CEE law report

• Excerpts from the East European Law Monitor

C Z E C H  R E P U B L I C

New bill regulates foundations

• The bill ON FOUNDATIONS [Vladni navrh zakona o nadacich (House Print no. 23)] initiated by the government aims to fill a substantial gap in existing legislation. Currently, the establishment and functioning of foundations are regulated insufficiently by a few provisions in the Civil Code. These provisions create uncertainty as to the rules governing economic activities carried out by foundations.

  The bill defines the foundation as "a purposeful assemblage of assets designed for the use by other legal or physical persons to achieve a generally beneficial purpose..." (Art. 1.1). A generally beneficial purpose is defined as, "in particular, the development of the spiritual values, the promotion of human rights or other humanitarian values, the protection of the environment and the cultural heritage, and the development of physical culture and sports" (Art. 1. 1).

  The foundation may not participate in the financing of political parties or political movements (Art. 1.2). The minimal value of the assets of a foundation may not fall below 200,000 Czech crowns (8,000 USD) in the succeeding 6 months after its creation (Art 1.3). The foundation is a juridical person (Art. 1.4). The foundation may be founded by: a written contract among the founders; a founding charter, if there is a single founder; or, by last will (i. e. "the charter of the foundation", Art. 3. 1).

  The law establishes minimum requirements for the content of the charter of the foundation. These include, among others, "the definition of the specific purpose for which the foundation is established; such a purpose shall fall within the framework of the generally beneficial purpose" (Art. 3.2). The foundation is legally established, however, only upon its entry into the Court's Registry (Art. 5. 1). The bodies of the foundation are:

  1. The managing board, which is to serve as the executive and "statutory body" of the foundation (Art. 10. 1), the board shall have at least three members (Art. 11);
  2. The supervisory board is entrusted mainly with the inspecting and auditing functions (Art. 17. 1). The establishment of the supervisory board is mandatory if the value of the assets of the foundation exceeds 5,000,000 Czech crowns (20,000 USD) (Art. 17.2). Otherwise, the functions of the supervisory board may be carried by a single supervisor.

  In general, a foundation shall not carry out commercial activities. However, the following are exceptions to this rule (Art. 23. 1): -renting immovable properties; -organizing lotteries, raffles, and public fundraising events; and -organizing cultural, social, sport, and educational events. A foundation shall prepare and adopt an annual report (Art. 25. 1). The annual report shall contain a survey and evaluation of all activities carried out by the foundation (Art. 25.2). Upon its approval by the managing board, the annual report shall be lodged with the Court in 30 days. Annual reports by the foundations are within the public domain (Art. 26.2). Foundations shall run their bookkeeping in compliance with rules set by the Law on Accounting (Art. 24.1). The annual final account must be audited by an independent auditor if the total sum of expenses and profits of a foundation exceeds 5,000,000 Czech crowns (20,000 USD).

  The bill also includes a special chapter on foreign foundations (Art. 27). A foreign foundation, i.e. "a legal entity that is a foundation according to the law of the state on whose territory it has its seat," may carry out its activities on the territory of the Czech Republic, in general, under the same conditions as the Czech foundations (Art. 27.1). The right of a foreign foundation to run its activities on the territory of the Czech Republic is effective after, "its organizational part established on the territory of the Czech Republic has been registered with the Court" (Art. 27.2).

  Existing foundations, established according to previous legislation, are considered established according to the new law, providing they lodge a proposal for registration with the Court within 12 months after the law enters into effect and comply with the other requirements of the law (Art. 34). The "organizations with an international element" established according the Law no. 116/1985 that, "have the nature of a foreign foundations" shall be transformed according to the provisions regulating the status of foreign foundations within the period of 12 months as well (Art. 35.1).

E S T O N I A

Nonprofit law passed in Estonia

• The law ON NONPROFIT ORGANIZATIONS was passed in Parliament on June 6 and establishes the procedures for establishing, managing, and terminating nonprofit organizations; as well as for the merger and division of nonprofits. The law also contains rules concerning the registration of nonprofit organizations and foundations.

  According to the law, a nonprofit organization is a voluntary union that does not have as its main purpose any profitable gain from economic activity.

  A nonprofit organization is a private legal person. It is not allowed to transform the organization into another kind of legal person. Nonprofit organizations can merge and divide into separate organizations, or take part in the division process of other organizations.

  A nonprofit organization has to be founded by at least two natural or legal persons. If the statutes of the organization does not establish any restrictions, the members can be any legal or physical person.

S L O V A K I A

Government tightens grip on foundations

• The law ON THE OPERATIONS OF FOUNDATIONS (207/1996) was initiated by the three governing parties in response to George Soros's open criticism of their human rights policies. The laws aims to control more tightly the operations of foundations in Slovakia. In reaction, some foundation chairs established the Third Sector Gremium, an institution which has lead a considerable campaign, both within Slovakia and around the world, to amend the law.

  The bill went through a number of drafts, one of which would have required a permanent capital of 500,000 - 1,000,000 Sk (16,670 - 33,000 USD), a prohibitive amount for all but a tiny minority of foundations. Roman Hofbauer (MDS) justified the capital requirement with the state's interest in controlling foreign capital invested in Slovakia, in order to prevent seditious acts, money laundering, and tax fraud. In the final form of the law accepted on May 22, Art. 4 requires that the permanent capital of a foundation at the time of its registration be 10,000 Sk (330 USD). This amount must be increased to 100,000 Sk (3,330 USD) within six months. The foundation cannot draw from the permanent capital for its activities.

  Foundations must now register with the Ministry of Home Affairs (Art.11), previously foundations were only required to be registered at the district level. Articles 37 and 38 state that donors of more than 5,000 Sk (167 USD) cannot remain anonymous.