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LAW ON NON-PROFIT ENTITIES AND CHARITABLE ACTIVITY

Baku, 13 November 1997

The following Law on Non-Profit Entities and Charitable Activity is passed to allow the citizens and residents of the Republic of Azerbaijan to enjoy the inalienable and internationally recognized freedom of association as well as the benefits of the non-profit activities.

CHAPTER I

NON-PROFIT JURIDICAL PERSONS IN GENERAL

1. General Provisions and Definitions

This Law shall govern the relations related to the founding, activities and dissolution of non-profit entities and charitable activity in the Republic of Azerbaijan. This Law does not apply to the political parties, religious organizations, labor unions and other non-profit entities ruled by the other specific Laws.

Non-profit Entity is an entity which does not pursue derivation of profit as the main goal of its activity, and does not distribute the derived profit among its members.

The Founders and Members of a Non-profit Entity may be Azerbaijani or non-Azerbaijani juridical and/or competent physical persons.

Non-profit Activity is the activity carried out individually or collectively by physical and/or juridical persons with or without registering a juridical entity without having profiting as a main purpose.

Collectively performed non-profit activity as such need not to be registered with the state authorities. The purpose of the registration is to create the new juridical person with resulting rights and obligations.

Participants of a joint non-profit activity have right to use common name, and to enjoy the freedom of assembly and other constitutional rights as well as to carry out in separate or collectively all activities not prohibited by the legislation. All participants of the non-profit activity acting without registering a juridical person, shall carry out solidary liability for the damage caused by their action.

Present Law does not regulate non-profit activity carried out individually or collectively by physical persons not through a registered juridical person, other than in the provisions presented in this Article of the Law.

Further in this Law "Non-profit entity" will be called "Entities".

2. Registration in General

A non-profit entity shall be a juridical person, if organized as an association or foundation.

The juridical person of an entity shall come into existence on its entry on the registry for non-profit entities with the Region Court if for associations, and with the Baku court if for foundations. The registers are kept by courts of registration separate for associations and for foundations.

All actions taken by the founders in the name of the entity before the day of the entry in the registry shall give rise to rights and obligations for the persons who took such actions, and shall pass by the operation of Law into the newly formed entity. In making the transactions, notice shall be given stating that the entity is in the process of formation. The persons who made the transactions shall be solidarily liable for the damages incurred.

3. Entry to the Register

Application for registration should be made in person or by registered mail at the court proper for the legal address intended.

The documents required for the registration shall be as described in the relevant Articles in Chapter on Association and Chapter on Foundation respectively. No other document shall be requested as condition for registration by the court.

Upon presentation or receival of the documents in the regional court a written receipt shall be handed over to the applicant or the notarially empowered representative acknowledging the date of the handing over of the documents as well as list of the documents received.

4. Refusal to Enter in Register

The court in question will register the entity within 10 days after receiving the application.

If court has decided to refuse to register the non-profit entity, the decision should include the written reasons as well as the specific description of the alteration in the documentation that would made the registration possible. Such decision shall be made within ten days after receing the application. This shall be included in the registration records and copy shall be made available to the applicant in person, or at his written request, sent by registered mail.

Within ten days from the receiving of the negative decision as documented by the registered mail or by the signature in the court’s book of records, the applicant may appeal the decision to the upper court. The court has to issue the decision within one month.

If the decision of the court is upheld by the upper court, the applicant may reapply for registration at the proper regional court following the alterations entailed in the original court’s decision.

If alterations listed in the court’s decision not to register are followed within 2 years since the decision had been received by the applicant, the non-profit entity shall be registered by the court. Refusal to do so shall be appealed to the upper court which has to make the decision within 10 days.

If a decision has not been made available to the applicant within one month after the application was registered, the applicant is empowered by this Law to enjoy the rights of juridical persons. In case of doubt, the court where application for registration had been filed in, has the duty to prove in written that the refusal had been issued. The resulting damages shall be covered by the State and the official personally liable.

5. Identity

The non-profit entity shall have its name spelled out in Azerbaijanian. In addition, the name may be spelled out in foreign language.

If a juridical person of the same kind and from the same settlement takes name identical with the name of a registered entity, the entity shall he the right to demand termination of the use of its name.

6. The Legal Address

The legal address of an entity shall be the actual location of its board or management board as its seat.

7. Written Statements

Every written statement in the name of an entity shall indicate its name, location and address, as well as the location of the court where he entity is registered,and its number of registration.

8. Branch

All entities registered under this Law shall be permitted to open the local branches.

The manager of the branch shall represent the entity for the branch’s activity.

9. External Representation

An entity shall be represented by its managing body, that is a board of an association or the management board of a foundation.

10. Liability For Submission Of Incorrect Information

If the legal representative of an entuty submits incorrect information to the register, the members of the board of an association or of management board of a foundation are solidarily liable for any damage caused thereby.

11. Participation of Juridical Persons-members in the Internal Management of the Entity

The juridical person shall participate in work of managing bodies of an entity through its representatives or a person authorized by them.

12. Transformation

Entities may transform into entities of the same type, as well as merge, consolidate, spin-off or divide.

An entity shall not be allowed to transform into an entity which is not a non-profit entity.

After a spin-off or division, the resulting entities shall be jointly and severally liable for the obligations taken before their conversion.

13. Bankruptcy

The bankruptcy procedure shall commence for an insolvent entity.

For the bankruptcy procedure of a non-profit entity the Law on Commerce’s regulations shall apply respectively.

14. Dissolution

An entity shall be dissolved upon any one of the following:

- expiration of its term

- decision by its supreme body;

- declaration of bankruptcy;

- decision of the Court where it is registered, when:

15. Activities

Non-profit entity may implement one or several types of activity which is not prohibited by legislation of the Republic of Azerbaijan and complies with the goals of the entity as provided by its foundation documents. Limitation to these activities can be made by legislation only. Non-profit entities have the right to express the opinion on public matters.

A non-profit entity may engage in entrepreneurial activity, as long as this activity facilitates the achievement of goals for which it had been created. Such activity may involve for- profit manufacturing of goods and rendering services which comply with the goals of non-profit entity, property and non-property rights, participation in business companies, and participation in limited partnerships in the capacity of an investor. The limitations on entrepreneurial activity of non-profit entities of certain types may be established by legislation only.

A non-profit entity shall set up the separate account for revenues and expenses of the entrepreneurial activity.

For the purposes of achievement of goals provided by the statute or charter, a non-profit entity may establish other separate or joint non-profit entities.

16. Assets

A non-profit entity may own or exercise operational management of buildings, constructions, housing fund, equipment, inventory, funds in national and foreign currency, securities and other assets. The non-profit entities may own or use land plots on a termless basis.

Non-profit entity shall be liable on its obligations with all its assets which may be collected pursuant to the legislation of the Republic of Azerbaijan.

The assets of a non-profit entity in monetary and other forms may be formed from the following sources:

(a) regular and single-time contributions from founder(s) or members;

(b) voluntary assets contributions and donations;

(c) proceeds from selling of goods, services and works;

(d) dividends (income, proceeds) received on shares, bonds and other securities and deposits;

(e)revenues derived from the assets of the non-profit entities;

(f)other proceeds which are not prohibited by Law.

Restrictions to the sources of revenue of certain types of non-profit entities may be established by legislation only.

17. Conflict of Interest

For the purpose of this Law, the head of a non-profit entity (or his or her deputy), or a member of managerial organs or supervisory organs of the non-profit entity shall be recognized as the persons interested in implementation of certain actions by the non-profit entity, including transactions with other physical or legal persons (hereinafter referred to as interested persons), provided that these persons maintain labor relations with these entities, or they are members or creditors of these entities, or they are blood relatives or creditors of these individuals. In such instances, the specified entities or individuals are suppliers of goods (services) for the non-profit entities, or they are bulk consumers of goods (services) manufactured on a for-profit basis, or they own the assets which had been formed by the non-profit entity in full or in part, or they may derive the profit from the use and disposal of the assets of the non-profit entity.

The interest in the exercise of certain actions by the non-profit entity, including exercise of transactions, shall entail the conflict of interest of the interested persons and the non-profit entity.

The interested persons must observe the interests of the on-profit entity, first of all concerning the goals of its activity, and must not use the facilities of the non-profit entity, or allow the use of such facilities for any purposes other than those provided by the foundation documents of the non-profit entity.

For the purposes of this Article, the term "facilities of the non-profit entity" means the assets of the non-profit entity, its property and non-property rights, its entrepreneurial facilities, valuable information on its activity and plans.

