By Natalie Popova, Legal Consultant | Express Law Solutions
Foundations have become an increasingly valuable legal instrument for individuals, families, and corporate entities. They offer a structured way to manage assets, support long-term projects, fulfill philanthropic goals, and ensure continuity across generations. At the same time, their flexibility makes them attractive in corporate governance, succession planning, and social responsibility strategies.
This article provides an overview of the key types of foundations, their legal functions, the advantages they offer to businesses, and common misuse schemes that practitioners should be aware of.
1. What Is a Foundation?
A foundation is a non-profit legal entity created by dedicating assets to a specific purpose—either for public benefit or for the benefit of a defined group of individuals.
Unlike associations, which are membership-based, foundations rely on:
- allocated assets, and
- the founder’s expressed will,
with management carried out by a designated governing body.
2. Types of Foundations
2.1. Public-Benefit Foundations
These foundations operate to support society or certain groups within it. Common fields include:
- education and culture
- healthcare initiatives
- social and community support
- environmental protection
- scientific and research activities
Public-benefit foundations often receive tax advantages but are subject to enhanced regulatory oversight.
2.2. Private-Benefit Foundations
These serve specific individuals, families, or defined beneficiaries. They are frequently used for:
- family asset management
- succession and estate planning
- preserving intergenerational wealth
- supporting specific projects or institutions
They offer high structural flexibility and are particularly common in family-owned businesses.
2.3. Corporate Foundations
Created by companies as part of a broader strategic agenda, corporate foundations can:
- implement CSR (Corporate Social Responsibility) programs
- support community or social projects
- fund employee or family assistance initiatives
- strengthen long-term corporate reputation
Corporate foundations are increasingly viewed as integral to stakeholder engagement and brand strategy.Regulation: Companies Act 2006 + Charities Act 2011.
3. Purposes of Foundations
3.1. Asset Management and Protection
Foundations are widely used for:
- protecting assets from personal liabilities
- long-term estate structuring
- avoiding internal family disputes
- establishing stable, rule-based management of wealth
Assets transferred to a foundation are legally separated from the founder’s personal estate.
Assets transferred to a foundation (or trust) become legally separate from the founder.
Relevant UK principles:
- fiduciary duties of trustees (Charities Act 2011)
- company director duties (Companies Act 2006)
3.2. Supporting Long-Term Public or Charitable Goals
Projects that require sustainable, predictable funding—scholarships, research, community development—are often better managed through foundations.
3.3. Corporate Positioning
For businesses, foundations help:
- enhance public trust
- demonstrate long-term social commitment
- mitigate reputational risks
- coordinate philanthropic activities under a structured legal entity
4. Benefits for Businesses
4.1. Tax Advantages
Although tax rules vary by jurisdiction, businesses may benefit from:
- tax deductions for contributions
- favorable treatment of funds allocated to public-benefit activities
- exemption from certain taxes for the foundation itself
4.2. Reputation and Brand Value
A foundation can significantly raise a company’s profile as a socially responsible and forward-looking organization.
4.3. Governance and Stability
Foundations provide:
- transparent rules for disbursing funds
- long-term continuity beyond individual managers or shareholders
- an independent structure for managing philanthropic assets
- Legal Framework in the United Kingdom
While the use and regulation of foundations vary internationally, in the UK the closest equivalent legal structures fall under charity and trust law rather than foundation-specific legislation. Relevant statutory instruments include:
- Charities Act 2011 – governing registration, public-benefit requirements, trustee duties, and reporting obligations.
- Trustee Act 2000 – setting standards for investment, care and fiduciary responsibilities of trustees.
- Companies Act 2006 – applicable to charitable companies limited by guarantee, including governance and reporting rules.
- Fraud Act 2006 – defining criminal liability for fraud by false representation, failure to disclose information, or abuse of position.
- Proceeds of Crime Act 2002 (POCA) – addressing money laundering risks and recovery of unlawfully obtained assets.
- Counter-Terrorism and Security Act 2015 – relevant where charitable funds may be exposed to high-risk jurisdictions.
- UK anti–money laundering regulations (MLRs 2017) – imposing due diligence, monitoring, and reporting duties.
