to influence the administration of the Verein as well as the protection of the integrity of their membership, provided always that they have no interest in the assets of the Verein or any surplus upon the Verein’s winding up. Members are entitled to participate in all meetings of the Verein and ordinary members have a vote. The members appoint a Board of officers which can include themselves or third parties. A Verein is permitted to engage in business including profitable commercial activities, but (i) such business must be ancillary and incidental to the Verein’s purpose, ie. subsidiary to the non-profitable objects of the Verein and (ii) profits are not distributed to the Verein’s members. Conversely, in addition to its Board members, a Verein is permitted to pay its members for services rendered and disbursements incurred on an arms’ length basis.

The day-to-day business of the Verein is carried on by the Board that consists of a minimum of two persons performing the roles of Managing Director (Obmann) and the deputy managing director but will usually be extended by Treasurer (Kassier) and the deputy treasurer (together, the Officers) as well as a Secretary.

 

Accountability and Enforcement:

Accounts. Each Verein must appoint two financial controllers who review the ongoing financial activities of the Verein annually. They must be independent from the board and suitably qualified but need not be certified auditors. Provided the annual turnover does not exceed €1 million, the Verein is not required to maintain financial statements and the keeping of a mere cash book will suffice.

Control. The enforcement of its purpose is overseen by the members who have limited remedies to ensure that the Verein operates according to its constitutional charter.

Minority rights. One tenth of the members can request that (i) a general meeting is convened and (ii) a ‘special representative’ be appointed to claim damages on behalf of the Verein against its officers.

Alternative dispute resolution. All disputes in the Verein are resolved by internal arbitration. In the event that a dispute cannot be resolved before the internal board of arbitration within 6 months, the matter can proceed to the ordinary courts.

 

Liability of Officers:

• Officers have fiduciary duties toward the Verein, such as acting in good faith, adhering to bylaws, and avoiding conflicts of interest.

• Officers are liable to discharge their duties reasonably as prudent officers, but liability is limited to gross negligence and intentional misconduct when officers act pro bono.

• Members themselves are usually shielded from personal liability beyond their contribution or membership dues.

 

Key Differences with the Purpose Trust:

• The Verein is based on contract.

• The Verein is a legal entity with limited liability capable of owning rights and owing liabilities. The Verein is created by notification to the police in the requisite form together with a memorandum containing requisite details (eg. name, registered office, purpose, ideal and material means of accomplishing such purpose, officers etc.).

• The Verein is inherently democratic, with its governance overseen by members who participate in general meetings and ordinary members can cast their vote in accordance with the majority requirements prescribed in the memorandum. In administering the purpose, officers of the Verein owe their fiduciary duties to the Verein.

• The Verein provides for a mechanism of internal dispute resolution with a subsidiary jurisdiction of the ordinary courts.

• Tax becomes a consideration for the Verein only when it carries on commercial activities.

• The beneficial owners of the Verein for the UBO register are ordinary members holding more than 25% of the voting rights of the Verein, failing which the members of the Board.

 

Private Trust Company:

The Verein can also provide an alternative private trust company. Austria does not have its own trust law nor has Austria ratified the Hague Convention on Trusts, but there is nothing to prevent two or more foreign residents/citizens to create a Verein to be established for the purpose of acting as trustee of any trust including a purpose trust and/or act as its protector/enforcer. A foreign board that maintains the necessary formal presence in Austria could further ensure that central control and management of the day-to-day business of the underling trusts is located outside Austria.

About Fidux

We’ve spent more than three decades managing and protecting our clients’ assets. We do it with a multidisciplinary, multilingual team of top experts, based across Europe. Our approach is proactive, professional and efficient as well as steadfast and dependable. We create funds and investment structures, build portfolios, start businesses – whatever helps you achieve your financial goals, we have the expertise and network of trusted partners to get you there.

 

For further information on this and other Services, please contact our Team:

Jakob Hirschbaeck

Director

vienna@fidux.com