Ukraine NGO Legislation in Civil Code Passes Second Reading

26 July 2000

On July 18, 2000, the Verkhovna Rada adopted the Civil Code in the second reading. It is expected that the third and final reading of the civil code will take place in fall 2000. The adopted text contains provisions on non-entrepreneurial organizations (see articles 65, 67 attached) that conform to the best practices of NGO regulation and establish a basis for comprehensive structuring of the Ukrainian NGO legislation. The provisions of the Civil Code: (i) define organizational forms of NGOs as membership (“partnerships”) and non-membership (“institutions”) organizations; (ii) provide a clear definition of "institution" as an organizational form; and (iii) permit NGOs to carry out entrepreneurial activities.

The definition of two basic forms of NGOs in the Civil Code naturally permits the Parliament to proceed with enactment of the law On Non-entrepreneurial Organizations, which will further define and establish detailed regulatory provisions for “non-entrepreneurial organization”.

Additionally, adoption of the new civil code enables ICNL to advocate for adoption of its recommendations for the draft tax code, which help to harmonize terminology in civil and tax codes. The new definitions of term “non-entrepreneurial organizations” will restrict the discretion of the Tax Inspection in interpreting the law in determining whether an organization is “non-profit” and enjoys the exempt status or not.

Numerous meetings and in-person consultations with the drafters (Prof. Dovgert, Zvarich, and Rozumovska), deputies, and experts involved with the civil code (Golovatij, Musiaka, others) were ultimately successful in bringing about this favorable result. At the request of the drafters, ICNL has published a handbook with extracts from 10 civil codes of different countries with provisions regulating NGOs. Assisting in ICNL’s efforts were Dr. Leon Irish, an internationally well-known NGO law expert, and Professor Ulrich Drobnig, of the Max Planck Institute in Germany, acclaimed for his expertise throughout Europe. In 1996 Prof. Drobnig had assisted the drafters of another chapter of the civil code at the invitation of TACIS, and Ukrainian academics involved in drafting the Civil Code had great respect for him. In private meetings, in their presentation at the conference on NGO Legislation (November 10, 1999), and in articles and comments addressed to the drafters, Doctor Irish and Professor Drobnig highlighted the importance of including provisions on NGOs in the civil code.

Excerpt from the Civil Code of Ukraine

(adopted by Verkhovna Rada in the second reading on July 18, 2000)

of the Civil Code – (as modified in November 1999)

Article 65. Legal Organizational Forms of Legal Entities

  1. Legal entities may be established in the form of a partnership or an institution.
  2. A partnership is an association of entities (participants), which has a corporate structure and is managed by its participants. A partnership may be created also by one entity unless it is directly prohibited by the law. Partnerships are divided into entrepreneurial and non-entrepreneurial.
  3. An institution is an association of property into a separate organization without member, which may be established by one or more entities (founders) for the achievement of a designated purposes at the expense of this property. An institution may satisfy cultural, social, and economical needs of the society (public benefit institutions) and needs of the third parties (destinators) (private benefit institution).

Article 67. Entrepreneurial Activity by Non-entrepreneurial Partnerships and Institutions

Non-entrepreneurial partnerships (consumer cooperatives, citizen’s associations, and others) and institutions, in addition to their main activity, may carry out any entrepreneurial activities, if otherwise is not established by the law.

The Old Text Before Incorporating ICNL’s Recommendations
(before November 1999)

Article 65. Legal Organizational Forms of Legal Entities

  1. Legal entities may be established in the form of a partnership or an institution.
  2. A partnership is an association of entities (participants) which has a corporate structure and is managed by its participants. A partnership may be created also by one entity unless it is directly prohibited by the law.
  3. An institution is an organization founded by one or several entities (founders) who do not participate in its management. An institution is founded for the achievement of a designated purposes and for obtaining profits by the third parties (destinators).
  4. The provisions of this chapter of the Civil Code apply to all partnerships and institutions unless other regulations for individual types of partnerships and institutions are determined by this Civil Code and other laws.

Article 67. Carrying Out Economic Activities by Other Partnerships and Institutions

All other partnerships (non-entrepreneurial partnerships) and institutions, in addition to their main activity, may carry out any types of entrepreneurial activity, if otherwise is not established by the law.