1

Noncommercial L aw

(Textbook )

Bishkek -2012
International Center
for Not -for -Profit Law

2

УДК 342
ББК 67.99(2)1
Authors :
N.A. Idrisov , legal consultant of International Center for -Not -for Profit Law – Chapters 1, 3, 5.
U.Y. Pak , Ph .D in Law . – Chapters 2, 19.
N.B. Alenkina , Senior Lawyer, ARD/Checchi USAID – Chapters 4, 8.
L.A. Makarenko , Advisor of Chairman of the Accounts Chamber – Chapter 6.
Y.N. Shapovalova , the first class lawyer – Chapters 7, 9.
Muratbek kyzy Saltanat , Ph .D., dean of law and business fa culty of the Kyrgyz State Juridical
Academy – Chapters 10, 11.
А.А. Duishonbaev , senior teacher of UNESCO “Constitutional law and Gender Politics” faculty of
the Kyrgyz -Russion Slavik University – Chapters 12, 18, 20.
Maksat Makambay , Ph .D, manager of the international law faculty of the International University
of Ky rgyzstan – Chapter 13, 14
G.T. Isakova , Ph .D, Associate Professor of American University of Central Asia , T.P Ibraimov ,
executive director of consulting company “Gratas” – Chapters 15, 16.
V.V. Ovcharenko , consultant of ICNL/Kazakhstan – Chapter 17.

Execut ive editor : N.A. Idrisov , Reviewer : Ph.D , president of Kyrgyz State Juridical Academy К.К.
Kerezbekov

Н 47 Not -For -Profit Law ; (TEXTBOOK ) / UNDER executive edition of N.А.Idrisov – Б.:Т. ДЭМИ ,
2012 – 248 с.

ISBN 9967 -23 -529 -2

The first publication of the current textbook was prepared by authors’ team under financing,
organizational and technical assistance of International Center for -Not -for Profit Law (ICNL) and published
in 2006. The textbook is dedicated for students of jurisprudence, state and municipal governance,
management at noncommercial organizations and others. Author’s te am tried to generalize cases from
practical regulation of noncommercial organizations. Textbook recommended as a basic learning material
to provide a classes on “Noncommercial law”. Besides analyzis of the c urrent legislation, the textbook
covers historica l and theoretical aspects, good world practice and different points of view to general legal
problems.
After the first edition of the textbook in 2006 there were adopted a several normative legal acts
concerning to noncommercial organizations, in particul arly the Constitution (2010), Tax Code (2008) and
others. The present edition is the second and updated by the expert of ICNL Azamat Talantbek uulu and
Aida Rustemova in 2012 coordinated a chapters of the textbook in accordance to a new legal acts adopted
since 2006 to 2012.

Н 1203021400 -06 УДК 342
ISBN9967 -23 -529 -2 ББК67/99(2)1

© International Center for -Not -for Profit Law (ICNL), 2012

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Table of Contents

Overview of Noncom mercial Organizations ………………………….. ………………………….. …………… 6
Chapter 1. Concept, Role and Classification of Noncommercial Organizations ………………… 6
Noncommercial Law Disciplin e ………………………….. ………………………….. ………………………….. …. 6
§ 1. Correlation of Noncommercial Organizations and Similar Concepts ……………………….. 6
§ 2. Noncommercial Organizations ………………………….. ………………………….. …………………… 8
§ 3. The Role of NCOs in Civil Society ………………………….. ………………………….. …………… 10
§ 4. Organizational and Legal Forms of NCOs ………………………….. ………………………….. …. 14
§ 5. Classification of NCOs ………………………….. ………………………….. ………………………….. .. 16
§ 6. Structure of Noncommercial Law ………………………….. ………………………….. ……………… 17
Chapter 2. Regulation of NCOs ………………………….. ………………………….. ………………………….. .. 19
§ 1. Historical Development of Legal Status of NCOs ………………………….. ……………………. 19
§ 2. Sources of the Law of NCOs ………………………….. ………………………….. ……………………. 22
§ 3. The Constitutional -Legal Bases of Activities of NCOs ………………………….. …………….. 24
§ 4. Civil and Legal Status of NCOs ………………………….. ………………………….. ……………….. 27
Chapter 3. Creation o f NCOs ………………………….. ………………………….. ………………………….. ….. 31
§ 1. Creation of Nonregistered NCOs and Their Status ………………………….. …………………… 31
§ 2. Differences between Registered and Nonregistered NCOs ………………………….. ……….. 32
§ 3. Procedure for State Registration of an NCO ………………………….. ………………………….. . 34
§ 4. Notification of the registering body on changes of the information about NCO…….. 51
Chapter 4. Management of NCOs ………………………….. ………………………….. ……………………….. 38
§ 1. Administering Principles of NCOs ………………………….. ………………………….. ……………. 38
§ 2. Governing Bodies ………………………….. ………………………….. ………………………….. ………. 38
§ 3. Statutory Documents ………………………….. ………………………….. ………………………….. …… 40
§ 4. Conflicts of Interest ………………………….. ………………………….. ………………………….. ……. 43
Chapter 5. F inancing NCOs ………………………….. ………………………….. ………………………….. …….. 46
§ 1. General Provisions Concerning Financing NCOs ………………………….. ……………………. 46
§ 2. Organic In come of NCOs ………………………….. ………………………….. ………………………… 48
§ 3. Government Financing of NCOs ………………………….. ………………………….. ………………. 50
§ 4. Business and Individual Endowments and Grants ………………………….. ……………………. 53
§ 5. Limitations on Foreign Financing of NCOs ………………………….. ………………………….. .. 55
Chapter 6. Taxation and Social Payments of NCOs ……….. Ошибка! Закладка не опре делена.
§ 1. Main Principles of Gran ting Tax Benefits to NCOs in the Kyrgyz Republic … Ошибка!
Закладка не определена.
§ 2. Income Tax ………………………….. …………………….. Ошибка! Закладка не определена.
§ 3. Income Tax a nd Social Payments to the Social Fund …………….. Ошибка! Закладка не
определена.
§ 4. Value Added Tax ………………………….. …………….. Ошибка! Закладка не определена.
§ 5. Excise Tax ………………………….. ………………………. Ошибка! Закладка не определена.
§ 6. Land Tax ………………………….. ………………………… Ошибка! Закладка не определена.
§ 7. Property Tax ………………………….. …………………… Ошибка! Закладка не определена.
§ 8. Sales Tax ………………………….. ………………………… Ошибка! Закладка не определена.
§ 9. Conclusion ………………………….. ……………………… Ошибка! Закладка не определена.
Chapter 7. Reorganization, Liquidation and Bankruptcy of NCOs ………………………….. ……. 57
§ 1. Reorganization of NCOs ………………………….. ………………………….. ………………………….. 66
§ 2. Liquidation of NCOs ………………………….. ………………………….. ………………………….. ….. 71
§ 3. Bankruptcy of NCOs ………………………….. ………………………….. ………………………….. ….. 74