Should the interested person have an interest in the transaction, in which the non-profit entity is a party to, or should any other conflict of interest between this person and the non-profit entity arise in respect of this transaction:

this person must inform a managerial or supervisory body of this non-profit entity of his(her) interest, prior to approval of the decision of entry into the transaction.

The transaction in question must be then approved by the managerial or supervisory body of the non-profit entity.

Should there be an interest in a transaction, and should this transaction be entered into with the violation of the requirements of this Article, such transaction may be invalidated by court.

An interested person shall be liable for indemnification of all losses inflicted to this non-profit entity. Should there losses be inflicted by several interested persons, they shall bear joint and several liability to this non-profit entity.

18. Management

The structure, competence, procedure of formation and the term of powers of managerial bodies of the non-profit entity, and the procedure of adoption of decisions and representation of the non-profit entity shall be established by the foundation documents of the non-profit entity, in compliance with this Law and other Laws.

19. Transparency

A non-profit entity shall keep accounting and statistical reports in compliance with the procedure established by the legislation of the Republic of Azerbaijan.

A non-profit entity shall provide information on its activity to the state statistics and taxation agencies, founders and other persons, in compliance with the legislation of the Republic of Azerbaijan, and its own statutes and charter.

The amount and the structure of revenue of a non-profit entity, and the information on the amount and the composition of the assets of the non-profit entity, its expenses, number and composition personnel, the compensation, the use of gratuitous work of citizens in the activity of the non-profit entity may not constitute a commercial secret.

CHAPTER II

ASSOCIATIONS

1. Definition

An association is composed voluntarily by at least three physical persons with active legal capacity or by at least two juridical persons who had decided to act jointly as the juridical person for a non-profit goal.

2. Resolution to Associate

In order to register the founding members should meet in order to make the resolution to associate, agree as to the charter of the association and to elect the temporary board of the association composed of at least two physical persons empowered to deal with the authorities until the registration procedure is accomplished.

3. Entry to Register

The following documents should be presented to the regional court when applying for registration as the juridical person:

- the founding resolution of association made at the founding meeting;

- the statute as accepted at the founding meeting;

- minutes of the founding meeting signed by all the participants;

- list of the founding members with their names, surnames and addresses pointing out the two persons empowered;

- list of the temporary board of the association empowered to deal with the authorities until the registration is accomplished.

4. Statute

The statute should include:

(a) the name of the association, its seat, and its goals;

(b) list of the offices of the association, its rights and duties and the rules of election;

(c) rights and duties of members;

(d) the rules of becoming and ceasing to be a member;

(e) the rules for dissolution of association and liquidation of its assets;

(f) the rules of convening and of running of the general assembly.

Regional court that registered the association should be notified by the authorities of association in written within 10 days about the changes in the aforementioned (a) - (f). The court shall also be informed within 10 days in written about the names and addresses of the officers elected to represent the association.

The statute may include also other matters deemed important by the members.

5. Internal Governing

The supreme power in an association resides with the general assembly that is composed of all members, or in case of membership exceeding 100 members by the delegates elected by secret ballot by the members. General assembly should meet at least once a year and the members should be informed about its date and order at least two weeks in advance. The meeting is convened by the president of the board of the association or its substitute either on initiative of the president, or the board, or of the at least one-third of the members as expressed in the signed demand. The assembly is presided by a member elected from amongst those present who does not serve as an officer of the association Its minutes should be made in written

An association shall also have the board of officers whose duty is to manage the association between the meetings of the general assembly. The board shall be elected from amongst its members by secret ballot and responsible before the members in the manner prescribed by the law and the statute. The board may have one member (president) or several members. The minimal and maximum number of members of the board shall be prescribed by the statute. If there are several members of the board, the board should have the president elected either by the board or by the general asembly or its delegates in the manner specified by the statute. Members of the board must be physical persons with active legal capacity. At least one-half of the members of the board should be residents of the Republic of Azerbaijan. The statute should specify who of the members of the board has the right to represent the association in all legal acts.

An association may have other bodies as well if prescribed by its statute.

The changes in the statute can be made by the general assembly only. For this purpose, the majority voice made in presence of the majority of members (delegates) present is necessary.

Elected officers of the association may not be paid remuneration for exercise of their functions, except the indemnification of expenses, directly related to the participation of the higher managerial body.

6. Liability of Members of the Board

The members of the board are solidarily liable for damage wrongfully caused to the foundation by violation of the requirements of Law or of the charter, or by failure to perform their duties or by failure to perform their duties in the manner required.

Members of board who wrongfully cause damage to creditors of the association due to failure to perform their duties or by failure to perform their duties in the manner required are solidarily liable with the association to the creditors.

The limitation period for assertion of a claim against a member of the board is five years from the occurrence of a violation or from the commencement of the violation.

A member of the board shall be released from liability to the association if he or she maintained a dissenting opinion in the adoption of a resolution which was the basis for an illegal activity, and the dissenting opinion is entered in the minutes.

7. Board Meeting

Meetings of the board shall be held as necessary but at least once a year. Meetings shall be called by the chairman of the board or by a member of the board substituting for the chairman.

Meetings of the board have a quorum if over one half of the members are present. The statute may prescribe a greater representation requirement.

A meeting of the board shall be called if this is demanded by a member of the board or an auditor.

Minutes in writing shall be taken of all meetings of the board. The minutes shall be signed by the chairman of the board or by the member of the board substituting for the chairman, and the secretary unless the charter provides that the minutes must be signed by all members of the board who participate in the meeting.The dissenting opinion of a member of the board shall be entered in the minutes, which shall be confirmed by his or her signature.

Resolutions of the board are adopted if over one-half of the members who participate in the meeting vote in favor. Statute may prescribe a greater majority requirement

Each member of the board has one vote. A member of the does not have the right to abstain from voting or remain undecided.

A member of the board shall not participate in voting if approval of entry in a transaction between the member and the association is being decided, or if approval of entry into a transaction between a third person and the association is being decided if the interests of the member of the board arising from such transaction are in conflict with the interests of the association.

8. Entrepreneurial Activity and Auditing

The decision as to engage into the entrepreneurial activity in pursuit of the statutory goals of the association should be accepted by the majority of members of the general assembly.

If such decision has been made, the association shall have its auditor nominated by the board, who shall inform the registering court. The court may also oblige an association not leading the entrepreneurial activity to have the auditor of its own.

Members of the board or employees of the association, or persons with the equivalent economic interest shall not be an auditor.

The board may request that conduct of a special audit on matters regarding the management or financial status of an association be decided and that an auditor for the special audit be appointed by a court, who also determines the procedure for remuneration. Such special audit will be ordered by the court only for a good reason. On the basis of the results of a special audit, a court shall decide whether and which measures must be applied to bring the activities of the association into compliance with the objectives of the association.

9. Rights and Duties of Members

All members of an association shall have equal vote. Association may also have honorary members if the statute provides so.

The annual report on the entrepreneurial activity prepared by the board of the association shall be made available at least one week prior to the general assembly to all members, who should have the permanent right to access to the books as well as to the oother documents of the association..

A member of an association can apply to the court for action against the association if his (her) legal and statutory rights had been trespassed by officers or other members of the association. For this action his (her) rights of membership cannot be curtailed.

The statute of an association may grant other rights to the members.

Members of an association have a duty to abide by decisions taken in accordance with the law and statutes. Statute may provide for sanctions against the failure to abide. In such case a fair and impartial procedure should be provided by the statute.

CHAPTER III

FOUNDATIONS

1. Definition

A foundation is a juridical person which has no members and which is established to administer and use assets to achieve the goals specified in the founding charter.

The passive legal capacity of a foundation commences as of entry in the foundations register and terminates as of deletion from the register.

Transformation of a foundation into a legal person of a different class is prohibited.

2. Restrictions On the Activity

Restriction on the economic activities of foundations may be provided only by Law.

A foundation shall not grant loans or secure the loans of founders or members of the management board or supervisory board of the foundation, or of persons with an equivalent economic interest, unless otherwise provided by Law.

A foundation may use its income only to achieve the objectives specified in its articles of association.

A foundation shall not be a partner of a general partnership or a general partner of a limited partnership or manage a general partnership or limited partnership.

3. Founding a Foundation

A foundation is founded by one or several founders for an unspecified term, until stated objectives are achieved, or for a specified term.

The founders of a foundation may be physical persons with active juridical personality, or juridical persons.

A foundation may be founded on the basis of a free will. If a foundation is founded by several founders, they may only exercise the rights of founders jointly unless the foundation charter prescribes otherwise.

The right of a founder shall not be transferred to a legal successor of the founder. A person who transfers assets to a foundation after it is founded does not acquire the legal status of a founder.