In the UK, foundations as a standalone legal form do not exist; instead, organisations with similar functions typically operate as charitable trusts, charitable incorporated organisations (CIOs), or companies limited by guarantee.
5. Common Forms of Fraud and Misuse
Regulated under:
- Fraud Act 2006
- Proceeds of Crime Act 2002 (POCA)
- Terrorism Act 2000
- Money Laundering Regulations 2017
- Charity Commission compliance framework
Despite the legitimate and important role foundations play, improper use can occur. Some common misuse patterns include:
5.1. Money Laundering
Foundations can, intentionally or inadvertently, be used as conduits for money laundering, enabling individuals or organisations to disguise the illicit origin of funds. This typically occurs through:
- Complex donation chains — layering funds through multiple donors or affiliated entities to obscure their source.
- Cross-border transfers — exploiting differences in reporting obligations between jurisdictions.
- Poorly supervised charitable programs — where funds are spent without adequate documentation or verification of beneficiaries.
- POCA applies to both intentional and negligent facilitation.
Criminal actors may portray transfers as charitable contributions, research grants, community projects, or humanitarian relief, creating a veneer of legitimacy. Without robust anti–money laundering controls, enhanced due diligence, and continuous monitoring, a foundation may unknowingly facilitate laundering and expose itself to severe regulatory sanctions and reputational harm.
5.2. Tax Evasion
Some individuals attempt to exploit foundations to hide taxable income or claim illegitimate tax exemptions. By disguising private expenditures or investment activities as charitable, offenders may improperly reduce tax liability. Cross-border structures further complicate oversight and increase the risk of abusive arrangements. Effective regulation and transparent reporting help mitigate these vulnerabilities.
Examples include:
- overstating charitable expenses
- misclassifying private expenditures as public-benefit activities
- using foundations to hold luxury assets under non-profit status
HMRC may remove charitable status and issue penalties.
5.3. Misappropriation of Donor Funds
Weak internal controls can enable trustees or managers to divert charitable assets for personal use. This can involve inflated project costs, fake beneficiaries, or the redirection of funds to related parties. Such misconduct harms both the foundation’s credibility and its legal standing. Regular audits and strong governance reduce the likelihood of abuse.
Improper governance may allow:
- diversion of funds for personal benefit
- hidden related-party transactions
- lack of transparency in grant-making
5.4. “Fake Charity” Foundations
Fraudulent entities may:
- solicit donations without genuine charitable activities
- use social causes as a cover for private profit
- operate without proper registration or oversight
Such schemes expose donors and businesses to reputational and regulatory risks.
5.5. Concealment of Beneficial Ownership
Foundations may be used to hide the identity of the individuals who ultimately benefit from or control the assets. Opaque governance structures, nominee board members, and complex layering can obscure true ownership. This allows assets to be shielded from creditors, legal claims, or regulatory scrutiny. Beneficial ownership transparency significantly limits such risks.
Foundations may be exploited to obscure the identity of individuals who ultimately control or benefit from certain assets. This is often achieved by placing the foundation within a complex, multi-jurisdictional structure, where nominee directors, trustees, or corporate entities create layers that distance the true owner from the assets. Such arrangements can facilitate offences under the Fraud Act 2006 and the Proceeds of Crime Act 2002, including fraud, tax evasion, and money laundering. International authorities, including the FATF and the OECD, have highlighted that these opaque structures increase financial crime risks and complicate regulatory oversight.
How Foundations May Be Used to Hide Beneficial Ownership
Layered control structures: Foundations may be inserted into chains of companies and trusts, creating multiple tiers that obscure who ultimately benefits from or controls the assets.
Use of nominees: Individuals can appoint nominee directors or trustees so that their names do not appear in official documents, concealing the beneficial owner.
Cross-border arrangements: Combining foundations with entities in different jurisdictions can exploit regulatory differences, making it difficult for investigators to trace ownership and fund flows, as noted by the OECD and FATF.
Anonymity mechanisms: Foundations, together with weak disclosure rules, may allow individuals to remain hidden from tax authorities and law-enforcement agencies.