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Specifics of Legal Regulation of Membership NCOs ………………………….. ………………………….. 77
Chapter 8. Public Associations ………………………….. ………………………….. ………………………….. … 77
§ 1. The Right of Association ………………………….. ………………………….. …………………………. 77
§ 2. The History of the Legal Regulation of Public Associations ………………………….. …….. 78
§ 3. Notion and Features of Public Associations ………………………….. ………………………….. .. 79
§ 4. The Creation and Activity of Public Associations ………………………….. ……………………. 81
§ 5. Membership in Public Associations ………………………….. ………………………….. ………….. 82
§ 6. Governance of Public Associat ion ………………………….. ………………………….. …………….. 83
§ 7. Reorganization and Liquidation of a Public Association ………………………….. ………….. 84
Chapter 9. Associations of Legal Entities (Associations an d Unions) ………………………….. ….. 86
§ 1. Notion and Forms of Associations of Legal Entities ………………………….. ………………… 86
§ 2. Legal Status of Associations of Legal Entities ………………………….. ………………………… 87
§ 3. Creation and Termination of Associations of Legal Entities ………………………….. ……… 88
§ 4. Administration and Legal Status of Members of the Associa tion ………………………….. . 90
§ 6. Political and Economic Impacts of Associations of Legal Entities …………………………. 92
Chapter 10. Noncommercial Cooperatives ………………………….. ………………………….. ……………. 94
§ 1. Historical Development of the Legal Status of Noncommercial Cooperatives …………. 94
§ 3. Procedure for Formation of Noncommercial Cooper atives ………………………….. ……….. 96
§ 4. Rights and Obligations of Members of Noncommercial Cooperatives ……………………. 98
§ 5. Conclusion ………………………….. ………………………….. ………………………….. ………………. 100
Chapter 11. Partnership of Homeowners ………………………….. ………………………….. …………… 102
§ 1. Notion and General Provisions on Partnerships of Homeowners ………………………….. 102
§ 2. Organization and Activity of Partnership of Homeowners ………………………….. …….. 104
§ 3. Legal Status of Members of Homeowners’ Partnerships ………………………….. ……….. 105
§ 4. Governance and Control of Homeowners’ Partnerships ………………………….. …………. 107
Chapter 12. Jamaat (Community Organization) ………………………….. ………………………….. …. 109
§ 1. Notion of Jamaat ………………………….. ………………………….. ………………………….. ………. 109
§ 2. Legal Status of Jamaat ………………………….. ………………………….. ………………………….. . 110
§ 3. Creation of Jamaat ………………………….. ………………………….. ………………………….. ……. 112
§ 4. Interaction of Jamaat with State Bodies and Local Self -Administration Bodies …….. 113
§ 5. Financial -Economic Basis and Property of Jamaat ………………………….. ………………… 114
§ 6. Governing Bodies of a Jamaat ………………………….. ………………………….. ………………… 114
§ 7. Formation and Activity of a Local Development Foundation ………………………….. ….. 115
Chapter 13. Credit Unions ………………………….. ………………………….. ………………………….. …….. 116
§ 1. History of Credit Unions ………………………….. ………………………….. ………………………… 116
§ 2. Major Features of Credit Unions ………………………….. ………………………….. …………….. 118
§ 3. Governance of Credit Unions ………………………….. ………………………….. …………………. 118
§ 4. State Regulation of Credit Unions ………………………….. ………………………….. …………… 121
§ 5. Credit Transactions ………………………….. ………………………….. ………………………….. …… 123
Chapter 14. Trade Unions ………………………….. ………………………….. ………………………….. ……… 125
§ 1. Notion of Trade Unions ………………………….. ………………………….. …………………………. 125
§ 2. Creation of Trade Unions ………………………….. ………………………….. ………………………. 126
§ 3. Property of Trade Unions ………………………….. ………………………….. ………………………. 126
§ 4. Governance of Trade Unions ………………………….. ………………………….. ………………….. 127
§ 5. Legal Status of Trade Unions ………………………….. ………………………….. …………………. 128
Chapter 15. Political Parties ………………………….. ………………………….. ………………………….. ….. 132
§ 1. History of Political Parties ………………………….. ………………………….. ……………………… 132
§ 2. Notion and Features of Political Parties ………………………….. ………………………….. …… 133