4. A Founding Resolution

A foundation is founded by a resolution which shall set out:

- the name, location and address of the foundation. The name of a foundation shall contain the appendage "foundation";

- the names and addresses of the founders;

- the sum of money or other assets, and their value, to be transferred to the foundation by the founders.

A foundation resolution shall also approve the charter of the foundation and appoint the members of the management board of the foundation.

If foundation resolution does not appoint the members of the supervisory board of the foundation, it is understood by Law that the supervision remains in hands of the public authority.

All founders shall sign a foundation resolution confirmed by a notarius. A representative of a founder may sign if the proxy granted to the representative thereof is notarised.

5. Founding Based On Notarial Approval of the Will

A foundation may be founded on basis of a notarised will which must contain a foundation resolution in accordance with the previous Article 4 of the Law.

If a will does not designate an executor of the will who must ensure the entry of the foundation to the register the court shall designate an administrator therefor who has the rights and obligations of an executor of a will.

If a foundation resolution contained in a will does not comply with the requirements provided for in Article 4 of this Chapter of the Law, the executor or administrator of a will, may, if necessary, appoint the members of the management board and supervisory board of the foundation and determine the conditions of the foundation resolution and the charter which are not determined by the will.

Until the appointment of the management board and supervisory board, an executor or administrator of the will has the right to exercise rights arising from the foundation resolution and to administer transferred assets pursuant to the charter of the foundation.

The executor or administrator of a will has the right to demand reimbursement of necessary expenses incurred in the performance of his or her tasks and remuneration for the performance of tasks, the amount of which shall be determined by a court.

The authority of the executor or administrator of a will terminates upon entry of the foundation in the register or if entry in the register is no longer possible.

6. The Charter Of a Foundation

The charter of a foundation shall be in writing. The charter should set out:

- the name of the foundation;

- the location of the foundation;

- the goals of the foundation;

- the procedure for transfer of assets to the foundation;

- the set of beneficiaries, except if all persons who are entitled to receive disbursements pursuant to the objectives of the foundation are beneficiaries;

- the term of the foundation if it is founded for a specified term;

- the distribution of assets of the foundation upon dissolution of the foundation;

- the procedure for appointment and removal of members of the supervisory board and their term of office;

- the procedure for appointment and removal of auditors and their term of office;

- the procedure for amendment of the charter;

- whether and under what condition the founders have the right to dissolve the foundation;

- the procedure for remuneration of the members of the management board and supervisory board;

- the procedure for use and disposal of the assets;

- other conditions provided by Law.

The charter may also prescribe other conditions which are not contrary to Law. If a provision of the charter is contrary to a provision of Law, the provision of Law applies.

7. Beneficiary

A beneficiary is a person to whom disbursements from the assets of the foundation may be made pursuant to the charter of the foundation. If a set of beneficiaries is not determined by the charter, all persons who are entitled to receive disbursements pursuant to the objectives of the foundation shall be deemed to be beneficiaries.

8. Name of Foundation

Upon founding of a foundation, the founders shall use the proposed name of the foundation together with the appendage "in foundation" in order to operate in the name of the foundation.

If an immovable or a movable subject to the registration is transferred to a foundation which is being founded , the foundation being founded shall be entered in the registers under the name and appendage as specified above.

In order to transfer money to a foundation, the founders shall open a bank account in the name of the foundation being founded using the name and the appendage as specified above, which may be disposed of in the name of the foundation after entry of the foundation in the register.

If a foundation is not entered in the register, movables entered in the appropriate register in the name of the foundation, and bank accounts opened in the name of the foundation may be disposed of only pursuant to procedure specified by a court order. A court shall issue in writing an order on the basis of an application of a founder or other interested person. The application shall set out the reason for failure to found, the persons who have made contributions, the amounts of the contributions and who has made contributions to what extent.

9. Entry To the Register

In order to enter a foundation in the register, the management board of the foundation shall submit an application which sets out the information specified in Article 12 of this Chapter of the Law and is signed by all members of the management board. The following shall be appended to the application:

the foundation resolution;

- the charter;

- a bank notice concerning the money transferred to the foundation;

- the names and addresses of the members of the management board;

- notarised specimen signatures of the members of the management board;

- telecommunications numbers;

- other documents provided by Law.

Any other application submitted to the register shall be signed by a member of the management board. If the members of the management board are only entitled to represent the foundation jointly, all members of the management board entitled to represent the foundation jointly shall sign the application.

Transfers of assets to a foundation shall be certified by the members of the management board by their signatures. If an immovable or a movable object to registration is transferred, an extract from the appropriate register shall be appended to the application.

10. Refusal To Enter In Register

A registering court shall not enter a foundation in the register if its foundation resolution, charter or other documents do not comply with the requirements of this Law. Upon rejection of an application, the registrar shall indicate in writing the reason for rejection as well as the remedies which if brought in the applicant(s) would result in the entering of the foundation. This notice of refusal shall be issued in one month after the application was registered.

Once the reasons for the refusal are remedied as indicated in the notice of refusal, the registering court shall enter the foundation in the register. The refusal can be appealed within ten days, and the appeal shall be decided by the respective court within the month since registering the appeal.

12. Register

The following information shall be entered in the register of foundations:

- the name of the foundation;

- the location and the address of the foundation;

- the date of the adoption of the foundation resolution;

- the goals of the foundation;

- the term, if the foundation has a specified term;

- the names and addresses of the members of the management board;

- the specification for the right of representation of the management board pursuant to the Article 16 of this chapter of the Law;

- other information provided by the Law.

Upon a change in the information entered in the register, the management board shall submit within ten days an application for entry of the change in the register.

13. Transaction Entered Into Before Entry In Register

Persons who enter into transactions in the name of a foundation being founded before entry of the foundation in the register are solidarily liable for performance of the obligations arising from the transactions;

The above obligations transfer to the foundation as of entry in the register if the persons who entered into the transaction had the right to enter into the transaction.

If a person did not have the right to enter into a transaction, the obligations arising from the transaction transfer to the foundation if the supervisory board approves the transaction.

14. Management Board

A foundation shall have a management board which manages and represents the foundation. The management board may consist of one or several members.

Members of the management board shall be the physical persons with active legal capacity.

The residence of at least one half of the members of the management board shall be in Azerbaijan.

If the management board has more than two members, the members of the management board shall elect a chairman from among themselves, who shall organize the activities of the management board.

If the charter determines a set of beneficiaries, the beneficiaries or persons with equivalent economic interest shall be prohibited from being members of the management board.

A member of the management board or a bankrupt shall not be a member of the management board. The charter may prescribe other persons who cannot be members of the management board.

In managing a foundation, the management board shall adhere to the Lawful orders of the supervisory board. Transactions which are beyond the scope of everyday economic activities may only be entered into by the management board with the consent of the supervisory board.

The management board shall present in writing an overview of the economic activities and financial status of the foundation to the supervisory board at least once every four months and shall immediately give notice of any material deterioration of the financial status of the foundation or of any other material circumstances related to the economic activities of the foundation.

15. Right Of Representation Of Management Board

Every member of the management board has the right to represent the foundation in all legal acts.

The charter may prescribe that all or some of the members of the management board may represent the foundation only jointly. Such restriction applies with regard to third persons only if it is entered in the register.

The right of the management board to represent the foundation may be restricted by the articles of association or by a resolution of the supervisory board. A restriction on the right of representation does not apply with regard to third persons.

16. Members Appointment, Substitution And Removal Of Members From the Management Board

The members of the management board shall be appointed by the foundation resolution.

Changes to the membership of the management board and removal of members of the management board shall be decided by the supervisory board.

Members of the management board shall not transfer performance of their duties to a third person unless this is prescribed by the charter or a resolution of the supervisory board.

The management board shall provide the members of the supervisory board with necessary information concerning management of the foundation and present corresponding report at their request unless the charter prescribe otherwise.

With good reason, which above all is the temporary or extended inability of a member of the management board to perform his or her duties, the registering court may appoint a new member of the management board to replace a withdrawn member of the management board at the request of the supervisory board or an interested person. The authority of a court-appointed member of the management board continues until the appointment of a the member of the management board by the supervisory board.

The supervisory board may remove a member of the management board at any time regardless of the reason. Rights and obligations arising from contracts entered into with him or her terminate pursuant to the contracts.

The charter may prescribe that a member of the management board may be removed only with good reason which is above all failure to perform his or her duties to a material extent or inability to manage the foundation.

17. Remuneration And Reimbursement Of Expenses Of Members Of Management Board

Remuneration corresponding to the tasks of a member of the management board and to the financial status of the foundation may be paid to members of the management board unless the charter prescribe otherwise.

