A family foundation (fundacja rodzinna) is a relatively new legal form in the Polish legal system, whose main purpose is to accumulate and protect family wealth. As this form grows in popularity, more and more people are asking what accounting obligations a family foundation has. Keeping accounting books in a family foundation raises many questions, especially given its specific legal nature and the limited scope of business activity it may carry out. We keep full accounting books and prepare financial statements as part of our bookkeeping services.
Although its basic task is managing family wealth, a family foundation is subject to specific accounting rules under the Accounting Act (ustawa o rachunkowości). Understanding these obligations is key to running the foundation properly and avoiding potential legal sanctions. In this article we discuss in detail all aspects of a family foundation's accounting obligations, the liability of its management board and the reporting procedures.
Legal status of a family foundation from an accounting perspective
The family foundation was introduced into the Polish legal order as a legal person of a special nature. Under the Family Foundation Act (ustawa o fundacji rodzinnej), a foundation acquires legal personality when it is entered in the register of family foundations kept by the Regional Court (Sąd Okręgowy) in Piotrków Trybunalski (Article 4 of the Family Foundation Act). This moment is key for accounting obligations, because from then on the foundation is a legal person. Before that, from the drawing up of the founding deed or the announcement of the will, it operates as a family foundation in organisation (fundacja rodzinna w organizacji) (Articles 23–24 of that Act).
A family foundation is a legal person created to accumulate assets, manage them in the interest of the beneficiaries and provide benefits to the beneficiaries. The founder sets out the detailed purpose of the family foundation in the statute, which directly affects the scope of its activities
From a tax law perspective, a family foundation is a CIT (corporate income tax) taxpayer. However, it benefits from a subjective exemption from the tax (Article 6(1)(25) of the CIT Act), which does not mean exemption from accounting obligations. The exemption does not cover, among other things, the tax on benefits paid to beneficiaries and on assets transferred in connection with the dissolution of the foundation – at a rate of 15% (Article 24q) – or the family foundation's business activity going beyond the permitted scope set out in Article 5 of the Family Foundation Act, to which a 25% rate applies (Article 6(7) and Article 24r of the CIT Act).
The legal status of a family foundation as a legal person automatically places it among the entities covered by the Accounting Act. A family foundation falls within the concept of "other legal persons", which clearly means that it is subject to the Accounting Act and must keep accounting books in line with the applicable standards.
As a CIT taxpayer, a family foundation benefits from a subjective exemption from the tax. However, the exemption does not apply to the family foundation's business activity going beyond the permitted scope set out in the Family Foundation Act
Legal basis of the obligation to keep accounting books
A family foundation's obligation to keep accounting books follows directly from the Accounting Act. Under Article 2(1)(1) of that Act, its provisions apply to commercial companies and other legal persons with their registered office or place of management in the Republic of Poland, except for the State Treasury and the National Bank of Poland.
As a legal person with its registered office in Poland, a family foundation is automatically subject to these provisions. The fact that its business activity is limited does not matter – legal personality alone is a sufficient criterion for the obligations under the Accounting Act to apply.
The Accounting Act imposes a number of detailed accounting obligations on a family foundation, which must be performed continuously and systematically. These include not only keeping current accounting records, but also preparing financial statements, carrying out stocktaking (inventory) and ensuring that accounting documentation is stored properly.
The Accounting Act applies to all legal persons with their registered office in Poland, except for the State Treasury and the National Bank of Poland. As a legal person, a family foundation is automatically subject to these provisions, regardless of the limited scope of its business activity
Liability of the family foundation's management board
The management board of a family foundation plays a key role in meeting accounting obligations. Under the Family Foundation Act, the management board is one of the foundation's bodies and has a number of important tasks related to the foundation's operation. Its tasks include managing the affairs of the family foundation and representing it, pursuing the foundation's purposes set out in the statute, and taking steps to ensure the foundation's financial liquidity and solvency.
From the perspective of the Accounting Act, the management board of a family foundation is the head of the entity (kierownik jednostki). This body is responsible for keeping the accounting books and for meeting all obligations under accounting law. This liability is personal and cannot be fully transferred to others, even when certain tasks are entrusted to an accounting firm.
