Understanding how a Panama Private Interest Foundation (PIF) works requires an understanding of the different roles that play a part in the setup and continual operation of the foundation.

The largest difference between a PIF and another type of offshore company is that a private foundation is not allowed to engage directly in commercial activities. It may own investments, stocks, bonds, etc., that are all managed for the specific purpose of benefiting a general group of individuals.

This, then, changes the types of roles that one will find when they analyze the structure of this kind of organization.

A Panama Private Interest Foundation has four important roles: the Founder, the Beneficiaries, a Council, and the Protector.

The Founder

The Founder can be either an individual or a legal entity (like a company) who establishes the Foundation in the Public Registry of Panama. It is possible to use a law firm to act as a nominee founder, as well, if that will in any way expedite the process.

It is important to note that the Founder does not actually maintain any influence or control over the Foundation. (At least not officially, but there is another option that we will discuss further in the Protector section.) The Founder is simply the recognized individual who presented the foundation articles in the Public Registry at the time the organization was originally registered.

The Beneficiaries

The Beneficiaries are, not surprisingly, the people who actually benefit from the endowment. These people are normally appointed in private regulations by the Protector through a privately written Letter of Wishes or a formal set of by-laws.

Panama Private Interest Foundations do not have owners or shareholders like regular businesses, but the Beneficiaries are treated in much the same way.

A PIF may also be set up so that the Protector is the sole beneficiary, which will be in effect until his or her death. At that time, the Foundation can continue to work for any secondary beneficiaries.

The Foundation’s Council

The Council is a group of people who have been appointed to pursue the objectives of the Foundation and its management. It serves the same basic purpose as the board of directors in a corporation.

The people on the Council have two basic responsibilities. First, they are to carry out the objectives of the foundation. Second, they are in charge of managing and administering the assets of the foundation. All of this must, of course, be done according to its charter and regulations.

The Council members should, ideally, be non-family members or at least have no beneficial interest in the Foundation.

The members do not have to be Panamanian, and they can be nominee members chosen by a law firm. Each of the members of the Council that were appointed this way will provide a pre-signed, undated letter of resignation so the Protector will be able to replace them at any time.

It is also possible for a Founder to appoint him or herself as a member of the council, but this isn’t necessarily the best choice as it could make tax planning more difficult.

The Protector

The Protector is the person or entity who has the right and authority to act for and represent the Foundation. He or she (or the company) will control the Foundation and all of the assets that belong to it.

The Protector is appointed by the Council when the Foundation is initially created through a notarized Private Protectorate Document. However, once the Protector is chosen and empowered, he or she then has the authority to remove any council members at any time without the consent of the other council members.

The Private Protectorate Document is just that: private. It is not publicly registered. In other words, the person who is appointed to this position can remain free of public knowledge.

This, in turn, means that it’s possible for the Founder to be appointed to the position of Protector where he or she can maintain complete control over the foundation and its assets. And this information will not have to be made public.

If you have any other questions about Panama Private Interest Foundations or are ready to discuss more of your financial options, be sure to contact our Panama Law Firm and get the conversation started.