Consequences of Using Foundations for Concealment
Facilitation of financial crime: Concealing beneficial ownership enables crimes such as bribery, fraud, tax evasion, and money laundering.
Increased systemic risk: Lack of transparency undermines financial integrity and reduces the effectiveness of anti-money-laundering controls.
Challenges for investigators: Regulatory and law-enforcement bodies face major obstacles in identifying the true owners behind complex foundation structures, which can delay or prevent legal action.
5.5. Terrorist Financing
Certain foundations can be exploited to channel funds to extremist groups under the guise of humanitarian or charitable work. This risk is heightened in conflict zones or jurisdictions with weak regulatory oversight. The charitable label provides plausible legitimacy, making detection more difficult. Enhanced due diligence and monitoring of high-risk activities are essential safeguards.
5.6. Fraudulent Foundations
Fraudsters may create fictitious or deceptive foundations to solicit donations, attract investors, or provide a façade of legitimacy for broader scams. These entities often present fabricated financial records or false claims about their activities. Victims may include donors, investors, and vulnerable communities expecting aid. Proper verification and regulatory enforcement are crucial to preventing such schemes.
Fraud is a significant risk for all foundations and charitable organisations, and remains one of the most frequently encountered forms of misconduct in the non-profit sector. Under the Fraud Act 2006, fraud involves intentional deception designed to secure an unlawful gain or cause a loss to another party. Trustees, directors or foundation managers have a legal responsibility—reinforced by the Charities Act 2011—to safeguard the organisation’s assets and ensure they are used exclusively for its legitimate purposes.
To fulfil this duty, governance bodies must:
• assess and identify potential fraud risks within the organisation
• implement preventative measures and internal controls
• monitor and review the effectiveness of those measures
In practice, fraud affecting foundations or charities typically involves situations where an individual deliberately misleads the organisation to obtain money, sensitive information or valuable data. Fraud can manifest in various operational areas, including:
• fundraising activities
• banking and financial transactions
• cyber and digital systems
• tax relief mechanisms, including Gift Aid
• property management and investment portfolios
• misuse of the organisation’s identity or branding
Both internal and external actors may be responsible for fraudulent behaviour. Misconduct may arise from employees, volunteers or trustees abusing their positions, or from third parties submitting false applications, impersonating beneficiaries, or issuing fraudulent funding requests. Effective governance, transparent controls, and regular scrutiny are essential to reducing exposure to these risks.
6. Conclusion
Foundations remain one of the most versatile legal mechanisms for asset protection, philanthropy, and corporate governance. When structured correctly—with proper governance, compliance, and transparency—they offer substantial advantages for both individuals and businesses.
However, given the potential for abuse, founders and corporate donors must ensure:
- robust legal structuring,
- clear internal controls, and
- ongoing compliance with regulatory standards.
Consulting an experienced legal professional is essential to establishing and managing a foundation effectively and safely.
FAQs: Establishing Foundations — What People Really Ask
1) What exactly is a foundation?
A foundation is a legally registered organisation that holds and manages assets for a specific purpose — usually charitable, social, educational, or community-focused.
It does not operate for private profit and must follow regulatory rules depending on the country.
2) Is a foundation the same as a charity?
Not always.
All charities are non-profit, but a foundation can:
- grant funds instead of running activities,
- be funded by a single person, family, or company,
- have broader structural options.
In the UK, many foundations are registered as charities, but the terms are not identical.
3) Why would someone create a foundation instead of donating privately?
- Common reasons include:
- long-term impact rather than one-off donations
- tax efficiency (varies by jurisdiction)
- controlled, structured giving
- protecting assets from fragmentation
- building a legacy or family governance
4) Can a business benefit from setting up a foundation?
Yes — indirectly.
A company cannot receive profit from a foundation, but benefits may include:
- stronger corporate reputation (CSR)
- employee engagement programmes
- community partnerships
- ethical investment positioning
- long-term brand trust
No direct financial gain is allowed.
5) Who controls a foundation?
Foundations are managed by trustees or a board, who must:
- act in the foundation’s best interests,
- follow governing documents,
- avoid conflicts of interest,
- report to regulators (e.g., Charity Commission in England & Wales).