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§ 3. Constitutional and Lega l Regulation of Interactions between the State and
Political Parties ………………………….. ………………………….. ………………………….. ……………… 135
§ 4. Procedure for Foundation and Termination of Political Parties ………………………….. .. 136
§ 5. Financing of Political Parties ………………………….. ………………………….. ………………….. 138
Chapter 16. Religious Organizations ………………………….. ………………………….. ………………….. 140
§ 1 . Notion of Religious Organizations; their Emergence and Role ………………………….. .. 140
§ 2. Interaction of Religious Organizations and the State ………………………….. ……………… 142
§ 3. Religious Organizations and Freedom of Conscience ………………………….. …………….. 144
§ 4. Procedure for Foundation and Termination
of Religious Or ganizations and their Legal Status ………………………….. ……………………….. 146
Legal regulation of Non -Membership NCOs ………………………….. ………………………….. ………. 148
Chapter 17. Foundations ………………………….. ………………………….. ………………………….. ……….. 148
§ 1. Introduction ………………………….. ………………………….. ………………………….. ……………… 148
§ 2. Foundations in International Practice ………………………….. ………………………….. ………. 148
§ 3. Foundat ions in Kyrgyzstan ………………………….. ………………………….. …………………….. 151
§ 4. Creation of Foundation ………………………….. ………………………….. ………………………….. 154
§ 5. Foundation Governance ………………………….. ………………………….. …………………………. 155
§ 6. Termination of Foundation ………………………….. ………………………….. …………………….. 157
Chapter 18. Institutions ………………………….. ………………………….. ………………………….. …………. 158
§ 1. The Meaning of the so -called “Institu tion” ………………………….. ………………………….. . 158
§ 2. Legal Status of the Institution ………………………….. ………………………….. …………………. 158
§ 3. Governing Bodies of Institutions ………………………….. ………………………….. …………….. 161

NCOs with Special Status ………………………….. ………………………….. ………………………….. ………. 162
Chapter 19. Charitable Organizations ………………………….. ………………………….. ………………… 162
§ 1. The History of Charitab le Organizations ………………………….. ………………………….. ….. 162
§ 2. Notion of Charitable Organization ………………………….. ………………………….. ………….. 163
§ 3. Legal Status of Charitable Organization ………………………….. ………………………….. …… 165
Chapter 20. Territorial and Public Self -Administration Bodies (TPS) ………………………….. 169
§1. Notion and History of TPS Bodies ………………………….. ………………………….. …………… 169
§ 2. Legal Status of TPS Bodies ………………………….. ………………………….. ……………………. 172
§ 3. TPS Governing Bodies ………………………….. ………………………….. ………………………….. 177

6

Overview of Noncommercial Organizati ons
Chapter 1. Concept, Role and Classification of Noncommercial Organizations
Noncommercial Law Discipline

§ 1. Correlation of Noncommercial Organizations and Similar Concepts

In international practice , there are many concepts similar to the concept of
“noncommercial organization:” not -for -profit organization, public association, civil
organization, civil society organization, voluntary organization, nongovernmental
organization, charitable organization, community organization, third sector
organization , and so on.
The diversity of concepts is a linguistic reflection of the existing reality.
Various components are contained in the meaning of the above -mentioned concepts,
which are directly related to reality. These components are:
 The public componen t (public organizations) – organizations that help individuals
participate in public life;
 The civil component (civil organizations or civil society organizations) –
organizations operating in civil society;
 The economic component (noncommercial organizati ons or not -for -profit
organizations ) – organizations owning property and carrying out economic
activity (apart from their principal noncommercial activity), and using revenues
generated in pursuit of their of statutory goals;
 The political component (nong overnmental organizations, third sector
organizations) – organizations that are independent from the state, and unrelated
to commercial sector;
 The voluntary component (voluntary organizations and public organizations ) –
organizations created voluntarily b y individuals .
The choice of concept depends on which component is more important in the
real -life situation. For example, if it is necessary to emphasize the voluntary factor,
then the concept of “voluntary organization” is used; if the economic factor, then the
concept of “noncommercial organization” is used.

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Since the adoption of the Civil Code of the Kyrgyz Republic as of May 8,
1996 # 15, the concept of “noncommercial organization” has been widely used. This
is a legal concept, defined in the Civil C ode of the Kyrgyz Republic as of May 8,
1996 # 15 and the Law of the Kyrgyz Republic “On noncommercial organizations”
as of October 15, 1999 # 111. The content of the given concept will be explained in
detail in the next paragraph.

