Private Interest Foundations in Panama: What They Do

The private interest foundation (Law 25 of 1995) is a uniquely Panamanian vehicle, modelled on Liechtenstein's: a separate estate, with no owner, administered by a foundation council for the benefit of the people the founder designates. It is the preferred tool for estate planning and asset protection, and understanding properly how it works before setting one up is what separates a useful structure from one that only generates costs.

How it differs from a company

• It has no shareholders or owners: the assets belong to the foundation itself
• It is not for habitual trade — it may receive income and investments, but not run a business directly
• Beneficiaries and distribution rules may be kept in a private set of by-laws, outside the Public Registry
• On the founder's death, assets pass according to the by-laws — with no probate proceedings

How it is structured

A foundation has three layers. The founder creates it and sets its rules. The foundation council administers it —this may be an individual, a group, or sometimes an entity. And the beneficiaries receive whatever the by-laws provide. A protector may be added, an optional figure who oversees the council. The foundation charter is public, but the by-laws —where the beneficiaries and conditions are named— may remain private. That separation between the public and the private is precisely what makes it so useful.

The classic combination: foundation plus company

In practice, the most common structure is a foundation holding the shares of one or more operating companies: the business runs inside the company and the wealth rests in the foundation. That way, when the founder is gone, the company that employs people and invoices does not change hands — what changes, in an orderly way and according to the by-laws, is who benefits from it.

What can be contributed to it

A foundation can receive assets of very different kinds: company shares, accounts and investments, real estate, intellectual property or insurance policies. What matters is not only what is contributed but documenting it properly: every transfer must be formalised so that, on the day it counts, there is no doubt about what belongs to the foundation and under what rules it is administered.

What a foundation is NOT

It is not a trick to make assets disappear or to avoid legitimate obligations. It is a tool for ordering wealth which, used and documented properly, provides continuity and predictability. Used badly, with improvised by-laws or without advice, it can end up creating precisely the conflicts it was meant to avoid.

What it costs to maintain

Like a company, a foundation has a running cost: an annual fee payable to the State and the fees of the resident agent, which is mandatory. Keeping it current is what guarantees the structure works on the day it really matters —the day of succession; a foundation neglected for years loses much of its usefulness precisely when it is most needed.

When it makes sense

When there are assets in several countries, heirs to protect, or simply the wish that the transfer of wealth should not depend on a court process. Also when you want to separate personal wealth from business risk, or leave clear instructions for minor children or relatives who need care. The decision to set one up, and above all how to draft its by-laws, is where its real value is won or lost.

“A will is executed in a courtroom. A well-structured foundation executes itself.”