Non-profit legal entities

In addition to carrying out business activities, the law allows the establishment of legal entities for the achievement of so-called non-profit purposes. Through these entities, the activities of civil society in the fields of politics, culture, sports, etc. are promoted and developed. Non-profit legal entities("NPOs")“) carry out their activities for public or private benefit, and once it is determined that a NPO will carry out activities for public benefit, this decision is irrevocable.

The name of these entities should not be misleading, as they often carry out additional business activities related to their main business. The income from these activities is used to achieve the defined objectives. In addition to the income from the ancillary business activities, NPOs may also receive funding from the State or through other NPOs and thus concentrate significant assets in themselves. Moreover, under the provisions of other laws, it is in the form of NPOs that entities of great importance for the development of certain areas are formed and managed. For example, sports federations in the Republic of Bulgaria operate in the form of NPOs. For these reasons, in this article we will examine some issues related to the establishment and functioning of NPOs.

According to the current Bulgarian legislation, an NGO may be established in two forms:

1. Association - is an association of persons for the achievement of the objectives which are set out in its statutes. These persons become members of the association, may participate in its general assembly and be elected to its governing board. An association may be formed by three or more persons. Where it carries out an activity for the public benefit, the necessary founders shall be at least 7 legally capable natural persons or 3 legal persons. The founders shall adopt a statute containing the main provisions characterising the association, such as its name, its objectives and the means of achieving them, its governing bodies and their powers, etc.

Membership in the association is voluntary, payment of a membership fee may be provided for. The organs of the association shall be the general assembly of the members of the association, which shall be its supreme body, and a board of directors, consisting of at least three persons - members of the association, which shall represent it and implement the decisions of the general assembly.The decisions of the general assembly shall themselves be subject to judicial review as to their legality and compliance with the statutes.

2. Foundation - with a foundation, the focus is not on the membership, but on the assets to be contributed and managed to achieve its goals. In a foundation, no member who wishes to contribute to the achievement of the objectives provides property that is managed by the governing body designated by the founders.

A foundation is established during life or on death by a unilateral act of incorporation, which grants property gratuitously to a nonprofit. For the establishment of a foundation during lifetime, the deed of foundation must be notarised. The property granted by the deed of foundation is considered to be the property of the foundation on its creation from the date of execution of the deed of foundation during lifetime or on the opening of the estate on death.

Depending on whether it is established during life or on death, the request for registration of the foundation shall be made by the founder or a person or body authorized by him, the executor of the will, the heir or any of the persons who would benefit from the foundation's activities in accordance with the instrument of foundation.

The property of the Foundation shall be managed by a governing authority, which may be a sole or collective entity. The founder may reserve for himself or herself or designate a third person to exercise certain rights - to appoint and dismiss members of the governing body of the foundation, to approve certain transactions with the foundation's property, to decide on its dissolution, etc. In the event that the founder or a person dies, is declared absent or placed under disability, or is dissolved, the reserved rights shall pass to the appropriate body of the foundation.

Until the end of 2017, the registration of NPOs was carried out in a register at the district courts in the country. After 01.01.2018 the registration is carried out in the Commercial Register and the Register of Non-profit Organizations.

The questions discussed above do not exhaust the peculiarities of NPOs. At the same time, the regulation in the Non-Profit Legal Entities Act is unclear on a number of other hypotheses, which often creates disputes and problems in practice. It is for this reason that in order to make sure that your association or foundation acts in accordance with the legal rules, we recommend that you use the services of a lawyer when establishing and in connection with the activities of such entities.

KGK has many years of experience in advising and representing NGOs. Among our clients are associations and foundations with a variety of activities and goals, with differences in structure and number of members. The accumulated experience enables KGK's commercial law attorney assist and find the optimal solutions for the cases that may arise in connection with the activities of the various NPOs. We can offer assistance in the preparation of documents for the establishment and liquidation of associations and foundations, the preparation and conduct of meetings of governing bodies and general meetings of associations, as well as representation in court proceedings in connection with the convening of general meetings or appeals against their decisions.

If you need any consultation on issues concerning NGOs, you can contact us.