Distinctive Features o f Nongovernmental Organizations

In many countries, including Kyrgyzstan, the concept of “nongovernmental
organization” or NGO is used more frequently than “noncommercial organization”
and other, similar concepts. Because the definition of this concept is not set out in
the legislation of the Kyrgyz Republic, it is not considered a legal concept.
Meanwhile , in international practice , there are criteria for determination of this kind
of organization. Traditionally, NGOs include public benefit noncommercial
organizations, excluding political parties, trade unions, and religious organizations.
In the next paragraph the public benefit organization will be explained in detail.
Following research conducted by John Hopkins University, five main criteria
of NGOs wer e proposed, as follows:
1) Institutionalism. The organization formally exists as a legal entity, has an
organizational structure, public benefit goals, and a specific set of activities.
2) Independence from the state. The organization may not be a part of the s ystem
of state bodies, and may not have any power authorities like state bodies whether
on the national or local levels. However, the organization may receive state
subsidies or any other assistance from the state, and representatives of state
bodies can n ot participate in N G O’s governance.
3) Self -administration. The organization must have its own corporate governance
structure and a system of internal control over its own activities, meaning
internal rules and procedures on decision -making. This internal s tructure allows
an organization to operate autonomously, without further control by the state.
4) Non -distribution of profits. Organizations may not distribute profits from their
activities among founders, members , directors or officers. The organization
sho uld have the right to earn revenue from economic activity, donor’s
contributions and other legal sources; however, such revenues may only be used
for statutory goals.
5) Volunteerism. Normally, organizations are created voluntarily, and involve the
voluntary participation of individuals in their activities, as well as the use of
voluntary donations from individuals and legal entities.
These criteria define NGOs as public benefit organizations, bu t exclude state
organizations (state NCOs), political parties, trade unions or religious organizations.

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§ 2. Noncommercial Organizations
The Law of the Kyrgyz Republic “On noncommercial organizations” defines
a noncommercial organization as a voluntary, self -administered organization,
created by individuals and/or le gal entities, based on their common interest to pursue
spiritual or other nonmaterial needs in the interest of its members and/or society in
general , for which profit -making is not the main goal , and in which profit is not
distributed among members, founde rs or officers. From this definition it is possible
to discern the main features of a noncommercial organization (NCO). An NCO is:
1) A voluntary organization;
2) Self -administered;
3) Created for:
 Implementation of a specific public benefit activity (public benef it
organization); or
 Implementation of an activity providing a benefit to members of the
given organization (mutual benefit organization); and is
4) An organization in which producing revenue is not the main goal, and in
which profit is not distributed among members, founders or officers.

Public Benefit NCOs

In any country, due to limited financial, human, organizational and other
resource limitations, state bodies are not able on timely basis to identify and solve all
problems in the society (social, ecol ogical, cultural, and educational , etc.). As a
result, there are instances in which citizens, identifying certain problems that state
bodies cannot resolve, do not wish to observe indifferently what is happening.
Together with like -minded people — sometim es alone as well – they may choose to
create an NCO, thereby taking measures to re solve some problems. These may
include assisting orphan children, protecting the environment, spreading knowledge
among the population and so forth. Certainly, such NCOs are public benefit
organizations.
There are cases in which individuals may create an NCO not for solving
certain problems in the society, but for meeting special needs of the society or a
group within the society. For example, an individual may allocate sign ificant
personal funds for opening of a new noncommercial university (i.e., to create a
university in the legal form of an NCO) in which free education for the most talented
youth is provided according to a new methodology. Or individuals could create a
pu blic association called the “Community of Fans of Japanese Poetry” dedicated to
the popularization and publicity of a group of fans of Japanese poetry. If the public
association is open to all interested persons and it conducts activities not only for its
members, but also for all those who are interested in Japanese poetry, then the public
association or NCO is considered to be for the public benefit.

9

In those countries in which the state understands the public benefit role for
NCOs, it may establish favo rable conditions for their establishment and activities.
Leaders of these countries treat public benefit NCOs as their allies, partners, and
may forge close cooperation with them so that they may assist each other. In such
countries, public benefit NCOs ma y have different tax benefits:
 Exemption from taxation on some of their income (membership fees, grants,
charitable contribution, donations);
 Tax benefits to individuals and legal entities for charitable contributions and
donations.

In Kyrgyzstan, public benefit NCOs may be created in the form of:
 Public associations;
 Foundations;
 Institutions;
 Associations (unions) of legal entities;
 Jamaats (community organizations).
Mutual Benefit NCOs

Certain NCOs do not carry out public benefit activities, but inst ead direct their
focus toward the mutual, nonmaterial benefit of the members of the organization.
For example, partnerships of homeowners or condominiums and apartment
management cooperatives are created by tenants for the joint management of
multifamily h ouses. These NCOs are created as independent, self -sufficient, self –
administered organizations. At the same time, in creating such an organization, the
tenants of multifamily houses are taking full responsibility for maintenance of the
building. Through th ese organizations, the flat owners are:
1) arranging payment for certain utility services (heating, hot and cold water,
garbage disposal, public space lighting, etc.);
2) as appropriate, collecting funds for repair of roofing, heating system, and
other infrastru cture, and managing the repairs.
Farmers may also create associations of water users in order to distribute irrigation
water fairly and maintain common engineering structures.
In Kyrgyzstan, the following organizations are considered mutual benefit
NCOs:
 Partnerships of home or condominium owners;
 Noncommercial cooperatives formed to operate buildings, camps, garages,
etc.;
 Credit unions;
 Trade unions;
 Associations of employers;

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 Associations of water users;
 Some associations (unions) of legal entities (tho se created only for serving
the interests of their members);
 Some specific types of public associations (for example, a society of
philatelists, union of motorists, etc.).
In many countries, there is a consensus about the purposes for which mutual
benefit NCOs may be created, and about the principles that should govern the
relationships related to their activities:
1) Mutual benefit NCOs are needed for certain purposes of individuals and
organizations, including ensuring the safety of camps, the management of
multifamily houses, etc.);
2) Individuals and organizations that create mutual benefit NCOs are solving
certain social problems and protecting their common interests;
3) It is necessary to create favorable conditions for the establishment of
mutual benefit NCOs and for carrying out their activities.

