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Associations and foundations will queue up at the Registry Agency

Antonia Peeva
Antonia Peeva

The law envisages re-registration of the non-profit legal entities

The latest amendments in the Non-Profit Legal Entities Act (“the NPLEA”) bring significant change in the regime of associations and foundations, as they provide for that their incorporation and registration of circumstances shall be implemented by the Registry Agency, instead of as now – by the respective district court under the seat and address of the non-profit legal entity („NPLE“). The idea of the process of transferring of re-registration of NPLE is to follow the model of re-registration of the commercial companies, effective as of 2008. In this regard, a new Non-Profit Legal Entities Register (“the Register”) being an electronic data base, similar to the Commercial Register, shall be created, containing all circumstances subject to registration, and acts subject to announcement regarding the NPLE and the branches of foreign NPLE under the law. Under the new regime the scope of additional commercial activity and the names of the members of the managing board shall be also publicly announced in the Register in addition to the main circumstances describing the associations and foundations currently subject to registration in the registries of the district courts.

A novelty is that the status of the NPLE performing activities of public benefit will occur automatically as of the moment of their registration in the Register kept by the registry Agency. Thus, there is no longer a necessity for maintaining a second special register – the Central register of the NPLEs performing activities of public benefit kept by the Ministry of Justice, where currently these particular NPLEs are subject to secondary registration. As a consequence, the mandatory financial reports and the report on the activity of the NPLEs performing activities of public benefit will be announced only in the Register. The term for their announcement, as the term for announcement of the annual financial reports of the commercial companies, is until 30th of June of the year, following the year they refer to. The purpose is the transparency, accountability and control over these organizations which receive part of the funding from the state to be improved. In this regard, there is a specific liability of NPLE who fails to announce within the term its financial reports and the report on its activity. In such cases the law provides for the status of NPLE as performing activities of public benefit to be waived and the Registry agency ex officio to register the NPLE as association or foundation with “temporary suspended status of public benefit”. The persistent failure of this obligation on the other side is a ground for termination of the legal entity.

Due to the amendments in the NPLEA the current mandatory procedure for registration in Register BULSTAT will be no longer needed, as with the registration in the new Register, associations and foundations will receive a Unified Identification Code (UIC), similar as the UIC of the commercial companies. The BULSTAT number of the already incorporated associations and foundations after their re-registration will be considered as their UIC. Another significant amendment in the current legislation is the creation of a Civil Society Development Board to the Council of Ministers, whose activity shall be related with the support of the State in order to conduct policy for encouragement of the development of the civil society organizations and creation of conditions for promotion and financial support of civil initiatives as well as support and promotion of the NPLE performing activities of public benefit by the state through tax and other financial and economic relief. It shall however be pointed out that this support should be carried out in strict compliance with the rules for granting state aid.

An interesting fact is that these amendments were reached after analysing the implementation of NPLEA in the recent years, showing a number of deficiencies in the present legal framework. The particular issues are related to the current different treatment of the non-profit legal entities and the commercial companies. The practice shows that up to date, the registration of NPLE in the district courts is often times more expensive than the registration of the companies. Further, the registration of NPLE takes more than 10 times longer – approximately one month for the NPLE, against approximately 3 days for the commercial companies. There is no possibility for electronic submission and receipt of documents and records of NPLE. Although the court registries are open to public, the procedures for receiving of certificates and for searches are difficult. There is no publicly available information about NPLEs and their activities, which prejudice the control by the citizens and institutions, and which often leads to doubts about their transparency. Main criticism of the current regime is the lack of uniform templates and procedures that allows arbitrary interpretation and application of the NPLEA and leads to contradictory and inconsistent practice of the district courts.

The amendments in the NPLEA were adopted and promulgated in State Gazette in September 2016, however the latter will apply as of 1st of January 2018. During this time, the institutions should establish the necessary organization and the Registry Agency should develop the technical means for the smooth functioning of the new Register. All NPLEs and branches of foreign non-profit legal entities welded to the date of entry into force of the amendments will reserve their capacity and status of private or of public benefit. However, the NPLEs entered in the registers of the district court are obliged to file an application for their re-registration to the Registry Agency until 31st of December 2020, as the re-registration procedure will be free of charge. At this stage it remains unclear what will happen with the NPLEs which do not meet the statutory 3 year deadline for re-registration since the law does not explicitly set out such a case, as it was envisaged in 2008 for commercial companies. Following their model and analogy, it is possible to arrive to subsequent deletion of non-profit legal entities after the expiry of the term. The re-registration procedure, similarly to the procedure for re-registration of the commercial companies, shall be implemented based on an application and certificate of good standing, issued after 1st of January 2018, containing full details of the current registered circumstances and the BULSTAT code of the NPLE. Associations and foundations should also submit the registered effective Memorandum of incorporation of the NPLE certified by the registration court or by the legal representative. With the re-registration, the NPLE shall be registered in the Register kept by the Registry Agency with its current name. Here, however, we could face a case of matching names of commercial companies and NPLEs, as after the new amendments in the NPLEA both structures will be entered in registers kept by the Registry Agency, and such hypothesis and its settlement again is not provided by law.

To put it in a nutshell, the transfer of the registration of NPLEs at the Registry Agency at the Ministry of Justice will abolish the existing heavy and expensive procedures for registration of NPLEs in various institutions (district courts, BULSTAT and Central Registry for organizations in public benefit), it would help to align the practice of applying the NPLEA, and it is likely to provide greater transparency in the activities of associations and foundations. The ability to file documents electronically with an electronic signature at the Registry Agency (including applications for registration, change in circumstances and announcing of acts), and the increasing preference of this method by applicants, will improve access, will speed up the procedures and is likely to reduce significantly the queues at the Registry Agency.

The article has been published in Bulgarian, in Capital Daily.