Registration of a charitable foundation

On February 3, 2013, the Law of Ukraine "On Charitable Activities and Charitable Organizations" came into force, repealing the old Law of Ukraine "On Charity and Charitable Organizations". Previously, charitable organizations were registered by the Ministry of Justice of Ukraine in accordance with the procedure provided for associations of citizens - now the registration procedure has been simplified, and it is carried out in the general procedure at the state registration authorities of local administrations at the location of the organization. However, there is no need to re-register charitable organizations registered before the new law came into force.

A charitable organization is a legal entity of private law that defines charitable activities as the main purpose of its activities in its constituent documents. According to Art. 13 of the Law of Ukraine "On Charitable Activities and Charitable Organizations", a charitable organization can be of three types: a charitable institution (has a charter), a charitable society and a charitable foundation (has a charter).

Charitable foundations (CF) are the most common type of charitable organizations, because their structure is the most acceptable to the founders.

A charitable foundation is a charitable organization that:

• may be established by one or more founders (capable individuals and legal entities, except for state authorities, local self-government bodies and other legal entities under public law)
• has a charter as a constituent document on the basis of which it operates;
• may have, in addition to the founders, other members who join the CF in accordance with the procedure established by the charter and participate in the management of the CF;
• founders and participants are not obliged to transfer any assets to the charity to achieve the charitable goals - its assets can be formed by both participants and other benefactors.

For state registration of a charitable foundation (Article 24 of the Law of Ukraine "On State Registration of Legal Entities and Individual Entrepreneurs"), the following documents must be submitted

• a completed registration card for state registration of a legal entity;
• original copy (notarized copy) of the decision of the founders or their authorized body to establish a legal entity - in cases provided for by law;
• two copies of constituent documents (in case of submission of electronic documents - one copy);
• a document certifying the payment of the registration fee for the state registration of a legal entity (in case of submission of electronic documents to confirm the payment of the fee, a copy of the electronic payment document certified by an electronic digital signature);
• documents confirming the ownership structure of the founders-legal entities, which allows to identify individuals who own a significant share of the assets of these legal entities.

If a foreign legal entity is among the founders of a charitable foundation, a document confirming its registration in the country of its location (an extract from a trade, banking or court register, certified and legalized in accordance with the requirements of the law) must be submitted in addition.

It should be noted that the procedure for the organization and operation of charitable foundations was significantly bureaucratized and, unfortunately, gave rise to many reasons to doubt the transparency of the distribution of funds for their intended purpose, i.e. for charitable purposes. There were cases of charitable organizations being used for political campaigning. The new law contains the following provision: "Charitable organizations have no right to provide charitable assistance to political parties or on behalf of political parties, as well as to participate in election campaigning."

Also, the previous law provided for as many as four governing bodies for any charitable organization: a supervisory board, a general meeting, a directorate and a management board. During the drafting of the new law, representatives of charitable foundations insisted that this overly complicated system should be abolished, because often one founder of a charitable foundation wants to be a manager himself, but the law obliged him to look for other people to form governing bodies. It is clear that the procedure was mostly treated as a formality, with the same individuals often being members of these bodies. Today, there are three mandatory bodies left: the general meeting, the supervisory board, and the executive body.

The founder must decide on all the additional nuances of managing the work of the charity in the charter.

The new law allows not to establish a supervisory board for a charitable foundation with no more than 10 members, which means that the issue of transparency of the distribution of funds arises only if the foundation aims to attract funds from outside, and if a small foundation has one founder and maintains it independently, the general meeting of participants can perform control functions without establishing a supervisory board. A very important factor in preventing possible fraud is the legal requirement for donation collectors to have a power of attorney or a contract for this purpose, and the contract must be notarized.

The possibility for charitable foundations to receive funds from the budget is not regulated by the law on charitable activities. To this end, charitable organizations must actively provide social services themselves by participating in public procurement or social services commissioning programs, or receive grants from local authorities through civil society development programs. However, the established practice of developed countries shows that in Europe the state does not provide charitable contributions to charitable organizations, as this is an exclusively voluntary matter for citizens.

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