——This article was published in the June 2015 issue of Wealth Management magazine
———Text/Jia Mingjun Wang Xiaocheng
Run Run Shaw once said that "Philanthropists are the highest realm of entrepreneurs". This article analyzes the operating model of the three major family foundations of Cao Dewang, Niu Gensheng , and Wang Yongqing.
With the past 30 years of reform and opening up, the wealth of Chinese people has been continuously accumulating, and my country has reached a critical period of high incidence in which the "creation first generation" and the "rich second generation". Like family trusts, family foundations, as a very mature legal system and tool for wealth inheritance abroad, have attracted high attention from domestic high-net-worth individuals and related professionals.
Foundation originated in the European continent. Its concept was produced almost in the same period as the concept of British trust. After centuries of development, two legal systems in Europe formed two legal systems that were both similar and different. Compared with trusts, a foundation has non-profit legal person status and owns independent property, but a legal person like the foundation has no shareholders. The foundation system in the modern sense, like the trust system, also flourished and developed in the United States.
The establishment of my country's foundation legal system started relatively late. According to the "Regulations on Foundation Management" promulgated by the State Council in 2004, my country's foundations are divided into two categories. One is public funding foundations, such as the China "Red Cross" Foundation, Youth Foundation, Soong Ching Ling Foundation, etc. Foundations that can raise funds from unspecified public groups are public funding; the other is non-public funding , which cannot raise funds from the public. Generally, funds or property are donated by specific organizations, individuals or families such as foundation sponsors. The family charitable foundations discussed in this article are of non-public offerings.
Cao Dewang's "Heart is like Bodhi"
When it comes to charitable foundations, people will first think of Bill Gates and Buffett , but in China, we have to mention Cao Dewang and his "Heren Foundation". This is the first and only national non-public foundation in the country approved by the State Council and founded with financial assets (listed company stocks).
initiator Mr. Cao Dewang is a famous entrepreneur in my country, the glass king, and the chairman of the board of directors of Fuyao Group. The two words "Heren" are the name of Cao Dewang's father Cao Heren, which means "the highest good is like water, and the virtue carries things." He donated 300 million shares of Fuyao Group held by his family, with a total market value of 3.549 billion yuan at that time. From this perspective, it can also be called the Cao Family Charity Foundation.
Heren Charity Foundation is an overseas Chinese foundation with the State Council Overseas Chinese Affairs Office as the supervisory unit. Before its establishment, Mr. Cao donated stocks to establish a foundation to support social welfare and charity. He faced many institutional inconveniences. In order to promote this innovative move, the State Overseas Chinese Affairs Office has done a lot of coordination and promotion work, and the form of share donations has received the attention and support of many national leaders. The Heren Charity Foundation has set a precedent for the Chinese Foundation in terms of fund injection methods, operating models and management rules.
In February 2009, Cao Dewang announced that he would donate 70% of the shares of Fuyao Glass held by his Cao family to establish a charitable fund. Not long after that, it caused a lot of heated discussion. At that time, the Cao family held a total of 1.08 billion shares of Fuyao Glass, and 70% of its total shares were about 756 million shares. Based on the closing price of Fuyao Glass on February 16, 2009, this part of the shares reached 4.38 billion yuan. The reason for the discussion among Chinese people is mainly because Fuyao Glass announcement stated that in order to maintain the Cao family's control over the company, Cao Dewang required in the donation agreement that "the donor unit will authorize the second largest shareholder to vote during the period of holding the company's shares and in the future bulk transactions and other matters involving company affairs." Although some jurists have come out to explain that this arrangement does not violate the laws of our country, there are still doubts about their true intention to donate shares.
In my opinion, in fact, before the establishment of the family foundation, the Cao Dewang family donated money to support charity to billions.When charity became another pursuit of an entrepreneur, the family business and charity were placed in both ends of the Libra of his life. The two complement each other, and the company provides a source for charity, and charity helps the company develop. After the establishment of the Heren Charity Foundation, the two major shareholders of the A-share listed company Fuyao Glass: the foundation holds nearly 15% of the shares, and the other major shareholder is a company registered in Hong Kong - Sanyi Development Co., Ltd., accounting for nearly 20%. According to relevant information, the company in Hong Kong is actually controlled by Mr. Cao Dewang, and the equity ratio of the two major shareholders accounts for about 35%. According to relevant regulations, after the enterprise donates, it must go through the equity change procedures, no longer exercise shareholder rights for the donated equity, and no longer requires the donated unit to give financial returns. After the Cao Dewang family donated the shares, the ownership was not in the Cao family, but belonged to the foundation, and the shareholders' rights and obligations are exercised and assumed by the foundation. Of course, how the foundation exercises shareholder rights, how to exercise voting rights, and how to participate in the company's board of directors is also its independent right. As long as the procedures stipulated by the law and the articles of association are implemented in accordance with the law, a consensus can be formed, and no one has the right to intervene.