§ 3. The Role of NCOs in Civil Society

In those countries that have a strong noncommercial sector 1 — business sector
and the government assist to NCOs in their development and there is a high level of
economic and democratic development. Why does a society need not -for -profit
organizations? Why, in many countries of the world, are their activities supported
by the state, businesses and the general population? Why in many countries of the
world are NCOs not taxa ble or tax -advantaged? Why do many countries of the world
treat not -for -profits and the noncommercial sector on a par with the state and
business sectors? There are, at least, several economic and social -political benefits of
the presence and development o f NCO sector in society. 2

Economic Reasons Supporting the Existence and Strengthening of the Role of the
NCO Sector in Society

Efficiency of NCOs. NCOs may be more efficient than state and business
structures, as they may react to the needs of a popul ation quickly and efficiently.
They may render their services on the same qualit y level but at lower cost; for
example, crisis centers, providing medical and psychological services to people who
1Often the not -for -profit or NCO sector is called the “third sector,” after the state and business sectors . 2Leon E. Irish . Role and function of noncommercial sector . Re port in working conference “Normative bases
for the activity of noncommercial organizations in new democracies,” 1995.

11

are in a critical situation; microcredit nonbank NCOs, offeri ng micro -credits for the
benefit of the low -income population; legal and advocacy centers; as well as many
other types of services.
Development of M arket Economy. A developed NCO sector promotes the
development of a market economy, because market economie s develop more
efficiently where there is a social stability and trust in state, private and public
institutions. NCOs may identify and solve many problems in the society and make
significant contributions to the maintenance of stability in a country.
In the economies of many developed countries, the NCO sector has a
significant place. For example, in the USA in 1996, NCOs produced 6.7% of the
gross domestic product (GDP), which was equivalent to USD$434 billion, and
NCOs owned private sector capital value d at 5% (or USD$1.24 trillion). 3 In
Germany in 1993, 3.9% of GDP (or USD$67.6 million). In Sweden in 1992, the
NCO sector produced 4% of the GDP (or USD$7.7 billion), in Switzerland the gross
income of NCOs was 2% of GDP, and in Canada, the NCO sector repr esented GDP
of 12%. 4
It is also important to emphasize the role of the NCO sector in employment.
Below in Table 1 are data on employment in the NCO sector in 18 countries of the
world during 1990 and 1998.

Table 1. Employment in the NCO sector 5

Country

1990
in %
1998
in %
Netherlands – 12.4
Ireland – 11.5
Belgium – 10.5
Israel – 9.2
USA 6.9 7.8
Australia – 7.2
Great Britain 4.0 6.2
France 4.2 4.9
Germany 3.7 4.5
Spain – 4.5
3 Data on USA was taken from the article of C. Eugene Steuerle and V. Hodgkinson, “Meeting Social Needs:
Comparing the Resources of the I ndependent Sector and Government ”, “Nonprofits and Government. Collaboration
and Conflict,” The Urban Press, WDC, 1998. 4 Data on Canada , Sweden, Switzerland and Germany were taken from “The New Civic Atlas . Profiles of
Civil Society in 60 Countries,” CIVI CUS, 1997. 5 L.M. Salamon, “Government – Nonprofit Relations in International Perspective ,” Nonprofits and
Government. Collaboration and Conflict, The Urban Institute Press, WDC, 1998; H.K. Anheier, ”Social Origins of
Civil Society: Explaining the Nonprof it Sector Cross -Nationally,” Voluntas, Vol. 9. No 3, 1998, and L. M. Salamon,
“America’s Nonprofit Sector: A Primer,” 2 nd Ed., The Foundation Center, 1999.

12

Austria – 4.5
Japan 2.5 3.5
Argentina – 3.2
Finland – 3.0
Czech Republic – 2.8
Peru – 2.4
Brazil – 2.2
Hungary 0.8 1.3

Social -Political Reasons Supporting the Existence and Strengthening
of the Role of the NCO Sector in Society

Actual existence of freedom of opinion and assembly . Freedom of opinion
and assembly, being Constitutional rights, guarantee the voluntary association of
individuals into NCOs and are the expression of independent views on existing
problems in society. NCOs stimulate the development of civic feelings of solidarity,
involvement a nd mutual assistance, and facilitate individuals to take initiative and
participate in solving state problems.
Pluralism and tolerance. Any citizen or group of citizens has the right to
pursue public and personal interests. They may be: sports and music , education and
medical assistance to the disabled, development of international relations,
conducting independent research and many other pursuits. As these interests are
varied by their nature, all individual s and organizations should show tolerance to
interests of other citizens and organizations.
Facilitation of social stability and observance of laws. An NCO is a
reflection of society’s interests. A state should not prohibit people from helping
each other people or the wider society. The most imp ortant is that an NCO has to
openly carry out its activity, without violating existing legislation.
Development of democracy. A strong NCO sector is essential for the
successful development of democracy. NCOs are one of the crucial factors in
democratiz ing a society. They are necessary for the society, as through them
individuals are involved in civil and social life and thereby contribute to the
development of democracy. NCOs are the main mechanism through which
individuals are united for the achievem ent of common interests, for the protection of
group or individual rights. Through an NCO, individuals may attract the attention of
the state bodies in order to solve day -to -day problems . NCOs may analyze the
problems, and may propose alternative, non -traditional, and sometimes more rational
mechanisms to solve them. NCOs may facilitate observance of laws.
Providing social and public services on another quality basis . Providing
social and public services through NCOs is often less costly than through bus iness
structures, and the services provided may be more diverse than those provided by

13

state and business structures, for example, rendering services through such NCOs as
nongovernmental museums, educational institutions, health protection centers, credit
foundations and other noncommercial. It is also important to note that the main goal
of private business structures is to make profit for their founders, while NCOs are
designed for the benefit of a wider group of people.

