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Interpretation of "Foundation Management Regulation"

Why the foundation is divided into public raising foundation and non-public raising foundation?

 "Regulation" divides the foundation into public raising foundation and non-public raising foundation, implements classified management, the difference between the two are the source of funds: the public raising foundation can raise funds from public; the non-public raising foundation originates from the denotation of certain individual or organization, it is forbid to collect from public. The present foundation in our country is public raising foundation, which is donated by society and public.


Our country's existing foundation is mainly public raising foundation, which widely collects fund through facing society and people. While in the development history of foreign foundation, there are a large number of foundations established by individuals and corporate donors in their own names. Such foundations are non-public raising foundations, it is an important type of foundation. Because of its abundant and stable sources of fund, and its operation relates to donors’ reputation, so this kind of foundations often operate well, and has a great contribution to public welfare.

"Regulations" has classified management for foundations, it clearly allows the establishment of non-public raising foundations. In this way it can achieve two goals: on the one hand, it can strictly manage the fund-raising activities which faces the public, and it can maintain the control of fund-raising order, control the fund-raising competition in the market, reduce the burden of the public, maintain social stability; on the other hand, opening the policy, allowing wealthy individuals and enterprises to set up the non-public raising foundation can make them be more independent to realize their donation will and make contribution for social welfare, and at the same time, it also can bring good social benefit for oneself. In short, we encourage the fund of public welfare to rely more on prosperity individual and corporations.


How to understand the relation between non-profit character and fund operation activities?


Non-profit is the basic feature of foundation. Non-profit refers to foundation will not aim for profit purposes. Foundation can carry out operation activities to ensure fund value, value-added value, and it can also operate activities such as charity performance and charity bazaar etc.. These benefit of these activities should all be used in public welfare undertakings, and can not be allocated in the internal distribution; when the foundation is terminated, the property of the foundation  should not return the donors, it should be transferred to other charitable foundations. Therefore, these operation behaviors of foundation still aims public welfare undertaking as its goals, and will not impact the character of non-profit of the foundation.


What kind of supervision and management functions does the register and management agents of the foundation should meet ?

Responsible for registering and keeping a record of the establishment, alteration and cancellation of the foundation, annual review of the foundation, supervising and inspecting the problems which violating the regulations on the administration of registration of the foundation; implementing administrative penalty for behaviors which violate the administration of registration of the foundation.


What kind of management functions the competent organization of the foundation should meet?


In charge of the inspection before the foundation prepares the application, establishment registration, amendment of registration, cancellation of the registration; supervise and guide the foundation to abide the constitution, laws, regulations and national policies, operate activities according to its statutes; in charge of the ideological and political work, the construction of the party and the human resource management; in charge of prior audition of the annual inspection of the foundation; coordinate to investigate and deal with the illegal behaviors of registration management department and other relevant departments; guide the clearing issues of the foundation with relevant departments.

Why the foundation implement dual management system?


"Regulations" stipulates the dual management system of the registration administration agents and the competent management departs.


(dual management system refers to: at the stage of registration, the registration authority is responsible for the final inspection, approval and registration of the foundation, the branch institution of the foundation, the representative institution of the foundation, the representation institution of the foundation at abroad; the competent organization if responsible for the prior audition for the foundation and its branch institution, representative institution, representative institution of the foundation at abroad. On the circle of management, the registration administration agents implements annual inspection for the foundation, the representative institution of the foundation at abroad; implements management of daily supervision for the performance of activities of the foundation, the representative institution at abroad according to this regulation and their status; implements penalty legally for the problems of the foundations and representative institutions of foundations at abroad which violate this regulation. The competent organization is in charge of guiding, supervising the foundation, the representative institution of the foundation at abroad to operate public welfare activities; in charge of the prior audition of the annual inspection of the foundation and the foundation at abroad; cooperate with the registering administrative agents and other law enforcement to deal with the illegal activities of the foundation and the representative institutions at abroad.)


The dual management system is the basic system of management of the non-government organization in our country, it suits the present situation of the economic and social development. The non-government organizations of out country are still in the growth phase, and the system of legal institutions and social supervision is not completed yet. And the capability such as institutions and personnel etc. of our non-government organization is not sufficient yet, it need the cooperation of the competent organization. At the same time, the non-government organization in China itself is comparably weak, their development also need the guidance of competent organization.


What is the competent management organization of the foundation?

The competent management organization of the foundation mainly refers to relevant departments of province, Autonomous Region, the people’s government of the municipality directly under Central Government which directly relate to the industry or science or business area, or the authorized departments by the province, autonomous region, the people’s government of the municipality directly under central government, these are the competent organization for the foundations registered by province, autonomous region or the people’s authorized by the people’s government of the municipality directly under central government.


Relevant departments of the State Council, or the organizations authorized by the State Council are the competent organizations for the foundation and overseas foundations registered by the civil administration department of the State Council.


How is the consideration for the confirmation of the expenditure ratio of the public welfare of the foundation?


