The International Journal
of Not-for-Profit Law

Volume 1, Issue 2, December 1998

A quarterly publication of the International Center for Not-for-Profit Law

Table of Contents

Letter from the Editor

Articles

Registration of Associations in Central and Eastern Europe and the Newly Indpendent States: A Survey
Rachel L. Holmes

The Case for Intermediate Sanctions
Milton Cerny

Voluntary Organizations in Europe: The European Convention on Human Rights
Erik Denters and Wino J.M. van Veen

Improving Civil Society in Hungary
Daniel Csanády

El Proyecto de Ley N. 4690/98 (Developing State - NGO Relations in Brazil)
Anna Cynthia Oliveira

NGO Legislation in Georgia
Vasha Salamadze

Reviews

The Non-Profit Handbook (1997-1998 National Edition)
Reviewed by Karla Simon

Handbuch Stiftungen
Edited by Bertelsmann Stiftung

Case Notes

Trustees of Sahebzadi Oalia Kulsum Trust v Controller of Estate Duty [1998] 233 ITR 434

Revenue Commissioners v Sisters of Charity of the Incarnate Word

Gaudiya Mission v. Kamalaksha DAS Brahmachary

Country Reports

Asia Pacific:
Regional | Australia | China | India | Japan | Mongolia | Nepal | New Zealand | the Philippines | Thailand | Vietnam

Central and Eastern Europe:
Regional | Albania | Bosnia-Herzogovina | Bulgaria | Croatia | Czech Republic | Hungary | Latvia | Lithuania | Macedonia | Poland | Slovakia | Slovenia | Yugoslavia

Latin America and the Caribbean:
Argentina | Brazil | Ecuador | Puerto Rico | Venezuela

Middle East and North Africa:
Regional | Egypt | Jordan | Morocco

Newly Independent States:
Regional | Armenia | Azerbaijan | Belarus | Georgia | Kazakhstan | Kyrgyzstan | Moldova | Russia | Tajikistan | Turkmenistan | Ukraine | Uzbekistan

North America:
Canada | Mexico | the United States

Sub-Saharan Africa:
Regional | Ethiopia | Mauritius | South Africa

Western Europe:
Regional | England and United Kingdom | Finland | France | Germany | Republic of Ireland | Netherlands | Northern Ireland | Sweden | Turkey

International Developments:
UNESCO | Loccum Conference | Birmingham Conference

Self-Regulation Initiatives

United States - Overview of the Bishop Estate Controversy

United States - Maryland Association of Nonprofits Adopts "The Standards of Excellence"

International Grantmaking

Options for Increasing U.S. Support for Chinese Nonprofit Organizations
Robert A. Boisture

Grantmaking by Private Foundations in the International Arena
Thomas Chomicz

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Editorial Board

Subscription Information

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NGO Legislation in Georgia

Vasha Salamadze
Director, Georgian Business Law Association

Legislative acts, which regulate the third sector can be conditionally divided into several groups:

a) Fundamental laws, which create the bases for the existence of not-for-profit organizations. Such are the Georgian Constitution and the organic law On Ceasing and Prohibition of Public Association Activity.

b) Main law, which determines the regulations for creation and registration of organizations and the main limits of activity - such is the Civil Code of Georgia.

c) Special laws, which regulate the separate spheres of not-for-profit organization activities. Such are:

d) Separate laws, which regulate the separate aspects of not-for-profit organization activities, such are:

Activities of trade unions, political and religious organizations are regulated by special legislation.

As concerns the terminology, Georgian legislation uses three terms to define NGOs: public associations, public organizations, non-entrepreneurial legal persons, and charity organizations in their narrower sense. In this paper a synthesized terms of "Non-for-profit organization" and "nonprofit legislation" are used to cover all mentioned above organizations.

Defitiences of provisions in legislative acts are more problematic for Georgian not-for-profit organizations. For example, the legislation regulating accounting is the same both for commercial and noncommercial organizations, which very often causes serious problems during the work.

However, Georgian legislation and its implementation in general encourage the development of the NGO sector in Georgia.

Constitution

Georgian Constitution creates rather firm guarantees for the existence of not-for-profit organizations. Article 26 of the constitution secures the right of each person to create public association or become its member.

It is prohibited by the constitution creation and activity of such associations which aim throwing down of constitutional system or changing into violence, encroaching of the country’s independence, breaching of the territorial integrity, or which propagandizes war or violence, rouses hatred on national, regional, religious and social ground.