Internal Qualities of NCOs that Strengthen
its Role in Society

Prompt identification of problems . NCOs may promptly identify new
problems in society, attracting public attention to them .
Flexibility. NCOs are able promptly to react to new circumstances and needs
arising in the course of development, and to propose thoughtful solutions.
Relative independence. NCOs are able promptly to meet certain needs to
which the state and business sector sometimes do not pay attention. NCOs are free to
choose the direction of their activity .
Avai lability and responsiveness. NCOs are open to communication, and
often have close links to communities and groups that are ignored by society.
Membership and information in these NCOs are available for all interested.
Mediation. NCOs may connect different social groups and serve as a bridge
between different political movements, reducing social, professional, and
bureaucratic barriers that may deter development of the society.
Control. NCOs may monitor the honest and effective implementation of state
pol icy .
Leadership development. NCOs may facilitate formation of a new generation
of leadership, as NCOs provide an opportunity to demonstrate leadership qualities .
Guarantee of representation. NCOs provide alternate views on daily
problems and strive for t hese views to be heard .
Encourage participation. NCOs permit active participation by different
sectors of the population and thereby reduce of the possible exclusion of some
groups or different views in the course of discussion of problems and decision –
ma king .
Resource mobilization. NCOs may mobilize human and financial resources
to solve development problems .
Therefore, the presence of NCOs in society is not merely the whim of some
groups of enthusiasts. It is evidence of democratization of a society, evidence of
decentralization of the system of state management, evidence of the expression of
honorable human qualities: rendering assistance to a needy person and to the
population as a whole. Democratic transformations provide individuals the
opportunity to become more involved not only in the social life of society, but also
in its political, economic and cultural life of the country, and that of the whole world.

14

A strong nongovernmental, noncommercial sector is necessary for the success
of development of a democracy. NCOs are necessary for a society, as through them
individuals are involved in civil and social life and make their contribution to the
development of democracy. NCOs are the main mechanism through which
individuals are united for promotion of their common interests, protection of group
or individual rights. Through NCOs citizens may attract attention of state bodies in
solving daily problems. NCOs make analysis of many daily problems, and propose
alternative mechanisms for their resolution.

§ 4. Organizational and Legal Forms of NCOs

In the Kyrgyz Republic, it is possible to create only those NCOs, whose
organizational and legal forms are set out in the Civil Code and law of the Kyrgyz
Republic. In the legislation of the Kyrgyz Republic as of August 1, 20 12 , NCOs may
take the following organizational and legal forms:
1) Public association;
2) Foundation;
3) Institution;
4) Association or union of legal entities;
5) Cooperative (noncommercial);
6) Partnership of home or condominium owners;
7) Association of wate r users;
8) Jamaat (community organization);
9) Credit union;
10) Stock exchange;
11) Trade union;
12) Association of employers;
13) Political party;
14) Religious organization.
The choice of organizational and legal form directly depends on the goals for
which the NCO is bein g created, and on the methods by which these goals will be
achieved.
Public Association – a voluntary association of individuals, united by their
common interest in meeting spiritual or other nonmaterial needs. A public
association is a membership organi zation. The highest governance body is the
general meeting of members. A public association’s general meeting of members
creates its executive body (governing board, directorate, etc.). Specific to a public
association is the fact that its goals are achiev ed through the activity of its members.
The potential area of activity of a public association is very broad: it may be
environmental protection, social support of the disabled, education, addressing

15

national issues (for example, through community organiza tions), culture and art, and
so forth.
Foundation – a nonmembership organization, established by individuals
and/or legal entities who make voluntary contributions to the organization, and
which pursues social, charitable, cultural, educational or other p ublic benefit goals.
A foundation may also be created by a last will and testament . A foundation’s
characteristics contrast with those of a public association in that a foundation has no
membership, and because the basis for its creation is a voluntary don ation of
property transferred by its founders for the pursuit of certain goals.
Institution – an organization created by an owner for carrying out
managerial, social and cultural, educational or other functions of a noncommercial
character and financed fu lly or partially by its owner. An institution may be the most
appropriate organizational and legal form for such organizations as hospitals, clinics,
kindergartens, schools, universities, and museums, so long as these organizations are
created as NCOs 6.
Association or union of legal entities – an organization created in order to
coordinate the activities of its member organizations, as well as to represent and
protect their common interests.
Partnership of home or condominium owners and building manageme nt
cooperatives are created by home or apartment owners for the joint management of
houses .
Camp and garage cooperatives are created by owners of camps and garages
for the protection of camps and garages, and protection of the owners’ common
interests.
As sociations of water users are created by farmers to promote the fair
distribution of irrigation water and to maintain necessary engineering structures.
Trade unions and associations of employers are created for the protection of
their members’ interests.
Each organizational and legal form of an NCO has its own specific
characteristics. In order to understand these specifics, it is necessary to refer to the
relevant legislation, contained in the following normative and legal acts of the
Kyrgyz Republic:
1) Ci vil Code of the Kyrgyz Republic as of May 8, 1996 # 15;
2) Law of the Kyrgyz Republic “On noncommercial organizations” as of
October 15, 1999 # 111;
3) Law of the Kyrgyz Republic “On partnerships of homeowners” as of October
28, 1997 # 77;
4) Law of the Kyrgyz Repu blic “On association (union) of water users” as of
March 15, 2002 # 38;
6 Hospitals, clinics, kindergartens, schools and universities may also be created in the form of co mmercial
organizations (such as joint -stock company, limited liability company, etc. ).