The amount and procedure for payment of remuneration shall be determined by the supervisory board.

Members of the management board have the right to demand reimbursement of necessary expenses incurred in the performance of tasks unless the charter prescribed otherwise.

18. Liability Of Members Of the Management Board

The members of the management board are solidarily liable for damage wrongfully caused to the foundation by violation of the requirements of Law or the charter, or by failure to perform their duties in the manner required.

Members of the management board who wrongfully cause damage to creditors of the foundation by failure to perform their duties in the manner required are solidarily liable with the foundation to the creditors.

The limitation period for assertion of a claim against a member of the management board is five years from the occurrence of the violation or from the commencement of the violation.

19. Competence Of Supervisory Board

The consent of the supervisory board is required for the management board to enter into transactions which are beyond the scope of everyday economic activities, in particular to enter into transactions which result in:

(a) the acquisition or termination of participation in commercial undertakings;

(b) the transfer or encumbrance with a real right of immovable and movables entered in the register.

The charter may prescribe that the consent of the supervisory board is not required into the transactions specified above or is only required in the cases specified in the charter; the charter may also prescribe other transactions for entry into which the consent of the supervisory board is required.

The restrictions specified above do not apply to the third persons.

The consent of the supervisory board as described above is not required for entry into a transaction if a delay in entry into the transaction would bring about significant damage to the foundation.

In order to perform its tasks, the supervisory board has the right to examine all documents of the foundation and to audit the accuracy of accounting, the existence of the assets and the compliance of the activities of the foundation with the Law and the charter.

The supervisor board has the right to obtain information concerning the activities of the foundation from the management board and to demand an activity report and preparation of a balance sheet from the management board.

The supervisory board shall represent the foundation in disputes and upon the entry into transactions with members of the management board.

The supervisory board also has other rights provided by this Law.

20. Nomination, Substitution, And Removal Of Members Of Supervisory Board

The supervisory board shall have three members unless the charter provide for a greater number. members must be physical persons with active legal capacity.

Members of the management board or auditors or persons with an equivalent economic interest, or bankrupts shall not be members of the supervisory board. The charter may prescribe other persons who cannot be members of the supervisory board.

The members of the supervisory board shall elect among themselves a chairman, who shall organize the activities of the supervisory board.

The management board shall submit a list of the members of the supervisory board to the register. Upon a change of the membership, the management board shall submit a new list of members of the supervisory board to the register within ten days.

The procedure for app9ointment and removal of members of the supervisory board shall be provided by the charter.

If the members of the supervisory board as prescribed by the Law or charter do not exist, the registering court shall appoint them at the request of an interested person or on its own initiative.

A court shall remove a member of the supervisory board at request of an interested person or on its own initiative if this is prescribed by the charter or with other good reason, which is above all its failure to perform duties to a material extent, inability to participate in the work of the supervisory board or significant damaging of the interests of the foundation in any other manner, or upon the commencement of bankruptcy proceedings against the member of the supervisory board.

During the proceeding specified above, a court may issue necessary orders for the management of the foundation and suspend the authority of the member of the supervisory board for the duration of the proceedings.

A member of a supervisory board removed by a court shall not be a member of the management board or supervisory board of any foundation for five years after removal.

21. Meeting Of Supervisory Board

Meetings of the supervisory board shall be held as necessary but at least once a year. Meetings shall be called by the chairman of the supervisory board or by a member of the supervisory board substituting for the chairman.

Meetings of the supervisory board have a quorum if over one half of the members are present. The charter may prescribe a greater representation requirement.

A meeting of the supervisory board shall be called if this is demanded by a member of the supervisory board, the management board or an auditor.

Minutes in writing shall be taken of all meetings of the supervisory board. The minutes shall be signed by the chairman of the supervisory board or by the member of the supervisory board substituting for the chairman, and the secretary unless the charter provides that the minutes must be signed by all members of the supervisory board who participate in the meeting.The dissenting opinion of a member of the supervisory board shall be entered in the minutes, which shall be confirmed by his or her signature.

Resolutions of the supervisory board are adopted if over one-half of the members who participate in the meeting vote in favor. Charter may prescribe a greater majority requirement.

A supervisory board may adopt a resolution without calling a meeting if all the members of the supervisory board vote in favor of the resolution in writing unless it is prohibited by the charter.

Each member of the supervisory board has one vote. A member of the supervisory board does not have the right to abstain from voting or remain undecided.

A member of the supervisory board shall not participate in voting if approval of entry into a transaction between the member and the foundation is being decided, or if approval of entry into a transaction between a third person and the foundation is being decided if the interests of the member of the supervisory board arising from such transaction are in conflict with the interests of the foundation.

22. Remuneration of Members of Supervisory Board

Remuneration corresponding to the tasks of a member of the supervisory board and to the financial status of the foundation may be paid to members of the supervisory board unless the charter prescribe otherwise.

23. Liability of Member of Supervisory Board

The members of the supervisory board are solidarily liable for damage wrongfully caused to the foundation by violation of the requirements of Law or of the charter, or by failure to perform their duties or by failure to perform their duties in the manner required.

Members of supervisory board who wrongfully cause damage to creditors of the foundation by failure to perform their duties or by failure to perform their duties in the manner required are solidarily liable with the foundation to the creditors.

The limitation period for assertion of a claim against a member of the supervisory board is five years from the occurrence of a violation or from the commencement of the violation.

A member of the supervisory board shall be released from liability to the foundation if he or she maintained a dissenting opinion in the adoption of a resolution which was the basis for an illegal activity, and the dissenting opinion is entered in the minutes.

24. Annual Report

After the end of a financial year, the management board shall prepare the annual accounts in accordance with the Law and activity report pursuant to the procedure provided by the Law.

The management board shall submit the reports for approval to the supervisory board not later than four months after the end of the financial year. Before submission of the reports for approval to the supervisory board, the management board shall forward the reports to the auditor for audit.

Approved annual reports shall be signed by all members of the management board.

The management board shall submit approved annual reports to the register within six months after the end of a financial year.

25. Auditing

A foundation shall have the auditor. The number of auditors and the auditors shall be appointed by the supervisory board, which shall also specify the procedure for the remuneration of the auditors.

Members of the management board or supervisory board or employees of the foundation or beneficiaries, or persons with the equivalent economic interest shall not be an auditor.

The management board shall submit the list of auditors to the register.

The management board or supervisory board of a foundation or a member of the management board or supervisory board or other interested person may request that conduct of a special audit on matters regarding the management or financial status of a foundation be decided and that an auditor for the special audit be appointed by a court, who also determines the procedure for remuneration. Such special audit will be ordered by the court only for a good reason. On the basis of the results of a special audit, a court shall decide whether and which measures must be applied to bring the activities of the foundation into compliance with the objectives of the foundation.

26. Transparency

A beneficiary or other person with a legitimate interest may demand information from a foundation concerning the fulfillment of the goals as determined by its charter. The beneficiary or other person with a legitimate interest may examine the annual accounts and the activity report of the management board, accounting documents and the charter.

This right belongs to all interested persons if a set of beneficiaries is not determined by the charter of a foundation.

If a foundation does not comply with the demand for access to the documents mentioned above, an entitled person may demand exercise of its rights by a court proceeding.

27. Amendment of Charter Before Entry Into Register

Until a foundation is entered in the register, the founder may annul or amend the foundation resolution or amend the charter. If there are more than one founders, this could be done only jointly by all of them. If one of several founders is withdrawn for whatever reasons, the other founders shall not annul the foundation resolution. The foundation resolution and the charter may be amended only in accordance with the goals of the foundation. If all founders are withdrawn, the management board may amend the foundation resolution or charter in accordance with the objectives of the foundation in order to eliminate the impediments or take into account changed circumstances.

28. Amendment of Charter after Entry In Register

A founder or the supervisory board may amend the charter only in order to take into account changed circumstances in accordance with the goals of the foundation. Amendment may be made only with the permission of a court. This permission shall be decided within two month from the application filed in the court.

If a foundation has several founders, all founders may amend the charter only jointly. The supervisory board may amend the charter only if (a) all founders are withdrawn; (b) the founders fail to agree on amendment of the charter; or (c) this right is explicitly granted to the supervisory board by the charter.

If the charter of a foundation must be amended due to changed circumstances, but persons entitled to amend the charter fail to do so, a court may decide ion amendment of the charter at the request of a founder, the supervisory board or an interested person.

The amendments shall be immediately entered into register and since then are effective.