"Regulation" stipulates that the expenditure of the public-raising foundation per year which is used on the public welfare according the stipulated regulation should not be lower than the 70% of last year’s total income; the expenditure of the private foundation per year which is used on the public welfare according the stipulated regulation should not be lower than the 8% of last year’s balance.


The stipulation for the expenditure ratio of the public welfare of the foundation is aimed at promoting the foundation to realize the goal of developing public welfare, ensure the investment on the public warfare. And forbid the situation of derivation from public welfare of the foundation, or the suspending with non activities.


Receiving donation from the society by the public foundation, and the allocation of income and expenditure benefits the usage efficiency of the donation income. According to statistics, the average expenditure ratio of present national foundation is 50%, and in order to promote the aim of the foundation, the standard is set as” the expenditure ratio of the public welfare per year should not lower than the 70% of the total income of last year.


The private foundation does not accept donation, normally it uses the interest of the foundation or the regulated capital provided by the donor, hence the expenditure ratio on the public welfare should be based on the standard of the foundation amount. In order to promote the foundation to development public welfare activities and encourage non-public raising foundations to development, the ratio of the public welfare is set as the 8% of the balance of last years’ foundation.


What is the difference between the foundations and securities investment fund corporations?


Although the foundations and securities investment fund corporations are both the same management institutions of foundations, but there is an essential difference:


1, Different forms of organization. The foundation is a non-profit organization, it does not for profit purposes. Securities investment fund management company is an organization for benefit purpose. 


2, The relationship of ownership is different. The establishment of foundation is based on donation relationships, the transference of ownership happens; while the form of securities investment fund corporation is investment behaviors, the ownership belongs to investors.


(The property ownership of the foundation no longer belongs to the donor, the donor can not withdraw, and the donor no longer enjoy the right of property possession, use, dominate and benefit, the transference of the property is irreversible. While securities investment fund corporation is similar as securities with price, such as stock  investors can invest some current properties to purchase the corresponding share of the fund, also can sell or redeem at any time. In the process of investment securities, the ownership of the asset has not occur the transference, the investor can take the property back at any time, and enjoy the added benefit in the period of investment.)


The establishment purpose of the foundation is different.


The purpose of the establishment of the foundation is to service social public welfare undertaking through proper usage, to pursuing the increasing of social public welfare and the maximization of the social benefits. While securities investment fund belongs to a kind of financial product, its purpose is to provide the service of maintaining and increasing the value of asset, essentially it is profitable corporation, the only purpose of it is to gain profit.


4, The management method of the foundation is different.

Due to the difference of ownership and goal pursuing, the management method of the two foundations have very big difference. The securities investment fund management institution accept the consignation of the investor, and is impacted by the wiliness of the investor in its management,  and among the beneficial, risky and security three parts, it strengthens the beneficial part. While public raising foundation has the characters of social public assets, it mainly strengthens the security in the management, and the beneficial is in the second place.


In addition, securities investment fund management companies can obtain the management fees to form the profit, this part profit can be used on the allocation of the management personnel, while although all the resource of the operation expenditure of the public- raising foundation comes from the foundation and its added value, but as the management part, the foundation does not has its own interest, and any of the income of the foundation can not be allocate.


How to supervise the financial operation of the foundation?

1.The resource of the asset of the foundation should be legal.
2.The maintaining and increasing of the foundation value should persist in the rules of legal, security and effective.
3.Important and big activities of foundation donation and investment should be passed by the management committee through special procedure; supervisor should be set by the foundation to supervise the activities such financial operation etc..
4.The decision of the foundation should not relate to the benefit of the director and the supervisor of the foundation
5.Supervisor and the directors who do not take the professional works in the foundation should not take remuneration from the foundation( the third of the No.23 regulation)l;  The directors who take remuneration from the foundation should no more than the third of the total number of the directors.
6.The expenditure on the public welfare of the foundation per year must reach quit a considerable property.
7.Cancellation should be take when the foundation does not the capacity of public welfare activities.
8.The rest assets after the cancellation of the foundation should still be used on the purpose of the public welfare, the formation of profit, this part of the profit allocation, and can be used for the management foundation while operating expenses all come from the fund and its value, but the foundation as a manager, and do not have their own interests, are not any foundation for the distribution of income.

How to supervise the fund property operation?

1, the source of the property to the legitimate
2, the value of the fund shall adhere to the legal, security, value-added, effective principle
3, a major fund-raising, investment activities, through the Council with the special procedures; fund supervisors, supervision of the financial operations and other activities
4, fund decision may not have related interests, and director of the foundation's board of supervisors
5, supervisors and not in the governing foundation full-time job may not get paid from the Fund (the third paragraph of article twenty-third); may not exceed 1/3 of the total number of director of director in the fund paid
6, the foundation's annual public spending must reach a considerable proportion
7, the fund will be unable to engage in public service activities must be canceled
8, remaining fund properties after cancellation must still used for public purpose.