16

5) Law of the Kyrgyz Republic “On cooperatives” as of June 11, 2004 # 70;
6) Law of the Kyrgyz Republic “On jamaats (communities) and their
associations” as of February 21, 2005 # 36;
7) Law of the Kyrgyz Republic “On credit unions” as of October 28, 1999 # 177;
8) Law of the Kyrgyz Republic “On association of employers” as of may 22,
2004 # 66;
9) Law of the Kyrgyz Republic “On equity market” as of July 21, 1998 # 95
(contains provisions on stock -exc hanges);
10) Law of the Kyrgyz Republic “On trade unions” as of October 16, 1998 #
130;
11) Law of the Kyrgyz Republic “On freedom of religion and religious
organizations” as of December 31, 2008 # 282 ;
12) Law of the Kyrgyz Republic “On political parties” as of June 12, 1999 # 50.

§ 5. Classification of NCOs

NCOs are classified by various criteria. These are set out and discussed
below.
I. Depending on the presence and absence of members, NCOs are of two
types:
1) membership; and
2) nonmembership organizations.
Foundations a nd institutions are the only non -membership NCOs. All the rest of the
NCOs are membership organizations.
II. NCOs are of two types depending on the form of ownership:
1) governmental; and
2) nongovernmental organizations.
At the present time, governmental NCOs are mainly state institutions (kindergartens,
schools, universities, medical clinics, hospitals etc. 7), while the rest of the NCOs are
nongovernmental organizations and some foundations (state foundations).
Some governmental organizations have the word “founda tion” in their names,
such as the Social Fund and the Foundation on Development of the Economy.
According to Article 162 of the Civil Code of the Kyrgyz Republic, “foundations
must be established by voluntary nongovernmental contributions of property.” The
above -mentioned governmental organizations are either institutions (i.e., the state is
an owner) or state bodies, and the word “foundation” only indicates the names of the
organizations.
7 In compliance with the legislation of the Kyrgyz Republic, kindergartens, schools, universities, medical
clinics, hospitals and other similar organizations may be crea ted as private institutions or as commercial organizations .

17

III. Depending on the group of persons benefitting form the organization ’s
activity, NCOs are divided into:
1) Public benefit NCOs; and
2) Mutual benefit NCOs.
These types of NCOs were explained in detail in § 2 of the present chapter . This
division of NCOs is applied mainly for tax purposes. For both types of NCOs, there
is a favor able tax regime, but public benefit NCOs enjoy additional tax benefits,
such as incentives to individuals and legal entities to make charitable contributions.
IV. Depending on the purposes for which they were created, NCOs are
divided into: charitable, ecolog ical, medical, educational, sports and other
organizations.
V. NCOs are also classified by their organizational and legal forms (see §
4).

§ 6. Structure of Noncommercial Law

In compliance with the Civil Code of the Kyrgyz Republic, subjects of law are
div ided into two groups:
1) individuals (citizens, foreign individuals and stateless persons);
2) legal entities (commercial organizations, NCOs and the state — the state as
a whole, state bodies and bodies of local self -administration). As with commercial
organizations, NCOs are a special group of legal entities (see Figure #1, below).
The Civil Code of the Kyrgyz Republic contains general provisions regarding
legal entities . Further specifc matters are contained in dozens of laws and
regulations, which co ncern the creation and activities of each organizational and
legal form of legal entity, including commercial and noncommercial organizations.
The curricula of many universities offer the opportunity to concentrate on
economic law or business law, in the framework of which everything related to the
activity of commercial organizations is studied in detail. Noncommercial law is
analogous to the business law discipline, in the framework of which everything
related to NCOs is studied. Some specialists believ e it is necessary to name the
discipline differently: “The legal regulation of the activities of NCOs.”
The discipline of noncommercial law should contain a general study of
normative and legal acts of the Kyrgyz Republic on NCOs that are not covered in
the framework of civil law. The discipline covers topics on creation, specifics of
certain organizational and legal forms, legal status, financing (including economic
activity), specifics of taxation, and termination of activity of NCOs.

18

Subjects of law

Legal
entities

Subjects of
law Carrying out activity
based on Certificate
Carrying out activity
based on Patent Individuals
Citizens – private entrepreneurs
Citizens (citizens of the Kyrgyz
Republic, foreign citizens, stateless
persons )
State,
and local self –
administration bodies
President
Parliament
Judicial bodies
Government
Ministries
Local self -administration
bodies (oblast, rayon, rural )
Public Association
Foundation
Institution
Association (union) of legal
entities
Noncommercial cooperative
Partnership of homeowners
(condominium )
Association of water users
Noncommercial
organizations
Commercial
organizations
Joint -Stock Company
Limited Liability
Company
Subsidiary Liability
Company
State Enterprise
Genera l Partnership
Special Partnership
Commercial cooperative
Credit union
Stock exchange
Trade union
Association of employers
Political party
Religious organization
Jamaat (community
organization )
Universities
Schools
Museums
Others