Types of organization

The Civil Code regulates not-for-profit organization establishment, registration, management issues. There are 2 organizational-legal forms: union or association and foundation. The essential difference between these 2 forms is that association is the organization based on membership, but the foundation has no membership, i. e. association is the union of persons and the foundation is the union of assets. These 2 forms are legal persons.

At the same time, the code envisages the existence of nonregistered association, which is not a legal person.

Georgian Legislation does not differentiate between beneficial-for-public and self-beneficial organizations. Although, existence of such differences would cause granting of additional tax and other benefits. Work in this direction has been carried out for already 2 years. The bill on Charity Organizations and Charity Activity is created, according to which beneficial-for-public organizations are considered to be the charity organizations and they shall be granted the appropriate status. At present the bill is in the process of lobbing.

Goals

Legislation formulates only prohibitions concerning the goals of the not-for-profit organization. In particular, goals of not-for-profit organization should not confront effective legislation, recognized moral norms or constitutional-legal principles. Two of these propositions are quite clear, but certain difference of opinions is caused by the third one - correspondence of goal with recognized moral norms, as the latter can differ from the international norms.

Registration and Membership Requirements

Georgian legislation envisages different rules of association and foundation registration. Registration of an association is carried out by the district court and foundation is registered by the Ministry of Justice of Georgia.

The following documents are to be submitted to the registration bodies for the registration of the association:

Besides the above mentioned, it is necessary to represent a document proving the obligation of investment of an appropriate property.

Registration bodies are obliged to carry out the registration of the not-for-profit organization within a month after submitting the application. If the registration is not carried out during this term, or the applicant is not informed on motivated refusal on registration, the organization shall be considered as registered automatically.

In case of refusal about registration, the court’s decision should be argumented and it can be appealed. Registration data should be published. Any person can familiarize himself with the register and demand the written extract from the latter.

It is generally recognized, that conditions of not-for-profit organization registration should be simplified and accessible as much as possible. Georgian legislation at the first glance satisfies the above mentioned requirements, but those vague passages in the legislation we have discussed above very often complicates the registration process. The shortcomings in the present court system also favour it.

The association can be founded by 5 persons. There are no restrictions on the membership of the association. Founder of the association, as well as the member of the latter can become as any citizen of Georgia, who has reached the full age, but also a citizen of a foreign country, a person without the citizenship and other legal person.

Foundation has no members. It can be founded by one or several persons with the obligation to invest the definite assets. According to the legislation these assets should correspond to the goals of the foundation. To my mind, this proposition is rather vague and with the great possibilities of subjectivity.

There are no restrictions towards the founders of the association or foundation, as well as there are no rules which regulate foreign not-for-profit organizations.

Organizations Based on Membership

Georgian Civil Code envisages special norms on the association. Becoming a member of the association and leaving it is free-will, although, the charter may envisage certain procedure in both cases. It can prescribe certain terms and conditions. The law also envisages the possibility of dismissal of a member from the association. By this part the law allows the organization to envisage the cases of a member dismissal in the charter . The Legislation allows the dismissed member to appeal in the court.

Management

The law envisages different norms concerning the management of foundations and associations. The Legislation outlines the chief points of management and gives liberty to not-for-profit organizations in regulating a wide circle of issues by their own charters.

Management Bodies of the Association

The highest organ of the association management is the meeting, which should be convened at least once a year. The legislation rather clearly defines the rules of convening the meetings and resolution adoption. According to the Civil Code, association members meeting’s terms of reference cover the following: management election, creation of commissions and consulting bodies, making of alterations in the charter and changing of the organization goals. The meeting adopts resolutions on all those issues, which are outside the competence of the management. The resolution has the force only if it had been put on the agenda.

Resolution is adopted by the majority of votes. Resolution on alteration the charter requires the majority of the two third. As concerns the changing of the association goal. In such case the four fifth of the votes of all members is necessary.

The Civil Code also envisages the participation in voting in a written form for those members who can not be present at the meeting.

Management elected by the members meeting leads the association during the periods between the meetings. Number of management members, their authority, election terms and the rule of adopting resolutions at the meeting of the management are defined by the organization charter.

Management Bodies of the Foundation

The foundation governing is carried out by the management. The Code envisages the possibility of supervising organ (curatorium) creation with the following function: appointment, recalling and control of the management members and special representatives. Supervising organ members shall be invited by the founders. Alteration of the mentioned organ composition in case of death of a founder can be carried out by destinaters or in the limits defined by the charter. In all other cases the controlling role of the Ministry of Finance increases on the activity of the foundation.