Founders do not automatically keep control unless legally structured.
6) Can a foundation own property or investments?
Yes — most jurisdictions allow foundations to:
- own real estate,
- hold investment portfolios,
- receive donations or endowments.
However, all assets must be used only for the stated charitable or public-benefit purpose.
7) What are the most common risks of abuse or fraud?
Key red flags include:
- lack of independent oversight
- founders treating funds as personal assets
- unexplained transactions or cash withdrawals
- conflicts of interest (family-only boards)
- using the foundation for tax evasion or hiding assets
Many countries require:
- transparency,
- annual reporting,
- audited accounts,
- regulatory supervision.
8) Can someone use a foundation to protect assets from divorce or creditors?
In most countries — no.
Courts can override transfers made to avoid:
- financial claims,
- creditors,
- family proceedings.
Foundations are not a loophole for hiding wealth.
9) How long does it take to set up a foundation?
Timing depends on the jurisdiction:
- Some EU countries: 1–3 months
- UK charitable structures: 4–12 weeks for registration
- Offshore foundations may be faster, but come with higher scrutiny.
10) Do foundations need to publish financial information?
Normally — yes.
In the UK, charities must file:
- annual returns,
- financial accounts,
- trustee reports.
Some private foundations abroad have lower transparency — which is why they attract stricter monitoring.
Real-World Cases of Charity/Foundation Fraud
Combined Narrative (English Version)
To fully grasp the scope and impact of fraud in foundations, it helps to look at concrete examples drawn from real enforcement actions. These cases illustrate how both internal actors — such as staff, volunteers, and trustees — and external fraudsters can exploit weaknesses in control, reporting, and verification systems. The following examples highlight the variety of methods used and the significant consequences for the organizations involved:
Internal and external fraud in charities and foundations can take many forms, but the impact is always serious. In several documented cases, internal actors — staff, volunteers, and trustees — have committed significant fraud when controls were weak or absent. For example, an office coordinator in a UK charity diverted £45,000 of charitable funds using access to bank login credentials, setting up fake payees that actually transferred money to personal accounts. In another case, a finance director abused their position over seven years, stealing over £900,000 by submitting false accounting entries, only discovered after their redundancy. A third example involves a chairperson of a small charity or Parent-Teacher Association (PTA) who stole around £35,000 over four years by exploiting the absence of formal financial controls, cash-handling procedures, and bookkeeping for fundraising income.
External fraud is equally dangerous. In a widely publicised case from December 2023, a criminal gang led by David Levi organised public collections in supermarkets, claiming to raise money for well-known charities such as Children in Need, Great Ormond Street Hospital Children’s Charity, The Children’s Society, and MIND. In reality, around £500,000 of the donations was siphoned off by the fraudsters, with less than 10% reaching the intended charities. The gang used fake ID badges, banners, and even costumes (including a charity mascot) to appear legitimate. Many of the charities initially endorsed the collections but later withdrew consent once suspicions arose.
Fraud can also occur through misused support or grant programmes. In 2024, a sophisticated, organised group committed fraud against Macmillan Cancer Support’s grant system by submitting hundreds of fake applications claiming that individuals had various forms of terminal cancer. Over a period of approximately 15 months, they used hundreds of aliases, different addresses, and multiple bank accounts to launder the proceeds. The group was eventually prosecuted, with defendants sentenced in late 2024.
These cases illustrate the variety of methods fraudsters may use — from internal embezzlement to public deception and abuse of support programmes — highlighting the critical need for robust internal controls, transparent reporting, and diligent verification in all charitable activities.
ShelterBox — fraud via aid contract diversion
- Between 2007–2012, the founder of ShelterBox awarded large aid supply contracts (e.g., heating stoves for Haiti) to a company owned by his son.
- Front companies were used to hide the true beneficiary.
- Donations and resources intended for disaster relief were redirected to private interests. (theguardian.com )
Bóthar — embezzlement by CEO
- In 2020–2021, the former CEO of Bóthar in Ireland embezzled hundreds of thousands of euros from donations intended for charitable purposes.