The management board of a family foundation is responsible for the following accounting areas:
- Adopting an accounting policy suited to the foundation's specific nature
- Keeping accounting books on the basis of accounting documents
- Carrying out periodic stocktaking of assets and liabilities
- Valuing assets and liabilities and determining the financial result
- Preparing financial statements within the prescribed deadlines
- Ensuring proper collection and storage of accounting documentation
- Filing financial statements with the competent court register
The management board of a family foundation is the head of the entity within the meaning of the Accounting Act and bears personal liability for meeting accounting obligations. This liability includes supervising the keeping of the accounting books, even when certain tasks are entrusted to an accounting firm
Detailed accounting obligations of a family foundation
As an entity covered by the Accounting Act, a family foundation must meet a number of detailed accounting obligations. These obligations are continuous and require a systematic approach to managing accounting documentation and keeping accounting records.
The basic obligation is to keep accounting books on the basis of accounting documents, which must be prepared in line with the applicable rules. All of the foundation's business transactions must be supported by appropriate accounting documents and recorded in the accounting books in chronological and systematic order.
A family foundation must also adopt an appropriate accounting policy suited to the specific nature of its activities. The accounting policy should reflect the special character of a family foundation, whose main purpose is to accumulate and manage family wealth rather than to run a business in the traditional sense.
A family foundation's accounting policy must reflect the specific nature of its activities, which focus on accumulating and managing family wealth. The policy should be suited to the type of transactions carried out by the foundation and to its reporting requirements
Another important obligation is periodic stocktaking of the actual balance of assets and liabilities. Stocktaking aims to check that the book balances match reality and is key to ensuring the reliability of the family foundation's financial statements.
The foundation must also value its assets and liabilities properly, in line with the rules set out in the Accounting Act. This valuation directly affects the determination of the foundation's financial result and the presentation of its assets and financial position in the financial statements.
- Keeping accounting books on the basis of accounting documents
- Adopting an accounting policy suited to the foundation's specific nature
- Carrying out periodic stocktaking of assets and liabilities
- Valuing assets and liabilities in line with the law
- Preparing financial statements within the prescribed deadlines
- Collecting and storing accounting documentation
Financial statements of a family foundation
Preparing financial statements is one of the most important accounting obligations of a family foundation. They must be prepared in line with the Accounting Act and give a true and fair view of the foundation's assets, financial position and financial result.
The head of the entity, which in a family foundation is the management board, must ensure that the annual financial statements are prepared no later than 3 months after the balance sheet date. The statements must then be presented to the competent bodies in line with the applicable law and the foundation's statute.
The annual financial statements of a family foundation must be prepared within 3 months of the balance sheet date. The foundation's management board is responsible for preparing them on time and presenting them to the competent bodies as required by law and the statute
The approval of the financial statements in a family foundation has its own specific features. Under the Family Foundation Act, the founder establishes in the statute a meeting of beneficiaries (zgromadzenie beneficjentów), made up of the beneficiaries granted the right to take part in it under the statute. It is the meeting of beneficiaries that acts as the body approving the financial statements.
Resolutions of the meeting of beneficiaries are required, among other things, to review and approve the family foundation's financial statements for the previous financial year. This must be completed no later than 6 months after the balance sheet date, as required by the Accounting Act.
Once the meeting of beneficiaries has approved the financial statements, the foundation's management board must file them with the competent court register. The financial statements of a family foundation must be filed with the Regional Court in Piotrków Trybunalski within 15 days of the date of approval.
The meeting of beneficiaries acts as the body approving the family foundation's financial statements. Approval must take place no later than 6 months after the balance sheet date, and the statements must then be filed with the court within 15 days of approval
Control procedures and audit in a family foundation
A family foundation is subject to special control procedures designed to ensure proper asset management and compliance with the applicable law. The Family Foundation Act provides for an audit (audyt) (Articles 77–81), which serves as an additional mechanism for checking the transparency and correctness of the foundation's operation. An audit within the meaning of that Act is a separate institution from the examination of the financial statements by a statutory auditor (biegły rewident) under the Accounting Act.
The audit of a family foundation is carried out by an audit firm or a team of auditors appointed by the meeting of beneficiaries. It covers the management of the family foundation's assets, the incurring and performance of obligations, and public-law liabilities. The audit assesses these areas for correctness, reliability and compliance with the law, the purpose and the documents of the family foundation.
How often the audit is carried out depends on the nature of the foundation and on the requirements for the examination of financial statements. The basic rule is to carry out an audit at least once every 4 years (Article 79(1)). However, if a family foundation's financial statements are subject to examination under the Accounting Act, the audit must be carried out every year before the financial statements are approved (Article 79(2)). The financial statements of a foundation are subject to examination if, in the previous financial year, it met at least two of three conditions: an average annual headcount of at least 50, total assets of at least EUR 3,125,000, and net revenue from sales of goods and products of at least EUR 6,250,000 (Article 64(1)(4) of the Accounting Act).
