MKB Juristen drafts custom legal documents
It is best not to cobble together or copy important contracts, terms and conditions, and other legal documents yourself. We help entrepreneurs on a budget with customized legal solutions, clear costs upfront, and practical explanations.
- Custom contracts, terms and conditions, and legal documents
- Budget-friendly and clear about the costs upfront
- Request a free consultation or a no-obligation quote
A third-party funds foundation is a separate foundation that manages funds for clients or third parties, separate from the company's equity. It is mandatory for lawyers, notaries, real estate agents, bailiffs, and intermediaries in financial products. Purpose: in the event of the company's bankruptcy, client funds remain safe — they do not fall into the bankruptcy estate. The incorporation process resembles that of a regular foundation, with additional requirements regarding administration and use.
The short answer
- What: separate foundation for the management of third-party funds.
- Mandatory for: lawyers, notaries, real estate agents, bailiffs, financial intermediaries.
- Objective: protection of customer funds against the bankruptcy of the service provider.
- Incorporation: notarial deed plus specific statutory provisions regarding the exclusive use for third-party funds.
When is a third-party funds foundation mandatory?
Different rules apply per professional group:
- Lawyers: mandatory under the Regulation on the Legal Profession. Client funds must be held in a separate third-party funds account.
- Notaries: mandatory under the Notarial Profession Act. Separate escrow account.
- Real estate agents: mandatory for NVM and VBO members upon received down payments.
- Bailiffs: mandatory via disciplinary rules.
- Financial intermediaries: regarding the management of premium or client funds under Wft rules.
For other entrepreneurs, a third-party funds foundation is not mandatory, but it is possible — for example, in project development, crowdfunding, or platform services where funds are held temporarily.
How do you set it up?
The process resembles a standard foundation formation, with extra attention to:
- Statutory purpose: expressly the management of third-party funds, not equity.
- Management: usually the principal practitioner himself, but disciplinary rules may impose additional requirements.
- Notarial deed with clauses establishing the exclusive use.
- Separate bank account in the name of the third-party funds foundation.
- Administrative separation: separate bookkeeping, periodic reporting to a disciplinary body or supervisor.
Management and administration
A third-party funds foundation requires strict administrative discipline:
- Separate account: all client funds received, equity not flowing through.
- Sub-administration per customer: trace the beneficiary for every received or managed transaction.
- Periodic reconciliation: reconcile monthly or quarterly with the underlying client administration.
- Reporting obligations: for lawyers and notaries via disciplinary bodies.
- Interest income: usually not for the foundation, often back to customers or the cause.
Protection in the event of bankruptcy
The whole point is: funds held in a third-party funds foundation do not into the bankruptcy estate of the underlying service provider. In the event of the bankruptcy of, for example, a law firm, client funds in the foundation remain protected and can be distributed to the rightful beneficiaries. Provided the foundation has been legally established correctly and is properly managed administratively — otherwise, a trustee can still direct claims against it.
What if the rules are not followed?
- Disciplinary measures for lawyers, notaries, and bailiffs.
- Board liability for improper management.
- Loss of protection in the event of bankruptcy — customer funds included in the bankruptcy estate after all.
- Criminal consequences of commingling personal assets and third-party funds.
The rules regarding third-party funds are not optional. For law firms and notary firms, this is one of the most heavily scrutinized aspects by the Bar Association and the Financial Supervision Office.
Honest recommendation
A third-party funds foundation is not an option but a requirement for specific professional groups. For others, it can be a useful tool for project funding or platform services. Always engage a legal expert or lawyer for the establishment — the statutory provisions and administrative arrangements are crucial for the intended protection.
For a more detailed explanation: establishing a foundation.
Frequently Asked Questions
A separate foundation that manages funds for clients or third parties, separate from the equity of the underlying company. Intended to protect client funds against the bankruptcy of the service provider.
For lawyers, notaries, bailiffs, real estate agents (NVM/VBO for down payments), and financial intermediaries under Wft supervision. Not mandatory for other professions, but possible.
Via a notarial deed with articles of association stating the exclusive purpose of “management of third-party funds”. Additionally: separate bank account, sub-administration per client, periodic reconciliation, and reporting obligations. Engage a legal expert or lawyer for proper implementation.
A regular foundation manages equity for a specific purpose; a third-party funds foundation holds funds for others. The articles of association are different (exclusively for third-party funds), the administration is stricter, and in the event of bankruptcy, the funds fall outside the bankruptcy estate.
Funds in the third-party funds foundation do not fall within the bankruptcy estate of the underlying company. The trustee cannot claim them; they are paid out to the entitled customers. Condition: legally correct establishment and proper administration.
Usually neither the foundation itself nor the service provider. In the case of notaries and lawyers, the interest often goes to a charity or fund (fees for mutual contributions). The rules vary by professional group — check the relevant ordinance or regulations.
For lawyers and notaries, periodic (often monthly or quarterly) reconciliation between account balances and client sub-ledgers. Disciplinary bodies conduct regular checks. For other professions, at least annually with the annual accounts.