- The CEO was suspended, then resigned; assets were frozen to prevent further loss.
- The organization called it a “gross breach of trust” and a “serious neglect of duties to donors and beneficiaries.” (en.wikipedia.org )
Macmillan Cancer Support — organized grant application fraud
- In 2024, a criminal group submitted fake applications to Macmillan’s grant support system, pretending individuals had various cancers.
- They used hundreds of aliases, multiple bank accounts, and false data to receive assistance.
- Multiple defendants were prosecuted and sentenced. (emmlegal.com )
Public donation scam gang — UK supermarkets
- In December 2023, a group of eight people collected around £500,000 by impersonating known charities (Children in Need, Great Ormond Street Hospital, The Children’s Society, MIND).
- They used fake IDs, banners, and even costumes of charity mascots to appear legitimate.
- Less than 10% of donations reached real charities; the rest went to the scammers.
- The gang leader received a 5-year prison sentence. (cps.gov.uk )
PTA — internal embezzlement
- Between 2010–2014, the chairperson of a Parent-Teacher Association in the UK stole over £35,000 due to lack of financial controls.
- No proper bookkeeping or reporting existed, which allowed the misappropriation. (gov.uk )
Finance Director — internal fraud
- A finance director at a UK charity embezzled £900,000 over seven years using false accounting entries.
- Fraud was discovered only after dismissal. (gov.uk)
Office Coordinator — insider fraud
- A coordinator used login credentials to divert £45,000 from donations to personal accounts, presenting them as payments to third parties.
- The fraud was detected, disciplinary action taken, and internal controls improved. (gov.uk )
Fictitious charity set up as a fraud platform
- A UK charity was registered but used solely as a platform for fraudulent activities.
- The organization was deregistered and a public warning issued. (gov.uk)
Grant program exploitation — organized fake applications
- Criminals submitted multiple fraudulent grant applications with false identities to access charitable funds.
- The perpetrators were prosecuted and received prison sentences. (emmlegal.com)
Aid contracts diverted — ShelterBox UK
- As described above, 2007–2012 contracts were awarded to family-owned or front companies, diverting charitable aid.
- Regulatory scrutiny followed, and the contracts were reviewed. (theguardian.com)
Bóthar CEO fraud — Ireland
- Personal use of charitable funds by the CEO, hundreds of thousands of euros misappropriated.
- Regulatory investigation led to resignation and financial oversight. (en.wikipedia.org )
References
Charity Commission (n.d.) Case studies of insider fraud in charities. Available at: https://www.gov.uk/government/case-studies/case-studies-of-insider-fraud-in-charities (Accessed: 26 November 2025).
Charity Commission (2023) Charity used as a fraudulent platform. Available at: https://www.gov.uk/government/news/charity-used-as-a-fraudulent-platform (Accessed: 26 November 2025).
Crown Prosecution Service (CPS) (2023) Fraud gang jailed after stealing charity donations in organised scam.Available at: https://www.cps.gov.uk/cps/news/fraud-gang-jailed-after-stealing-charity-donations-organised-scam (Accessed: 26 November 2025).
EMM Legal (n.d.) Charity fraud case study. Available at: https://www.emmlegal.com/case-studies/charity-fraud-case-study (Accessed: 26 November 2025).
The Guardian (2015) Aid charity founder scams contracts to son’s company. Available at: https://www.theguardian.com/uk-news/2015/sep/22/aid-charity-founder-scam-contracts-son-shelterbox (Accessed: 26 November 2025).
Wikipedia (n.d.) Bóthar. Available at: https://en.wikipedia.org/wiki/B%C3%B3thar (Accessed: 26 November 2025).
Charity Commission (n.d.) Focus on insider fraud in charities: Research report. Available at: https://www.gov.uk/government/publications/focus-on-insider-fraud-in-charities/focus-on-insider-fraud-research-report (Accessed: 26 November 2025).
Evening Standard (2023) Charity fraud: Mind and Pudsey bear case, Lancashire Police. Available at: https://www.standard.co.uk/news/crime/charity-mind-pudsey-bear-lancashire-police-preston-crown-court-b1128559.html (Accessed: 26 November 2025).
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