Regarding the issue of the candidates for the board of directors of the power organs of the foundation, the "Regulations on Foundation Management" of my country stipulates that the board of directors consists of 5 to 25 people, and each term of office shall not exceed 5 years. After the term of office expires, re-elect can be re-elected; non-public foundations, foundation directors who have close relatives between each other shall not exceed one-third of the total number of directors. The establishment of the
family charity foundation has been completed, and the corporate image of Fuyao Glass has improved rapidly, and the company's stock price and corporate efficiency have been rising. Cao Dewang's son Cao Hui has served as the director and general manager of a listed company since September 16, 2006, responsible for the company's daily operation and management. The family business is gradually realizing intergenerational inheritance and succession.
"If an entrepreneur has no sense of responsibility, he is a rich man at best." This is Cao Dewang's own words. "The Heart is Like Bodhi" is the title of his personal autobiography. Run Run Shaw once said, "Philanthropists are the highest realm of entrepreneurs." We can understand it here: charity inheritance is the highest realm of wealth inheritance.
Niu Gensheng's "Reincarnation-style wealth view"
Speaking of domestic non-public foundations, the Laoniu Foundation initiated by Mr. Niu Gensheng, the founder and chairman of Mengniu Group, cannot be ignored.
Laoniu Foundation was established on December 28, 2004. The registration authority is Inner Mongolia Autonomous Region Civil Affairs Department , and the business supervisory unit is the Financial Affairs Office of the People's Government of Inner Mongolia Autonomous Region. Its purpose is to "develop public welfare undertakings and build a harmonious society". The main direction of its business activities is to focus on other public welfare and charity such as environmental protection, culture and education, medical care and disaster relief and poverty alleviation.
Laoniu Foundation was the formerly of Laoniu Charity Development Promotion Association. The initial constitution stipulates that the fund is mainly used to commend people or institutions that have made outstanding contributions to Mengniu Group. Employees who encounter personal misfortune or living difficulties may apply for funding from the foundation. The Laoniu Foundation specifically mentioned in a document that the main reasons for the initial establishment of the Laoniu Charity Development Promotion Association: First, the understanding of relevant laws and regulations is insufficient, and the functional positioning of the foundation and the community organization is not distinguished; second, the examples of lack of experience in establishing a public welfare organization separately and cannot be referenced.
In January 2005, Niu Gensheng and his family announced that they would donate all their Mengniu Dairy shares, and agreed that in the year of Niu Gensheng's lifetime, 51% of the dividends of these shares would belong to the Laoniu Foundation and 49% would belong to the personal control; after Niu Gensheng's lifetime, 100% of the dividends of these shares would belong to the Laoniu Foundation, and the family would only receive living expenses equivalent to the average salary of Beijing, Shanghai and Guangzhou.
However, the Niu Gensheng family’s donation process was not smooth.
Niugensheng promised to use all the Mengniu shares it owns in 2005, except for a small portion of its dividends to the family, all other economic benefits will be used for public welfare and charity. Due to the legal restrictions at that time and the protection of corporate brands, Niu Gensheng did not immediately complete his promised share donations.The shares of Mengniu held by Niu Gensheng are divided into domestic and overseas parts. The shares of Inner Mongolia Mengniu Dairy (Group) Co., Ltd. owned by the country are transferred to the Laoniu Foundation at a rate of 25% per year in accordance with the laws of the mainland companies, and have been donated in July 2010; the shares of Mengniu Company from overseas, Niu Gensheng announced in Hong Kong on December 28, 2010 that they will transfer to Hengxin Trust, a subsidiary of Credit Suisse Trust, to complete the donation. If calculated based on the 263.5 million shares of Mengniu that it directly owns and indirectly owns, the total market value of Mengniu Dairy assets donated this time is HK$5.455 billion.
This trust is an irrevocable trust. In addition to the Laoniu Foundation, the beneficiaries of the trust also include the Chinese Red Cross Society, China Poverty Alleviation Foundation, One Foundation , Nature Conservation Association, Inner Mongolia Charity Federation and other public welfare and charity organizations. At the same time, the beneficiaries also include the only non-charitable beneficiaries, who are Niu Gensheng and his family, and they will receive about one-third of the dividends donated by Mengniu shares in accordance with the agreement on the relevant donation documents signed by Niu Gensheng. At this point, Niu Gensheng's donation came to an end.
The reason why Niu Gensheng finally chose to set up a public welfare trust overseas to fulfill his commitment to stock donation is, on the one hand, to avoid the many taxes and cumbersome procedures generated by mainland institutions receiving overseas assets, and on the other hand, it is because the overseas public welfare trust system is relatively mature and developed. For example, in the United States, public welfare trusts themselves are one of the ways in which family charity foundations are established. The documents established can be in three forms: trust contract, trust statement and testamentary trust. The management method is managed by the trustee, and the law followed is the trust law.
In terms of taxation, public welfare legal persons established for public welfare purposes can enjoy multiple tax benefits, including: the trustee of a public welfare trust is exempt from income tax; when the public welfare trust property is land or real estate, it is exempt from land tax and property tax; when a public welfare trust is established, the principal can also enjoy tax reductions and exemptions. In addition, a public welfare trust is established to allow donors to obtain a certain proportion of trust income to maintain their own and their family’s lives. The task of
Heng xin Trust is to carry out public welfare and charity work by allocating funds to public welfare and charity organizations on the list of beneficiaries under the guidance of the Protectors Committee, mainly the Secretary-General of the Laoniu Fund Council.
