NGOs as Legal Entities: from Registration to Liquidation

The term “NGO” is used to cover several forms of non-profit activities. The characteristic features of an NGO are as follows: a special purpose of activity – charitable, humanitarian; non-profit status; involvement of volunteers in activities.

The following organizational forms are currently available in Ukraine for NGO activities:

1) through a public association (public organization or union);

2) through a charitable organization (charitable foundation, charitable society, charitable institution);

3) by a foreign non-governmental organization establishing a separate subdivision (in the form of a branch or representative office). Separate subdivisions are not separate legal entities; they ensure the activities of foreign organizations in Ukraine in accordance with approved regulations (charter).

The following factors should be taken into account when choosing the form of an NGO:

The purpose of the activity. The purpose of an NGO’s activities is key to determining the optimal form of activity. The set of tools that will be needed (in particular, the need to import humanitarian aid, obtaining funding from a wide range of entities) depends on the goals and content.

Who will be the founder, and what management features should be taken into account? For example, the establishment of a charitable society or public association requires at least 2 founders, the Law of Ukraine On Charitable Activities and Charitable Organizations and the Law of Ukraine On Public Associations define the requirements for founders/participants of the organization, requirements for the existence of governing bodies (their competence).

What will be the structure of income and expenses to ensure the statutory activities? In particular, it is necessary to take into account, for example, that separate subdivisions are not independent legal entities, so some operations (in particular, receipts from third parties) may be unavailable or significantly limited for them. Charitable organizations, in accordance with the Law of Ukraine On Charitable Activities and Charitable Organizations, must comply with the 20% limit on administrative expenses of their total income.

Unfortunately, Ukrainian tax legislation does not distinguish between the statuses of separate subdivisions of commercial and non-commercial (non-governmental) organizations, and they cannot obtain non-profit status.

The need to involve volunteers and foreigners in work. Separate subdivisions may invite foreign specialists, which enables them to obtain documents for legal stay in Ukraine on the basis of such an invitation, and their employment does not require a work permit, while official employment by an NGO or charitable foundation will require such a permit. If an NGO intends to involve volunteers in its projects (in accordance with the Law of Ukraine On Volunteer Activity), it may apply to the National Social Service of Ukraine for inclusion on the list of institutions that involve volunteers in their activities to carry out volunteer activities in Ukraine.

Ownership structure. Information about individuals who are authorized to make decisions regarding the legal entity should be outlined in a schematic manner. In the case of NGOs, quite often such individuals are members of governing bodies who are not the Ultimate Beneficial Owners.

After choosing the form that will be most effective for achieving the purpose, goals and objectives of the organization, you can proceed with the registration formalities.

In general terms, the list of documents required for registration of an NGO is as follows:

• a formalized decision on the establishment (protocol, decision);
• regulations (charter);
• documents confirming the granting of powers of attorney to represent interests during registration.

When preparing internal regulations, it is necessary to take into account legislative restrictions on non-profit organizations (prohibition of distribution of profits, procedure for transferring property in case of liquidation) and functional restrictions – depending on the type of NGO, the regulations (charter) should define the functions and areas of activity, governing bodies. In particular, the Law of Ukraine On Charitable Activities and Charitable Organizations provides for the relevant provisions for charitable organizations, the Law of Ukraine On Public Associations for public associations, and the Civil Code of Ukraine for separate subdivisions (branches, representative offices). In addition, the more detailed the definition of areas of activity of an NGO, the easier it will be to pass tax inspection procedures and audits.

Documents drawn up and certified in accordance with the laws of other countries must be legalized (through consular legalization or by affixing an apostille), and an official translation will be required to use them in Ukraine.

Registration of charitable organizations and separate subdivisions of foreign non-governmental organizations has a wider list of authorized entities – decisions on their registration, registration of changes, etc. can be made not only by authorized representatives of the Ministry of Justice of Ukraine, but also by notaries.

Registration procedures are being accelerated, with 5 business days required to register a separate division of a foreign legal entity (compared to 20 business days prior to September 2024). Registration of public associations takes 3 business days, and charitable organizations – 24 hours.

One of the issues that often arises when working with NGOs is the need to disclose their ownership structure. The Law of Ukraine On Prevention and Counteracting Legalization (Laundering) of Proceeds of Crime, Terrorist Financing and Financing of Proliferation of Weapons of Mass Destruction defines the obligation of all legal entities to disclose information about the Ultimate Beneficial Owner (controller). Public, charitable organizations, and separate divisions of foreign non-governmental organizations must also provide and keep such information up to date, even though in many cases this is illogical given the specifics of an NGO’s activities and management structure.

