Charitable foundation charter: what you need to know

Creating and operating a charitable foundation requires a well-crafted charter as one of the essential components. While you can find some free templates online, there's no assurance that they will, firstly, align with current legal regulations and, secondly, cater to your specific requirements.

If you wish to avoid income tax on all of the foundation's revenues, you will need to obtain nonprofit status. Therefore, the charter must adhere not only to the Law "On Charitable Activities" but also to tax laws governing nonprofit status.

What should be included in the charter of a charitable foundation?

1. Name. The naming process is relatively straightforward. However, it's essential to ensure that the chosen name doesn't overlap with the names of other organizations. Before proceeding with your documents, it's advisable to conduct a name check to prevent potential registration issues. Simpler names are generally less likely to be duplicated.

It's crucial to note that the name should consist of the organizational and legal form along with the specific name. In this context, the organizational and legal form is "charitable organization," and it should be explicitly stated as such. Avoid terms like "charitable fund," "international," or "national" unless they accurately describe your foundation.

2. Objectives and Areas of Charitable Activities. While you have some flexibility in wording this section, it's wise to align the language with legal requirements for smoother management of the documents.

The law specifies that the objectives should involve assisting to further the legitimate interests of beneficiaries (those who receive aid) in the specific areas of charitable activities defined by the law. The objective should also include support for the development and enhancement of these fields in the public interest. Keep this section concise and aligned with legal provisions. The law lists 15 areas of charitable activity in part 2 of article 3, which you can easily reference.

Management Structures: Composition, Authority, Operational Procedures, and Decision-Making 

The governing bodies of a charitable foundation consist of:

• General Assembly. This serves as the legislative body and holds the highest authority within the foundation.

• Executive Body. This can either be an individual (e.g., a director or president) or a collective body (e.g., a board or directorate). The person in charge, responsible for representing the organization in its interactions with other entities, institutions, and government authorities, is typically referred to as the executive. The name of this leader is recorded in the unified state register. In the case of a collective executive body, the leader is often the chairman of the board or the general director if it's a directorate.

• Supervisory Board. This functions as a supervisory collective body with substantial powers. For instance, the supervisory board has the authority to suspend the powers of any member of the executive body, including a sole leader, pending a final decision by the general assembly. However, establishing such a supervisory body is not mandatory if the foundation has fewer than ten members.

Procedure for Electing (Appointing) Members of Governing Bodies

There's some room for maneuver here. You can outline the process in a way that suits your preferences, but it's essential to align with key legal requirements. For instance, the executive body and the supervisory board are typically elected by the general assembly, but you have some flexibility in determining the quorum (the number of votes) needed to make these decisions. It could be as simple as half of the attendees or even a larger majority, like three-quarters. 

Procedure for Amending the Constituent Documents of the Charitable Organization

This might seem straightforward, but it's important to spell out the required quorum for voting on these amendments and whether the documents must be notarized or not.

Sources of Assets (Income), Control Procedures, and Reporting for a Charitable Organization

Here, we delve into the more intriguing aspects. The law governing charitable activities is somewhat vague in its regulation of this matter. It states that the use of income should not contradict the law or the goals of charitable activities.

However, tax legislation specifies the requirements for the provisions that must be included in the organization's charter to qualify as a nonprofit. These requirements encompass prohibitions against using income among members and the organization's leadership, as well as limitations on using income for purposes other than those outlined in the organization's charter.

This underscores the importance of predefining your objectives comprehensively and anticipating what you may need to finance throughout your activities.

Basis and Procedure for the Termination of a Charitable Organization, Including Asset Distribution Procedure

This is a challenging task that requires special attention. Your charter must comprehensively detail the grounds for termination, the quorum necessary for voting on this matter, and establish a prohibition on asset distribution among members. Instead, it should mandate the transfer of these assets to another nonprofit organization, as nonprofit status will not be granted otherwise.

Furthermore, the charter should also include:

• Rights and responsibilities of members.

• Terms and procedures for admitting new members.

• Conditions and procedures for their removal.

With these points covered, we have addressed the key requirements. Hopefully, this information has been valuable to you.

If you're seeking a swift and accessible registration process for a charitable foundation in Ukraine, don't hesitate to contact us!

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