Niu Gensheng’s “reincarnation view of wealth” is: From nothing to something, satisfying the individual, this is a kind of small happiness; from something to nothing, giving back to the society, this is a kind of big happiness! "Existence or not" is the essence of Taoist philosophy in our country. Wealth is from nothing to something, and from something to nothing. For the Niu Gensheng family, this invisible spiritual wealth should be the most precious.
Wang Yongqing's life true meaning
The former richest man in Taiwan and known as the "god of business", Wang Yongqing, the founder of of Formosa Plastics Group, died in the United States on October 15, 2008. Because he did not leave a will to distribute estates during his lifetime, the heirs fell into a lawsuit for property disputes, causing a storm. Although it ended in reconciliation, it set a record for the highest inheritance tax in Taiwan. The Taiwan Taxation Bureau received NT$11.9 billion NT$4 The highest inheritance tax in Taiwan's history and NT$2.8 billion gift tax. Hanzheng Family Office, focusing on the foundation! Professionally responsible for foundation and special fund design and establishment registration, foundation launch planning, operation supervision, etc.
According to the United States, Wang Yongqing's total assets in the United States total US$8.1 billion, approximately NT$264.8 billion, which is 4.6 times that of his in Taiwan. But from 2001 to 2005, Wang Yongqing secretly turned the company's equity into a trust fund and invested in public welfare undertakings. Therefore, although Wang Yongqing's children's inheritance assets are quite valuable, they are only a small part of them.
Formosa Plastics Group was established in 1954 with Wang Yongqing and Wang Yong in . After decades of hard work, it has more than 30 branches and overseas companies. In 2010, the group's total revenue was approximately RMB 454 billion, making it the second largest private enterprise in Taiwan. The family of Wang Yongqing's brothers has complex family relationships. Wang Yongqing has three wives and Wang Yongzai has two houses. There are more than ten children in the second generation alone. Wang Yongqing's brothers started a business together. The power of the first generation of Formosa Plastics must be transferred to the second generation. How to achieve long-term stability and sustainable management is a major issue.
As early as 1976, Wang Yongqing donated shares to establish a charity fund, Chang Geng Memorial Hospital (named after his father Wang Chang Geng), as the main shareholder of Formosa Plastics Group's core enterprise. By 2008, the fund had respectively held shares in the "Four Treasures of Formosa Plastics" - Taiwan Plastics Industry, South Asia Plastics Industry, Taiwan Chemical Fiber and Formosa Petrochemical. Through cross-holding within the group company, the group's equity has been stable and close. As a charitable fund, the members of the board of directors are composed of members of the Wang family, professionals and well-known social talents. Through the provisions of the articles of association and the rules of procedure of the board of directors, the exercise of the rights of the shareholders of the Formosa Plastics Group ensures the management control of the Wang Yongqing family members in the group company. Therefore, as a non-profit institution, Chang Geng Hospital successfully locked the controlling stake in Formosa Plastics Group while benefiting the people. Moreover, according to Taiwan’s laws, the establishment of a charitable fund is exempted from the inheritance tax of up to nearly 50%, and the family shares are retained.
Some experts pointed out that Wang Yongqing's carefully designed family business inheritance plan can be said to have three goals in one fell swoop: on the one hand, it can repay the society and promote public welfare and charity; on the other hand, because the company's equity is completely decoupled from the family, family members not only have no ownership rights, but also have no right to benefit. Therefore, the farce caused by the three brothers of Guo's family in Hong Kong Sun Hung Kai Properties due to the dispute over the beneficiary rights of trust is unlikely to be staged among Wang Yongqing's heirs; on the third aspect, because the company's equity is separated from other families under Wang Yongqing's name, even if there is an inheritance dispute, the normal operation of the company will not be affected, and the ideal of sustainable operation of the family business can be realized.
Wang Yongqing did not leave a will before his death to allocate the huge inheritance behind him, but he left a letter to his children, in which a passage reads: "I hope that all children can fully understand the true meaning of life, and from the inner recognition and support, to leave my personal wealth to the public, so that it can continue to play the role of promoting social progress and enhancing human welfare, and to enable the enterprises founded throughout their lives to achieve sustainable operation and benefit employees and society in the long run."
From the above three cases, we can experience the high role played by the family foundation in wealth inheritance. Although my country's laws and relevant institutional policies are not complete, in order to adapt to the needs of domestic entrepreneurs and high-net-worth individuals to carry out charity and public welfare activities and promote the further development of my country's charity, the State Council issued the "Guiding Opinions on Promoting the Healthy Development of Charity" on December 18, 2014, and the legislative work of the "Charity Law" is also in full swing. We look forward to the implementation of various laws and policies as soon as possible so that the wealth of the Chinese people can realize the wishes and goals of charitable inheritance.