CHAPTER IV

DISSOLUTION OF NON-PROFIT ENTITIES

1. Dissolution General

An non-profit entity may be dissolved:

(a) by a resolution of the general assembly of the association (supervisory board of the foundation);

(b) by a resolution of the founders of a foundation, if this right is prescribed for the founders in the charter;

(c) if the goals of the foundation are achieved;

(d) due to the expiry of the term if the foundation has a specified term;

(e)on another basis prescribed by Law, statute of an association, or the charter of a foundation.

2. Voluntary Disolution

The general assembly (supervisory board) may decide the dissolution of the entity only in the cases prescribed in the statute (charter). A resolution must be adopted unanimously by all members of the supervisory board, or by majority of more than two-thirds of members of the general assembly of the association, unless the statute of an association provides for greater majority.

3. Procedure of Voluntary Dissolution

The board (management board) shall submit a bankruptcy petition if it becomes evident that the entity has less assets than assumed obligations. The members of the management board at fault are slidarily liable for damage caused to the foundation or to third persons by failure to submit a petition or by delay in submission of a petition.

4. Involuntary Dissolution

An entity is dissolved by a court order at the request of the Minister of Internal Affairs or another interested person if:

(a)the goals or activities of the entity are contrary to Law or the constitutional order;

(b)the activities of the entity do not comply with the goals set out in the statute (charter);

(c)the assets of the foundation are clearly insufficient for the achievement of its goals, and acquisition of its goals in the immediate future is unlikely;

(d)the supervisory board of the foundation does not adopt a dissolution resolution in the cases prescribed in the charter, or the management board does not submit an application for dissolution prescribed by Law.

A court may set a reasonable deadline for elimination of deficiencies.

5. Application for Dissolution

Upon dissolution of a foundation, the management board shall submit an application for entry of the dissolution in the register. Upon compulsory dissolution, bankruptcy or termination of bankruptcy proceedings, a corresponding entry shall be made pursuant to a court order.

If a resolution of the supervisory board is the basis for dissolution, it shall be appended to the application.

A court which issues a bankruptcy order shall notify the registering court of the declaration of bankruptcy of the foundation and of the termination of bankruptcy proceedings. bankruptcy entry shall contain the name and address of the trustee in bankruptcy.

6. Liquidation and Liquidators

An entity is liquidated upon dissolution unless otherwise provided by Law. In liquidation proceedings, the notation "in liquidation" shall be appended to the name of the foundation.

The liquidators of an entity are the members of the board (management board unless the statute (charter) prescribe otherwise. Upon compulsory dissolution, a court shall appoint the liquidators, and shall specify the procedure for and amount of remuneration for the liquidators.

Liquidators must be physical persons with active legal capacity. The residence of at least one-half of the liquidators must be in Azerbaijan.

A court may remove a liquidator with good reason at the request of a founder of the foundation, another liquidator or other interested person, or on the court’s own initiative. In such case, the court shall appoint a new liquidator.

A management board shall submit an application for entry of the liquidators in the register or the court will decide it,

The names and addresses of the liquidators shall be entered in the register.

Liquidators have the rights and obligations of the management board and supervisory board which are not contrary to the objective of the liquidation.

7. Activities of Liquidators

Liquidator terminate the activities of the entity, collect debts, sell assets, satisfy the claims of creditors and distribute the assets remaining after satisfaction of the claims of creditors among entitled persons.

Liquidators need not sell assets unless this is necessary for satisfaction of the claims of creditors or for distribution of remaining asserts among the entitled persons.

Liquidators may only enter into transactions which are necessary for liquidation of the entity.

If an entity has several liquidators, they only have the right to repre4sent the entity jointly unless the charter or the resolution on appointment of the liquidators prescribe otjherwise. Such restrictions applies with regard to third persons only if it is entered in the register.

The liquidators may authorize one or several among themselves to perform particular transactions or activities.

Liquidators shall promptly publish a notice of liquidation proceeding of an entity in a national newspaper and shall notice of liquidation to the known creditors..

If liquidators do not perform their duties or distribute assets of an entity before satisfaction of all claims of creditors or the deposit of money, the liquidators at fault are solidarily liable for damage caused to the creditors.

8. Submission of Claims

Creditors shall notify liquidators of all their claims against an entity within one month after publication of the last notice of liquidation. A notice shall set out the content, basis and amount of the claim, and documents substantiating the claim shall be appended thereto.

If a known creditor does not submit a claim, the money belonging to the creditor shall be deposited.

If the due date for satisfaction of the claim of a creditor has not arrived or the creditor does not accept satisfaction, the money belonging to the creditor shall be deposited.

If the assets of a foundation being liquidated are insufficient for satisfaction of all claims of creditors, the liquidators shall submit a bankruptcy petition.

9. Distribution of Assets

After satisfaction of all claims of creditors and the deposit of money, the remaining assets shall be distributed entitled by the statute (charter).. The assets shall be distributed among the entitled persons in equal shares unless the statute provide otherwise.

If a foundation is dissolved by a resolution of founders who are physical persons, the assets remaining upon liquidation transfer to such founders unless the statute prescribes otherwise. Assets of an association cannot be distributed amongst its members.

If the statute (charter) does not prescribe to whom the assets remaining after liquidation transfer, the assets transfer to the state which shall use the assets according to the goals of the entity.

Upon compulsory dissolution of an entity on the basis that its goals or activities are contrary to the criminal Law or constitutional order, the assets remaining after satisfaction of the claims of creditors transfer to the state.

Assets shall not be distributed among the entitled persons within five months after publication of the last notice of liquidation.

10. Deletion From Register

After the completion of liquidation, the liquidators shall submit an application for deletion of the entity from the register.

If after deletion of an entity from the register it becomes evident that supplementary liquidation measures are necessary, a court shall, at the request of an interested person, restore the rights of the former liquidators or appoint new liquidators.

Upon dissolution of an entity, the entity shall be deleted from the register on the basis of an application of the entity or on another basis provided by Law.

If an application for deletion of an entity from the register is not submitted upon completion of the liquidation of the entity, the registering court has the right to delete the entity from the register.

An entity shall not be deleted from the register without the written notice of the Tax Office unless the latter submitted the application for the deletion of the entity from the register. In order to obtain consent, the registering court shall notice in writing the Tax Office. The Tax Office shall not refuse consent unless it has claims against the entity. If consent is not received within twenty days after sending the notice, the tax Office shall be deemed to consent to deletion from the register.

11. Preservation of Documents

Lquidators shall deposit the documents of an entity with a liquidation or a third person. If the liquidators do not appoint a depositary of documents, a court shall appoint one.

The name of a depositary of documents shall be entered in the register on the basis of the application of the liquidators. If a court appoints a depository, the entry shall be made pursuant to the court order.

CHAPTER V

MERGER AND DIVISION

1. Definition of Merger

A non-profit entity may merge with another of the same kind in the cases prescribed in their statute or charter. An entity being acquired shall be deemed to be dissolved.

Entities may also merge such that they form a new entity of the same kind. In such case, the merging entities shall be deemed to be dissolved.

Merger is effected without a liquidation proceedings.

Upon merger, the asset of an entity being acquired transfer to the acquiring entity. Upon foundation of a new entity, the assets of the merging entities transfer to it.

2. Merger Agreement

In order to merge the boards of associations (managing boards of the foundations) shall enter into a merger agreement which shall set out the names and locations of the entities and the consequences of merger for the employees of the entities being acquired.

A merger agreement shall be notarized.

If an approved merger agreement is conditional and the condition is not fulfilled within five years after entry into the agreement, an entity may terminate it by giving at least six months’ advance notice of termination unless the merger agreement does not provide for shorter term for advance notice.

3. Merger Resolution

Rights and obligations arise form a merger agreement if it is approved by all merging entities. A merger resolution shall be in writing.

A merger resolution is adopted if over two-third of the members of the general assembly of association (two-third of the members of the supervisory board of a foundation) vote in favor, unless the statute (charter) prescribe a greater majority requirement.

4. Guarantees for Creditors

The board (management board) of each merging entity shall, within fifteen days after adoption of the merger resolution, send written notice concerning the merger to the known creditors of the foundation which have claims against the entity which predate the adoption of the merger resolution.

The board (management board) shall publish two notices concerning a merger resolution with at least a fifteen day interval in a national newspaper, calling on creditors to submit their claims. The notice shall indicate that creditors are to submit their claims within two months.

An entity shall secure the claims of the creditors if they are submitted within two months after publication of the last notice. If the due date for satisfaction of a claim has arrived or if a claim is not sufficiently secured, the creditor may demand satisfaction of the claim.

A creditor of an acquiring entity may demand security or satisfaction of the creditor’s claim only if the creditor proves that the merger endangers satisfaction of the creditor’s claim.