A family foundation managing substantial family wealth was required to carry out an annual audit because in the previous financial year it exceeded two of the three thresholds set out in the Accounting Act (total assets and net revenue), so its financial statements were subject to examination. The audit confirmed that the assets were managed correctly and that all transactions complied with the statute and the law, which allowed the meeting of beneficiaries to approve the financial statements without difficulty.
The audit ends with a report, which is handed to the foundation's management board. The management board must present the report to the supervisory board or, if no supervisory board has been established, to the meeting of beneficiaries at its next meeting.
| Type of audit | Frequency | Appointing body | Deadline for presenting the report |
|---|---|---|---|
| Basic audit | At least once every 4 years | Meeting of beneficiaries | At the next meeting |
| Annual audit | Before approval of the financial statements | Meeting of beneficiaries | Before approval of the financial statements |
| Additional audit | As needed | Meeting of beneficiaries | As set out in the resolution |
Practical aspects of keeping accounting books
In practice, keeping accounting books in a family foundation requires taking into account the specific nature of this form. A family foundation differs from typical businesses in that its main purpose is not to run a business, but to accumulate and manage family wealth and provide benefits to beneficiaries.
In practice, this means that the structure of a family foundation's accounting books can be adapted to the type of transactions it carries out. The foundation will mainly record transactions related to asset management, investments, receiving donations and benefits for beneficiaries. Typical trading or manufacturing transactions will take up much less space in the accounting books.
The management board of a family foundation must ensure that the accounting books and accounting documentation are properly protected. This applies both to books kept on paper and to electronic ones. For electronic books, it is particularly important to protect them against unauthorised access and accidental loss of data.
A family foundation's accounting books may be kept electronically, but they must be protected against unauthorised access and accidental loss of data. The foundation's management board is responsible for ensuring appropriate technical and organisational safeguards
A family foundation's accounting documents must be stored for at least 5 years, counting from the beginning of the year following the financial year they relate to (Article 74(2)–(3) of the Accounting Act); approved financial statements – for at least 5 years from the beginning of the year following the year in which they were approved (Article 74(1)). Documents needed for tax settlements are kept until the tax liability becomes time-barred (Article 86 § 1 and Article 70 § 1 of the Tax Ordinance Act (Ordynacja podatkowa)). Failure to meet this obligation may lead to liability under the Fiscal Penal Code (Kodeks karny skarbowy) (Article 60). The deadlines for preparing and approving the statements are set out in a separate piece: who prepares financial statements and by when.
A family foundation may entrust the keeping of its accounting books to an accounting firm. Even then, however, the foundation's management board is not released from liability for proper accounting. The management board must supervise the accounting firm's work and ensure that all accounting obligations are met in line with the applicable law.
Consequences of not keeping accounting books
If a family foundation does not keep accounting books, or keeps them in breach of the Accounting Act, this may have serious legal and financial consequences. As a legal person covered by the Accounting Act, a family foundation must comply with all requirements for keeping accounting books.
The basic consequence of not keeping accounting books is criminal liability of the persons responsible for accounting: anyone who, contrary to the Act, allows accounting books not to be kept, to be kept in breach of the Act or to contain unreliable data is liable to a fine or imprisonment of up to 2 years, or both (Article 77 of the Accounting Act). On top of that comes liability under the Fiscal Penal Code for not keeping or unreliably keeping books (Articles 60–61 of the Fiscal Penal Code) – these sanctions apply personally to the members of the management board.
In addition, not keeping accounting books may cause problems with the tax authorities. Although a family foundation benefits from a subjective exemption from income tax, it must still meet certain reporting obligations. A lack of proper accounting documentation may make it difficult or impossible to meet these obligations.
If a family foundation does not keep accounting books, the members of its management board may face criminal liability, and the foundation may have problems with the tax authorities. If there are no books or the data in them does not allow the tax base to be determined, the tax authority determines it by estimation (Article 23 § 1 of the Tax Ordinance Act), which may significantly affect the foundation's financial position
Not keeping accounting books may also affect the family foundation's credibility with banks, financial institutions and other entities. A lack of financial statements may make it harder to obtain loans, conclude investment agreements or build other business relationships.
In extreme cases, breaches of reporting obligations may lead to the dissolution of the family foundation: if, despite a summons from the registry court, the annual financial statements for two consecutive financial years have not been filed, the court initiates, of its own motion, proceedings to dissolve the foundation without liquidation (Article 105(1)(4) of the Family Foundation Act). Although this is an extreme situation, it shows how important it is for a family foundation to keep its accounting books properly.
