The Legal Construction of the Nonprofit Legal Person
A legal person is an organised formation created to achieve a defined purpose, possessing its own property, independently liable with that property, acquiring rights and obligations in its own name, entering into transactions and capable of appearing in court as claimant and defendant. A legal person may be corporatively organised, founded on membership, dependent on the status of its members or independent of them, and may or may not pursue entrepreneurship. The law draws a line here: a legal person whose purpose is commercial activity is created under the law on entrepreneurs, while a legal person whose purpose is non-commercial activity must be registered under the procedure established by the Civil Code. Public-law legal persons, and the state and municipality themselves, participate in civil-law relations just like private-law legal persons.
Name and Registration
A nonprofit legal person has a name in which its belonging to the non-commercial form is indicated. The name may not use graphic symbols lacking a phonetic or verbal equivalent under linguistic norms, nor designations characteristic of other legal forms; it may not carry an addition capable of misleading a third party as to the form or activity of the entity, and it may not coincide with the name of an already registered nonprofit legal person. Registration takes place in the registry of entrepreneurs and nonprofit legal persons, kept by the National Agency of the Public Registry; a branch of a foreign nonprofit legal person is registered in the same registry. In practice these technical matters often become grounds for unfounded rejection, so the choice of the name and the preparation of the documents must be provided for in advance.
State Control and the Alienation of Property
The suspension or prohibition of the activity of a nonprofit legal person is decided by a court in the cases and by the procedure defined by law; where the organisation has substantially moved to commercial activity, the court examines suspension or prohibition on the basis of a claim by the registering organ or an interested person, and after a decision prohibiting the activity the registering organ cancels the registration. The freedom to alienate property is also constrained: alienation is possible where it serves the activity of the organisation, its organisational development, promotes the achievement of its aims or serves charitable purposes — property is thus tied to the statutory purpose and cannot be used for personal benefit.
Reorganisation and Liquidation
A change of the legal form of a nonprofit legal person is inadmissible, except where by the change of form it is transformed into a public-law legal person; division and merger are carried out under the procedure established for the reorganisation of an entrepreneur. The fate of property at liquidation is decided by a special rule: the recipient of the remaining property is determined by the founders through the registration declaration, and its alienation is possible only where it promotes the attainment of the aims set, serves charitable purposes or the property is transferred to another nonprofit legal person. The distribution of the remaining property among the founders, members or persons holding managerial and representative powers is prohibited. Where no recipient is determined, the court transfers the property to a nonprofit legal person with the same or similar aims, and where none exists a decision may be taken to transfer the property to the state; the court may distribute the property after six months from the registration of the commencement of the liquidation process. A special rule extends to an organisation liquidated on the basis of a court conviction that has entered into legal force in a criminal case: in that case the liquidation is carried out by a liquidator appointed by the court.
From Founding to Registry — the Practical Course
The life of a nonprofit organisation sums up in three stages. The first is founding: the founders agree on the statutory aims and the form, since these two definitions determine the subsequent tax and registration regime. The second is registration with the National Agency of the Public Registry, where the availability of the name must be checked in advance. The third is functioning under control: the organisation must remain within its statutory aims, since a substantial move to commercial activity provokes the reaction of the court and the registering organ. A mistake at each stage tells on the outcome: a wrong form — a rejected application, an inapt name — a re-filing, a deviation from the aims — a risk to the registration.
Frequently Asked Questions
Below we answer the questions most frequently asked on this subject.
Can a nonprofit organisation be converted into a commercial form?
No — a change of legal form is inadmissible, except for transformation into a public-law legal person.
Who may receive the property remaining on liquidation?
A person determined by the founders; failing that — a nonprofit organisation with the same or similar aims or, by decision, the state.
May founders divide the property on liquidation?
No — distribution of the remaining property among founders, members and managerial persons is prohibited.
Which organ registers a nonprofit legal person?
The National Agency of the Public Registry — in the unified registry of entrepreneurs and nonprofit legal persons, where foreign branches are also entered.
How We Help on Legal.ge
Founding, registering and liquidating a nonprofit organisation is a matter of documentary precision. On Legal.ge you can consult a lawyer who will prepare the documents, check the name and help you distribute the property lawfully. Submit a request on the site and receive qualified assistance.