If a creditor does not give notice of a claim during the term specified in this Article, the creditor shall be deemed to agree to the merger.

5. Submission of Application to Register

The board (management board) of an entity participating in a merger shall submit an application for entry of the merger in the register of the location of the entity not earlier than three months after publication of the second merger notice. The following shall be appended to the application:

(a) a notarized copy of the merger agreement;

(b) the merger resolution.

In an application, the members of the board (management board) shall confirm that the claims of creditors who submitted their claims by the deadline or who opposed the merger are secured or satisfied.

An acquiring entity may continue activities under the name of the entity being acquired.

6. Merger Entry

The merger shall be entered in the register of the location of the acquiring entity if it is entered in the registers of the locations of all entities being acquired. An entry in the register of the location of an entity being acquired shall indicate that the merger is deemed to be effective as of its entry in the register of the location of the acquiring entity.

The court registering in the location of an acquiring entity shall notify the court of the location of the entity being acquired of entry of the merger in the register. Upon receipt of notification, the notation in the register shall be made regarding when the merger was entered in the register of the location of the acquiring entity.

The registering court of the location of the entity being acquired shall send the documents of the entity held to the registering court of the location of the acquiring entity.

7. Legal Effects of the Entry

The assets of an entity being acquired transfer to the acquiring entity as of entry of the merger in the register of the location of the acquiring entity. After entry of a merger in the register of the location of the acquiring entity, entries regarding the transfer of assets shall be made in the proper register on the basis of application of the board (management board) of the acquiring entity.

An entity being acquired shall be deemed top be dissolved as of entry of the merger in the register of the location of the acquiring entity. The foundation being acquired shall be deleted from the register.

8. Merger Whereby New Non-profit Entity Founded

The provisions of this chapter apply to the merger whereby a new non-profit entity is founded.

The provisions for foundation of non-profit entities apply for foundation of new non-profit entities unless provisions of this chapter provide otherwise. The founders are the merging entities.

A merger agreement will include also the name, location and members of the board (management board) of the new entity. The statute (charter) of the entity beanbag founded shall be appended to the merger agreement.

The boards (management boards) of merging entities shall submit a joint application for entry of the new entity in the register of its location.

9. Definition of Division

Division is effected without a liquidation proceeding by distribution or separation. An entity may participate in the division only in the cases provided by its statute (charter).

Upon distribution, an entity being divided transfers its assets to the recipient entities. A recipient entity may be existing or an entity being founded. Upon distribution, an entity being divided shall be dissolved.

Upon separation, an entity being divided transfers part of its assets to one or several recipient entities. A recipient entity may be existing entity or an entity being founded.

An entity may only divide into entities of the same type.

10. Division Agreement

In order to divide, the boards (the management boards) of the entities participating in division shall enter into a division agreement. A division agreement shall set out:

- names and locations of the entities participating in the division;

- a list of assets to be transferred to each recipient entity;

- consequences of division for the employees.

A division agreement shall be notarized.

If an approved division agreement is conditional and the condition is not fulfilled within five years after entry into agreement, an entity may terminate it by giving at least six months’ advance notice of termination unless the division agreement prescribes a shorter term for advance notice.

11. Division Resolution

Rights and obligations arise from a division agreement if the division is approved by all entities participating in the division. A division resolution shall be in writing.

A division resolution is adopted if over two-thirds of the members of the general assembly of an association (over two thirds of the members of the supervisory board of an foundation) vote in favor unless the statute (charter) prescribe a greater majority requirement.

12. Guarantees for Creditors

The management board of an entity participating in the division shall, within fifteen days after adoption of the division resolution, send written notice concerning the division to the known creditors of the entity who have claims against the entity which predate the adoption of the division resolution.

A board (management board) shall publish two notices concerning a division resolution with at least a fifteen day interval in a national newspaper, calling on creditors to submit their claims. The notice shall indicate that creditors are to submit their claims within two months.

An entity shall secure the claims of creditors if they are submitted within two months after publication of the last notice. If the due date for fulfillment of a claim has arrived or if a claim is not sufficiently secured, the creditor may demand satisfaction of the claim.

A creditor of recipient entity may demand security or satisfaction of the creditor’s claim only if the creditor proves that the division endangers fulfillment of the creditor’s claim, except if the new date for fulfillment of the creditor’s claim has arrived.

13. Submission of Application to Register

The board (management board) of an entity participating in the division shall submit the application for entry of the division in the register of the location of the entity not earlier than three months after publication of the second division notice. The following shall be appended to the application:

(a) a notarized copy of the division agreement;

(b) the division resolution.

In an application, the members of the board (management board) shall confirm that the claims of creditors who submitted their claims by the deadline or who opposed the division are secured or satisfied.

14. Name of Recipient Non-profit Entity

Upon distribution, a recipient entity may continue activities under the name of the entity being divided.

15. Division Entry

A division shall be entered in the register of the location of the entity being divided if it is entered in the registers of the locations of all recipient entities. Entries in the registers of the locations of the recipient entities shall indicate that the division is deemed to be effected as of its entry in the register of the location of the entity beanbag divided.

The registering court of the location of entity being divided shall notify the courts of the locations of the recipient entities of entry of the division in the register and shall send an extract from the register to them. Upon receipt of notification, the notation in the register shall be made regarding when the division was entered in the register of the location of the foundation being divided.

16. Legal Effects of Entry

All assets of entity being divided or, upon separation, the separated assets pursuant to the distribution prescribed in the division agreement, transfer top the recipient foundations as of entry of the division in the register of the location of the entity being divided. After entry of a division in the register of the location of the entity being divided, entries regarding the transfer of assets shall be made in the appropriate registers on the application of the board (management board) of the recipient entity.

Upon distribution, an entity being divided is dissolved as of entry of the division in the register of the location of the entity being divided. The foundation being divided shall be deleted from the register.

Assets which are not divided upon distribution shall be divided among the recipient entities in proportion of their share in the assets being divided.

17. Liability for Obligations of Non-profit Entities Being Divided

Entities participating in division are solidarily liable for the obligations of the entity being divided which arose before entry of the division into the register of the location of the entity being divided. In relations between solidary debtors, only persons to whom obligations are assigned by the division agreement are obligated persons.

An entity participating in division to which obligations are not assigned by the division agreement is liable for the obligations of the entity being divided if the due date foe their fulfillment arrives within five years after entry of the division in the register of the location of the entity being divided.

18. Division Whereby New Non-profit Entity Founded

The provisions of this Chapter apply to division whereby a new non-profit entity is founded. The provisions for foundation of new entities apply to foundation of new entities unless the provisions of this chapter provide otherwise. The founder is the entity being divided.

Upon division whereby a new entity is founded, the board (management board) of the entity being divided entitled to represent the entity shall prepare a division plan which substitutes for the division agreement. In addition to the provisions of this Chapter a division plan shall set out the name and location, and the members of the board (management board) of the new entity. The statute (charter) of the new entity being founded, which will be approved by the division resolution, shall be appended to the division plan.

The board (management board) of an entity being divided shall submit an application for entry of the new entities in the registers of their locations and for entry of the division in the register of the location of the entity being divided.

The registering court of the register of the location of each new entity shall notify the registering court of the location of the entity being divided of entry of the new entity in the register. Upon receipt of notification concerning all new entities, the registering court of the location of the entity being divided shall enter in the register the division, notify the registering courts of the location of each new entities and send an extract from the register to them. Upon receipt of notification, the registering court shall make a notation in the register regarding when the division was entered in the register of the location of the entity being divided.

CHAPTER VI

CHARITABLE ACTIVITY

1. General Provisions

Chapters 4 and 5 of this Law establish the legal grounds for the regulation of charities in the Republic of Azerbaijan.

Legal and juridical persons are unconditionally allowed to carry out voluntary charitable activity based on free choice of its purposes.

Legal and juridical persons are allowed to carry out charitable activity jointly or separately, with or without establishing a charitable entity.

Nobody is allowed to limit the freedom of choice of purposes of charitable activities established in the presented Law.

2. Definitions

Charitable Activity is a voluntary activity carried out by physical and juridical persons on non-compensated (or on preferential conditions) bases on transfer of property, including monetary or in-kind assets, non-compensated fulfillment of works, services, providing other types of support.

The Charitable Activity is provided for humanitarian, social, ecological, educational, science, public health, mass media, amateur sports, arts, culture and other important programs necessary for the sustainability of the state and society.

Charitable Assistance can be provided in the following forms:

- free of charge (or on beneficial conditions) transfer of the ownership on the monetary or/and in-kind assets, including the objects of the intellectual property;

- free of charge (or on beneficial conditions) transfer of the right of use, possession and monitoring of any objects of ownership;

- free of charge (or on beneficial conditions) fulfillment of works, services by the donors- legal entities;

Donors are allowed to freely define the purposes and the order of utilization of their donations.