Registration of Сhanges

The procedure for registering changes to information about an NGO is similar to the registration procedure. The Law of Ukraine On State Registration of Legal Entities, Individual Entrepreneurs and Public Organizations defines the list of documents that must be submitted.

Unfortunately, this law does not currently specify a list of documents for all cases of changes to charitable organizations, so in practice, when questions arise about the need to formalize certain decisions and their subsequent registration, it is sometimes necessary to apply the provisions by analogy.

Need for Branches and Representative Offices to Transfer Data to the Unified State Register

Starting from September 2024, in accordance with the Law of Ukraine On Amendments to Certain Legislative Acts of Ukraine on Streamlining the Activities of Separate Subdivisions of a Legal Entity Formed in Accordance with the Law of a Foreign State, all types of registration actions for of all types of separate subdivisions are carried out in accordance with the same procedure.

Thus, historically, permanent establishments of commercial organizations were registered through the ministry in charge of economic development and trade (the name of the authority changed from time to time), while separate subdivisions of non-governmental organizations were registered directly through the Ministry of Justice of Ukraine under a different procedure. There was no separate unified register for such entities. The Ministry of Justice of Ukraine has to transfer data on all separate subdivisions to the Unified State Register (however, it is stipulated that the ministry itself must have special software to transfer data). The deadline for completion of such actions has not been determined.

In practice, when a representative office or branch needs to register changes to its information, it must first check that the information has already been transferred and only then carry out registration actions.

There is a separate procedure: “Transfer to the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organizations of Information on Existing and Registered Branches and Representative Offices of Legal Entities Established in Accordance with the Legislation of Foreign Countries”, approved by the Cabinet of Ministers of Ukraine, No. 1004 of 3 September 2024. In practice, the lack of information on branches and representative offices in the Unified State Register results in, among other things, the fact that they are technically unable to use public services through the Diia portal (in particular, to book their employees).

Liquidation

Procedural issues of liquidation of an NGO are defined in general terms in the Law of Ukraine On State Registration of Legal Entities and Individuals and the Civil Code of Ukraine.

The liquidation of an NGO follows the rules that apply to all legal entities and usually takes place in the following stages:

• execution of the decision to start the liquidation procedure;
• the actual liquidation procedure and deregistration with the regulatory authorities;
• registration of termination.

Thus, at the first stage, a decision is made to terminate the activity (voluntarily or compulsorily by a decision of the supervisory authority or court). An authorized person (or commission) must be appointed to ensure that the liquidation procedure, inspections and deregistration procedures are carried out, and that the deadlines for creditors to file claims are set. Also, in the case of termination of the charitable organization’s activities, the property remaining after settlement with all creditors and repayment of all liabilities should be transferred to 1 or more other charitable organizations (or to the State Budget). The legislation does not explicitly provide for such a restriction with respect to public associations.

The decision to liquidate is registered, the relevant information is reflected in the Unified State Register, and the liquidation procedure is initiated.

Typically, the period for creditors to file claims is at least 2 months and no more than 6 months. During this period of time, the liquidator conducts an inventory of property, prepares a liquidation balance sheet, carries out dismissal procedures, settles accounts with employees, and ensures the preparation and submission of liquidation reports.

If the NGO has no debts on its obligations, the liquidator closes the accounts and submits documents to the State Tax Service and the Pension Fund of Ukraine for deregistration. In the case of liquidation of a separate subdivision, creditors’ claims may also be satisfied at the expense of the property of the foreign legal entity itself.

Prior to deregistration, the controlling authorities conduct an audit of the NGO as a taxpayer (on issues of proper calculation and payment of taxes, submission of reports). The end result is a certificate of deregistration of the NGO as a taxpayer, which is directly available to state registrars.

Next, the liquidator must submit the documents for storage to the State Archive, which must issue a certificate of acceptance of the documents for long-term storage. This document is submitted to the state registrar for the 3rd stage, which is actual termination.

After this registration action, the NGO is considered to be terminated.

If the property of the NGO is not sufficient to fulfill all of its obligations to creditors, the liquidator (liquidation commission) is obliged to apply to a commercial court to initiate bankruptcy proceedings against such a public association in accordance with the Bankruptcy Code of Ukraine.

Ukrainian legislation has recently seen improvements in the area of regulation of NGOs, as their number has increased significantly in recent years and there is a need to prevent possible abuse of this status.