Endowment funds flourish in France
A new governmental provision enacted in 2008, known as a fonds de dotation, is helping museums raise funds privately
By Martha Lufkin. Web only
Published online: 16 August 2010
In May, the French strategic committee monitoring a new charitable fundraising technique announced the total number of entities so far created: a staggering 288. The method is new. But few are familiar with the device. And some professionals are uncertain to how to proceed. In any event, advocates of the technique, called a fonds de dotation, are hoping that this new rough equivalent in France of the US endowment fund will help French nonprofits, including arts organizations and museums, raise funds privately, just as US charities — from billion dollar universities to tiny groups pursuing small charitable purposes — have done for decades.
The new provision, enacted in 2008 as part of the Law on the Modernisation of the Economy, allows the creation of a fonds de dotation with a project or mission of “general interest”. It’s not an institution, the government explains, but a financing tool. On the other hand, it’s an entity with full legal rights, so it can own assets and enter into contracts such as hiring employees. Tax benefits apply to donors and the fund itself. The device was introduced to spur growth in private fundraising because of the slowness of the French to embrace fundraising possibilities. Even after a new French law was enacted in 1987 to allow private foundations, by 2008, only 3,000 foundations had been created — a mere 20 per year.
In contrast to this, fonds are advancing at lightning speed: about 20 per month, the committee reported in May. One advocate from the start was the Louvre Museum, which created a fund in 2009.
Under the French foundations law, foundations are more strictly monitored by the authorities; among other requirements, the government must determine that a foundation’s mission has “public utility.” The rules for the new fonds are a quantum leap simpler. “There is less control by the state,” Anne-Sophie Nardon, an art lawyer at Borghese-Associés, Paris, told The Art Newspaper. “You declare that your mission is of general interest; the requirements are lessened overall. If you want to raise funds for an exhibit, you can do so through a fonds, with no authorization required from a government body.”
The fonds de dotation device can be used “to let donors earmark gifts for a specific project," Kathie Claret, a lawyer in Paris and member of the art law team at Bryan Cave LLP, told The Art Newspaper. The fund is "easy to set up and relatively easy to dissolve. If a donor wanted to make a gift to the new museum that the Louvre is opening in Abu Dhabi, the Louvre could create a fonds specifically for the Abu Dhabi museum; it would even be possible to set up a fund specifically for the purchase of contemporary Arab paintings for the Abu Dhabi museum. That way the donor knows where his money is going; it is not just going to the Louvre" for an unknown purpose.
While French law provides tax benefits for donations to nonprofits, “the problem has been knowing how to raise the funds,” Corinne Hershkovitch, a Paris art lawyer also at Borghese-Associés, told The Art Newspaper.
A fonds is now the way to do it. When the government unveiled the device, it announced four key characteristics: it was to be new, simple, secure and attractive. To create a fonds, its bylaws are deposited at the prefecture, and a declaration is published in the Journal Officiel. While the mission must be of “general interest,” a fonds can be targeted at a specific project. Any individual or legal entity, or even an assemblage of both, can create a fund, of whatever duration they want. While in principal the fund’s capital is not to be consumed, it can actually be consumed, which may be the whole point of the fundraising, if its bylaws permit this. The fonds can be created with some money, or with no money at all, with funds to be added later. In contrast, a minimum of €1 million is required to launch a French foundation – a rule which would wipe out many small charities in the US.
For simplicity, few governance rules apply. The board of directors must have three members at least. An auditor is required if the income at year-end exceeds €10,000. And an investment committee is required, if the endowment exceeds €1 million.
For security, the law requires that the board of directors annually approve a profit and loss account, balance sheet, financial activity report and schedule of how the funds were used. If income exceeds €10,000, the auditor must certify the accounts and perform other checks. Rules limit what a fonds may invest in. Transparency is also required: anyone can examine the bylaws, and annual accounts are to be published.
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