Donation - monetary or in-kind charitable assistance provided by physical or juridical person to the non-profit (including charitable entity) entity and utilized according and for the statutory purposes of this entity.

Grant- is one of the varieties of donation. Grant - is a monetary or in-kind contribution to the non-profit (including charitable entity) entity made by another non-profit or commercial entity (grant giver) on the conditional bases, but without any purpose of profiting for the grant giver, and utilized for the statutory purposes of the non-profit entity on the conditions set up by the grant giver.

Participants of the Charitable Activity- Donors, Recipients and Charitable Entities.

Donor - is a physical or juridical person providing charitable assistance to the recipients.

Recipient of the charitable assistance - needy physical persons and non-profit juridical persons who receive charitable assistance from the donor or volunteer.

Charitable entity - is a non-governmental non-commercial entity licensed according to the procedure established in the Chapter VII of this Law to the which carries out activity to the benefit of the entire society or wide circle of individuals and with purposes established in the article # 2 Chapter VI of this Law.

Charitable entities may exist in the forms of public associations or foundations or others forms permitted in the legislation.

Volunteer- is a physical individual carrying out charitable activity in the form of non-compensated labor to the benefit of the recipient of the charitable assistance. Charitable entity is allowed to compensate in advance or reimburse the expenses of volunteers related to their activity in this entity (such as business trip expenses, transport, communication and etc.) according to the actual amount of these expenses within (if there is any) the limitations and according to the order established in the statutory and other internal documents of the charitable entity and the current legislation.

CHAPTER VII

CHARITABLE ENTITIES

1. General Provisions

The provisions of this chapter shall apply only to those non-profit entities designed for charitable purposed stated in article # 2 chapter VI of the presented Law which apply or receive the charitable status described in this sub-chapter.

The designation of non-profit entity for charitable activity shall be made in the articles of statute and shall be irrevocable.

Any provisions of the statute or other internal acts of entities that contradict the provisions of this Chapter shall be replaced by the corresponding provisions of this chapter by operation of Law.

2. The Charitable Status

The non-profit entity which designate its activity to the charitable purposes has a right to apply and receive the special charitable status according to the procedure established in this sub-chapter. The non-profit entities has exclusive right to decide to apply or not for receiving the status of "Charitable". The absence of this status does not prohibit the entity from carrying out charitable activities, however, in this case the entity will not automatically enjoy the certain tax and other benefits listed in this Law, as if it would have the "charitable" status.

Together with the status "Charitable" the non-profit entity is granted with the right to automatically enjoy tax and other benefits listed in this Law and other legislative acts in addition to the benefits applied to other non-profit entities or generally applicable to all juridical entities. The benefits related to the Charitable Status come into effect from the date when the Ministry of Social Protection makes the decision to issue appropriate license.

The status "Charitable" does not depend on the existence or non-existence of the word "Charitable" in the name of the non-profit entity which received this status.

Only non-profit entities which received the charitable license have the right to put the name "Charitable" in its official name.

The charitable status is granted by the Ministry of Social Protection to applied non-profit entities if they comply with the requirements established in this sub-chapter. The charitable statute is certified by License of Charitable Entity.

This Law establishes the order of receiving the Status of Charitable Entity and the order of its termination.

The Ministry of Social Protection establishes its internal procedure of considering and issuing the License of Charitable Entity in compliance with the provisions established in the presented Law.

3. The Procedure of Granting the License on Charitable Status.

The License on the Charitable Status shall be granted pursuant to a written application by the non-profit entity, signed by the authorized official of the entity. The Ministry of Social Protection adopts the form of the application.

The application should be accompanied by:

- a copy of the registration certificate relating to the registration of the entity as juridical person;

- the copy of the statute of the entity;

- the plan of finance-economic activity for newly established entities and the report on the finance-economic activity for the last calendar year filed to the tax authorities;

- the receipt for paying the registration fee.

Resulting the consideration of the presented application the Ministry of Social Protection should make one of the following decisions:

- to grant the License on Charitable Status for three years and register the entity in the Ministry’s Register of Charitable Entities;

- to reject to issue the License on Charitable Status;

- to request more information about the activity of the entity.

The Ministry of Social Protection shall decide on the application within one month, by motivated resolution. When additional evidence has been requested or some defects of the submitted documents have been remedied, the one-month term can be prolonged for 10 more days after the opportunity for corrective action has been exhausted.

The registration fee for processing the discussed above application is equal to two officially established monthly minimal salaries.

In case of changes in the information presented in the application and attached documents the entity is obliged to present information to the Ministry of Social Protection within 10 days after these changes take place for the purpose of incorporating changes to the register of charitable entities carried out by the Ministry of Social Protection.

4. The Rejection in Issuing License.

The exclusive list of the reasons of rejection to issue the License on Charitable Status:

- the information in the application or in attached documents is false;

- the non-compliance of the provisions in the statutory documents with the provisions established in this Law;

- the serious violation of tax legislation resulted with penalties within 6 months prior to the date of submitting the application;

- the 6-months term from the date from the date of submitting the previous application which was rejected by the Ministry of Social Protection and was not appealed to the court or the court did not conceal the decision of the Ministry of Social Protection;

In case of rejection or termination of the License or the rejection to prolong the license the non-profit entity is allowed to apply for the License again on the general conditions in 6 month after the mentioned above rejection to issue or prolong or after the termination of the License. In this case the entity is obliged to present in addition to the above listed documents submit the documented approval that the reasons of these rejection to issue or prolong the license or to terminate the license are eliminated.

5. Supervision of Activity of a Charitable Entity

The authorized officers of the Ministry of Social Protection shall be entitled at any time to carry out examinations with the purpose of finding out whether grounds exist for withdrawal of charitable status.

Finding of Facts shall be issued for the results of each examination, and shall contain:

- the date and place of issuance;

- the reasons of conducting the examination (routine, information in newspapers, information from the tax, internal authorities, etc.);

- the actions which the examinator took in order to conduct the examin action

- participants and assistance from the entity which has been examined;

- the results of findings.

The examinator should not interfere into the routine process of work carried out by the Charitable Entity. The officials of the Charitable entity are obliged to provide all required assistance to the examinator.

In addition, the charitable entity is obliged to present the report on the charitable activities to the Ministry of Social Protection. The charitable entity should submit this report to the Ministry on an annual bases for the previous calendar year, but not late than by the 1 of March of the next year. The report is only for informational purposes of the Ministry of Justice. It is registered and stored in files of the Ministry of Social Protection. The Ministry of Social Protection approves the form of the Report. This report should contain the following information:

- substantial activities of the entity, the money expended on those activities, relation of the activities to the programs of the entity, and the results achieved;

- the amount of gratuitous transfer of property to the entities and revenue from other fund raising activities;

- the financial results of the entity.

In addition to the authorized official from the Ministry of Social Protection the activity of a charitable entity is subject for control for other state authorities according to their authority established in the legislation.

The Ministry of Social Protection does not have right to interfere into the activity of charitable entities.

6. The Prolongation of the Validity of License on Charitable Status

The Prolongation of the Validity of License on Charitable Status for the next three years is carried out after the submission of the same documents required for the original apply for the License. In addition to documents listed in article 3 chapter VII of this Law the charitable entity is obliged to present the report on the charitable activities carried out within the last three year of enjoying the Charitable Status.

The procedure of submitting the application, issuing response and appealing rejection or not-responding is the same as the procedure of the original registration of the charitable entity established in articles 3-4 of chapter VII of this Law.

In order to insure the permanent activity of the charitable entity without brakes the charitable entity is obliged to file documents for the prolongation of the License not later than 50 days prior to the expiration of the term of validity of the License.

7. The Termination of the License on Charitable Status.

If the Ministry of Social Protection find out that the activity of the charitable entity does not comply with this Law or violates the statutory documents of the entity it should file to the entity the written request in details describing the violation and recommendations of its possible elimination. The charitable entity is obliged to eliminate the violation within the shortest time possible after receiving the request from the Ministry of Social Protection, but not later than in one month after receiving the request. The charitable entity is obliged to file a report on elimination of the violation within one month after receiving the request from the Ministry of Social Protection. The authorized official of the Ministry of Social Protection should have authority to check whether and how the violation has been eliminated. If the violation has not been eliminated by the entity the Ministry of Social Protection is obliged to check the reasons why the entity failed to eliminate the violation, and if the entity received the first request, and, after two month from the date of filing original request to file additional request to eliminate the violation, should file the second request for the elimination of the violation.