Persons authorized on the not-for-profit organization representation shall be responsible on the damage caused to the organization or the third person because of careless work.

The Cease of Activity and Liquidation

Liquidation of the not-for-profit organization is carried out in the cases defined by the charter as a result of achieving the goal, during the abolition of registration or bankruptcy. Liquidation should be carried out by the management, although, in cases of the special circumstances the court (or the Ministry of Justice) can appoint another liquidator. It is supposed, that the priority to determine the existence of special circumstances has the court or the Ministry of Justice.

During the liquidation, all current activities should be finished, demands determined, creditors satisfied and the rest assets distributed among the authorized persons, which can be defined by the charter. In other case, the court or the Ministry of Finance transfers the assets to one or several associations or foundations having the similar goals. If such do not exist, then a decision on the transfer of assets to charity organization or the state may be adopted. Assets can be distributed only after a year of publication the information on liquidation.

Georgian organic law "On Ceasing and Prohibition of Public Associations Activity" prescribes the principles and regulations of the forced cease and prohibition. According to the organic law, ceasing or prohibition of the organization activity is possible only by the court’s resolution. The court can cease the non-entrepreneurial legal person’s activity for 3 months term if it began entrepreneurial activity. After passing the term, organization can continue its activity, but in case of carrying out entrepreneurial activity, the court can prohibit the latter. There is nothing extraordinary in these propositions if we do not take into consideration the fact, that in the conditions of the current reality, determination of passing on to entrepreneurial activity may be rather subjective.

The court may also prohibit the organization, which aims: throwing down of constitutional system or changing into violence, encroaching of the country’s independence, breaching of the territorial integrity, or which propagandizes war or violence, rouses national, regional, religious and social hatred, creates or has created the armed formation.

The court’s resolution on ceasing or prohibition of the activity can be appealed.

As concerns the reorganization of not-for-profit organization. Requirements of the law on this issue are rather vague. Reorganization should be carried out according the rules prescribed by the legislation. But the latter, on this stage, is limited with only this phrase.

Supervision

The Georgian Legislation envisages only internal organizational mechanisms of supervision for the organizations based on membership. For the supervision of the activity carried out by the association, the meeting can form the appropriate commission, which will undertake the functions of the meeting. Members of the commission may be only the association members.

Controlling mechanisms towards the foundation are more strict. First, that the curatorium can cease the management resolutions and demand their abolition and the second, that the Ministry of Justice can receive the information on the foundation activity any time and check its documentation. The law does not prescribe the special statement forms, terms and sanctions. But the above mentioned proposition towards the foundation gives the Ministry of Justice unlimited rights.

Not-for-profit Organization Activity

Not-for-profit organization is rightful to carry out any activity, which is not prohibited by the law, whether it is envisaged by the charter or not. But it should be taken into account, that entrepreneurial activity should have supplementary character and must serve the achieving of the organization goal. As concerns the political activity. Nothing is said about the degree of political activity of not-for-profit organization in Georgian legislation.

Tax Benefits

I would like to discuss one more aspect of not-for-profit organization taxation. There is one, rather illusive benefit in Georgian Legislation - dissociation of charity activity from the economic, which makes it tax-exempt. This benefit does not work in practice because of imperfectness of the legislation.

Georgian legislation does not restrict making of donations, but at the same time does not stimulate it at all. Any person can make donation in indefinite amount after paying the taxes on this income.

Financial Accounting

Organizations submit financial accounting to the Tax Inspection and the State Fund of Social Insurance. It should be also mentioned, that financial accounting of not-for-profit organization does not differ from the enterprises, which, to my mind, is inadmissible.

Financing from the Government

According to the law on grants, the state has no right to give grants. But in reality the state does it. It gives grants in different forms. Besides, it holds various competitions to perform the orders of the state, where not-for-profit organizations take active part. And very often they carry out the contracts.

Conclusions

And in conclusion, Georgian not-profit legislation should be given the positive estimation on this stage inspite of the above mentioned shortcomings. It creates necessary conditions for the development of a sector in the country.

Non-profit legislation needs further development, in particular, the following are necessary:

For more information, please, contact Vasha Salamadze, Director, Georgian Business Law Center; E-mail: blc@access.sanet.ge

 

Copyright 2008 The International Center for Not-for-Profit Law (ICNL)
ISSN: 1556-5157