In case of serious threat to the property, public unrest, life or health of the persons, if this threat is caused by the activity of the charitable entity, the Ministry of Social Protection the Ministry is authorized to terminate the License on Charitable Status without advanced requests to eliminate the violations and without giving 6 month term for elimination of the violation. However, in this case the entity is permitted to appeal this decision to the court and the Ministry is liable to prove that :

- the extreme reasons for termination of the license existed in reality and how these reasons would cause the significant threat to the property, public unrest, life or health of the persons .

- the following of the routine procedure of sending written requests and waiting when the entity eliminates the discovered violation would cause significant threat to the property, public unrest, life or health of the persons.

After sending two written requests the Ministry of Social Protection is authorized to terminate the license on charitable status if the entity does not eliminate the violation within 6 months starting from the date when the original request to eliminate the violation had been sent to the charitable entity.

The termination of the License on Charitable Status is not resulted in the withdrawal of previously granted benefits including tax benefits. However, the charitable entity as a regular juridical entity is liable for any damages caused to other entities according to the legislation.

8. The order of appealing decisions of the Ministry of Social Protection

The charitable entity or the entity applying for one of the below listed decisions to the Ministry of Social Protection has a right to appeal to the Supreme (?) court the decision of the Ministry of Social Protection to reject to issue the License, or to prolong it, or to terminate the License, or to appeal the absence of the written response from the Ministry of Social Protection within the deadlines established in this Law. The procedure of appealing should be conducted according to the legislation. The court might oblige the Ministry of Social Protection to issue the appropriate decision (to issue the license, to prolong it or to consider termination of the license invalid), to require the Ministry as a juridical entity to compensate to the charitable entity the actual damage caused by unlawful decision of the Ministry and levy penalty on the Ministry with the amount of 100 minimal monthly salaries. In addition the court shall define officials or the body of the Ministry whose actions caused the violation of the current Law and send the order to the Ministry to effect the responsible officials.

9. The Expenditures of the Charitable Entity

The assets of the charitable entity can be used for charitable purposes and for maintenance of the charitable entity. The expenses for the maintenance of the entity include:

- the salaries to the administration and other staff; fees to the individual contractors paid based on the labor temporary agreements;

- duties and taxes paid on salaries;

- office supply and other miscellaneous expenses;

- business trips;

- purchase of equipment and appliances for the equipment;

- capital and routine reconstruction works of the premises;

- rent;

- other similar expenses.

Not less than 80% of the amount of donation should be spend for charitable purposes unless otherwise stated in the agreement between the donor and charitable entity. Not less than 80% of the amount of revenue gained from non-trading operations, including income of selling of securities and other commercial papers; from granting credits, incomes gained resulting the activity of commercial juridical entities established by the charitable entities should be spend for charitable purposes. The revenues which come from the state budget or other state non-budget funds should be 100 percent used for the charitable purposes.

The established in this article limits on salaries do not cover the salaries of individuals paid for the participation in the charitable programs.

The assets spend on publishing the reports on the activity of the charitable entity, are counted as expenses on charitable activity.

The charitable entity is not allowed to spend the amounts received as donations for the purposes other than stated by the donor unless otherwise approved in writing by the donor.

Charitable entities are not allowed to spend their assets and/or use their assets otherwise to support commercial entities or political parties, indiviuduals which are not considered the needy, and also members, participants, founders of the entity, members of the managing or supervising bodies, staff employees or their relatives, as well as other interested persons.

10. The Control of Donors and Public of the Activity of Charitable Entities

The amounts and structure of the revenues of the charitable entities, and also the information about their assets, expenses, the number and structure of staff employees, compensatory fees for volunteers can not be subject for commercial secret.

The charitable entity is obliged to present to the donor at its request all documented approvals on spending the assets granted.

The charitable entity distributes the information on its activity in the following way:

- publishing of the annual reports according to the form established by the Ministry of Social Protection, or otherwise insuring the entry of wide public with these annual reports

- publishing by the Ministry of Social Protection of the information from the register of the charitable entities and permitting the free entry for the public to the files with annual reports on the activity of charitable entities, the public registry of charitable entities, information about issuing and termination of the Licenses on Charitable Status.

The requests of donors and public to eliminate violations of this Law conducted by charitable entities and levy penalties on these entities are realized through the authorized state control authorities according to their competence and through the court according to the existing legislation.

CHAPTER VIII

GOVERNMENT SUPPORT OF NON-PROFIT ENTITIES AND PARTICIPANTS OF CHARITABLE ACTIVITY.

1. General Provisions

The Government guarantee protection and supports the rights and Lawful interests of non-profit entities and participants of charitable activity.

2. Liability of the Government Officials for Violating this Law

The government officials who violate or prevent from realization the rights of non-profit entities and participants of charitable activity established in this Law and in other legislative acts of the Republic Azerbaijan, are liable according with the legislation of the Republic of Azerbaijan.

3. Forms of Support Provided by the Government

The government authorities within the limits of their competence are allowed to provide support to the n on-profit entities and participants of charitable activity in the following forms:

- granting according with the presented Law and other legislation tax exemptions from paying taxes and/or duties, other benefits;

- technical support, partial or complete subsidizing of activities and programs of non-profit entities, including partial or complete relief of paying for utilities, rent for government-owned premises; equipment, other in-kind assets;

- funding on the tender-bases charitable programs, developed by charitable entities;

- transfer of the ownership on free-of-charge or beneficial condition bases on the government owned assets in the process of its privatization according to the order established in the legislation.

4. Limitations

It is prohibited to grant benefits on individual case bases, to separate non-profit (including charitable) entities, other participants of the charitable activity, or interested persons.

5. Benefits on Paying Taxes and Duties

Non-profit entities enjoy the following tax benefits:

- Non-profit entities are free from paying any taxes and duties from the revenue gained from the entry and membership fees, monetary or in-kind, on the endowment paid by the founder (s) to the foundation, paid according to the statutory documents of the entity; and on the interest paid by the applicable bank where the non-profit entity keeps its assets on the deposit account when these assets gained from the above listed sources.

- Charitable entities are free from paying any taxes and duties on revenue gained from donations including taxes and duties on salaries when these donations are used for the statutory charitable purposes and according (if there is any) to the will of the donor. Physical individuals who’s salaries or contractor’s fees are paid from the amount of donation are obliged to pay personal income tax.

- Charitable entities are free from paying tax on profit and VAT otherwise levied on the revenue gained from economic activity related to the charitable purposes states in the statute of the charitable entity, on the part of revenue distributed for these charitable purposes.

- In addition to the above listed tax benefits charitable entities are free from taxes and duties to the Road Fund, Fire Protection Fund, Tax on Intangible Assets, ……..

- A juridical entity is allowed to take a tax deduction on the contribution to the charitable entity for the purposes of calculation of taxes on profit and VAT up to 30 percent of the total otherwise taxable amount of profit.

- A physical person is allowed to take a tax deduction on the contribution to the charitable entity for the purposes of calculation of income tax up to 50 percent of the total otherwise taxable amount of income.

- The recipients of the charitable assistance are free from paying income tax on the amount of this assistance.

CHAPTER IX

FINAL PROVISIONS

1. Foreign Non-profit Entities

Foreign non-profit entities registered elsewhere outside of the territory of the Republic Azerbaijan can be registered at their free will as representation offices of the foreign mother entities according to the existing legislation, or, as local non-profit entities according to the order established in this Law.

Registered representation offices of foreign non-profit entities enjoy the same rights as local non-profit entities and shall follow the same procedure established in this Law to receive a license to be a charitable entity, other preferences and benefits according to the current legislation.

2. Re-registration of Existing Entities

The entities registered prior to incoming this law into effect are obliged to provide the following documents to the regional courts at the location of their managing bodies:

- copy of the receipt of the previous entry into register;

- the copy of the statute (charter) as last amended and recorded in the register certified by the court’s clerk

- name and address of the responsible officer(s) of the entity.

3. Sanctions

A non-profit entity shall be held liable for any violation of this Law, in compliance with the legislation of the Republic of Azerbaijan.

Should a non-profit entity commit any acts which contradict its statutes, charter, and this Law, an official warning in written may be issued to the responsible officers of this entity by the court that keeps the entity in its registers.

Should more than two warnings in written be issued to the non-profit entity, the court that keeps the entity in its register may rule on the liquidation of this entity.

4. Fees

Registration and re-registration procedure under this Law is free of charge.

5. Entrance of This Law Into Effect

This Law becomes effective as of the date of its official publication.

The Executive Branch shall be charged with bringing its legal acts in compliance with this Law.