19

Chapter 2. Regulation of NCOs

§ 1. Historical Development of Legal Status of NCOs

NCOs originated in ancient times. As S.S. Uriev notes, “In all centuries of the
existence of social groups, persons united not only on eco nomic, but also on non –
economic, bases. 8 However, in Kyrgyzstan “due to the social -political and
economical backwardness of its territories and the unique life style of the
population, more formal public associations appear only in the beginning of 20 th
ce ntury, related to the general public -political upsurge in Russian Empire.” 9 At that
time in Kyrgyzstan, the first public organizations were formed. “By 1917, in Osh, a
union of Muslim deputies; and, in Pishpek, a Kyrgyz public committee was
formed.” 10 In 19 17, in Osh, a union of workers and poors ; in Pishpek, a union of
workers and craftsmen was formed; and, in May of 1917, a revolutionary –
democratic union of poverty “Buk hara” was formed. 11
The proper development and organizational designation of public inde pendent
action in the Kyrgyz Republic started during the years of Soviet power. The
Communist Party considered public organizations “as a mean to strengthen its
influence over masses, their involvement in public activity by the supervision and
control of t he same party.” 12 As in other union republics, the right to create public
organizations was codified in the Constitution of the Kyrgyz Socialist Union
Republic. The Constitution stated that “in compliance with goals of Communist
structures, the citizens of Kyrgyz Socialist Union Republic have a right to unite into
public organizations, which facilitate the development of political activity and
independent action and redress of their diversified interests. Public organizations are
guaranteed conditions for th e successful implementation of activities set out in their
charters.” 13 The Constitution provided that public organizations may “participate in
governing state and public affairs, [and] in solving political economic and social –
cultural issues” 14 and guarante ed assistance and support by the state — particularly,
in creation of necessary material conditions. 15
8 Uriev S.S. Pravovoe regulirovanie deyatelnosti nekommercheskih organizasii v RF [Legal regulation of
noncommercial organizations], Moscow ( 1998 ).
https://ngo.org.ru/ngoss/get/id13069.html 9 Chinaliev U. Osobennosti formirovania grajdanskogo obshestva v Kyrgyzskoie Respublike [Specifics of formation of
civil society in Kyrgyz Republic] , Moscow ( 2001 ), p. 43. 10 U istokov kyrgyzskoi nasi onalnoi gosudarstvennos ti [At origins of Kyrgyz national statehood] /edited by T.K.
Koichuev , V.M. Ploskih , T.U. Usubaliev , Bishkek (1996), p. 95. 11 Istoria kyrgyzov i Kyrgyzstana [History of Kyrgyz people and Kyrgyzstan] / edited by T.K. Koichuev , Bishkek
(1998 ), pp .160 – 161. 12 Chinaliev U. Osobennosti formirovania grajdanskogo obshestva v Kyrgyzskoie Respublike [Specifics of formation
of civil society in Kyrgyz Republic] , Moscow ( 2001 ), p. 44. 13 Konstitusia (Osnovnoi Zakon) Kirgizskoi SSR 1978 goda, Frunze : Kyrgyzstan ( 1978 ), pp .7, 45, 49. 14 Ibid . 15 Ibid .

20

At the same time, it is necessary to note that, as in other union republics, some
parties and trade unions were prohibited in the first years of Soviet g overnment in
Kyrgyzstan. 16 Many communities were closed, as they were, in the opinion of the
government, badly executed functions of the so -called “driving belt” (the
community of old Bolsheviks, political convicts, fans of Russian literature, etc.).
The d evelopment of citizens’ rights and freedoms, including the right to association,
was constrained by lack of regard for the essence of the law. The theory of the law –
based state was considered to be bourgeois and inapplicable to the Soviet
government.
The C onstitutions of the USSR of 1936 and 1977, recognizing the freedom of
unions, did not include the freedom of creation and activity of such organizations,
other than Communist political parties.
In the republic, as in the larger USSR, there was no legislat ion on public
organizations. As a result, issues relating to their creation and organization, as well
as rights and obligations of these organizations, were not regulated. Party bodies
regulated all issues related to public organizations. Only upon their d ecision or
agreement with them was it possible to create a public association. The charters of
public organizations were not registered by anybody, but were required to be
coordinated with party bodies. Party bodies regularly interfered with the internal
affairs of public organizations. Activities such as fora or conferences of public
organizations required prior coordination with corresponding party bodies, and press
publicity required the authority of the state agency on literature (“Glavlit”). 17 Any
publ ic initiative was subject to prior coordination. In addition, public organizations
needed to coordinate all activity with the corresponding state body.
Over many years in history of law in USSR , there was a proposal to adopt
laws on public organizations, rights of trade unions, youth and youth organizations
and consumer cooperative societie s.18 Leaders of these organizations talked several
times about the necessity to adopt legislative acts on public associations. However,
these proposals were negatively pe rceived by the existing command and
administrative system.
The creation and activities of public organizations were regulated by
regulations, agency decrees and instructions. For example, the all -union community
“Znanie” (knowledge) was created based on th e Order of the Council of Ministers of
the USSR as of April 22, 1947; DOSAAF (the name of a paramilitary society of the
16 Polojenie o dobrovolnyh obshestvah i souzah , utverjdennoe postanovleniem VSIK i SNK RSFSR as of July 10,
1932 // Sobrabie uzakonennii Pravitelsvtva RSFSR (1932), #14, p. 331. 17 Chinaliev U. Osobennosti f ormirovania grajdanskogo obshestva v Kyrgyzskoie Respublike [Specifics of formation of
civil society in Kyrgyz Republic] , Moscow (2001), p. 44. 18 See Yamolskaya S. A, Obshestvennie organizasii v SSSR [Public organizations in USSR], Moscow (1972). P. 105;
Snigireva I. O., Problemy sovershenstvovania zakonodatelstva o profsouzah [Problems of improvement of legislation
on trade unions] См .: Ямольская Ц.А. Общественные организации в СССР . – М., 1972. – С. 105; Сн игирева И.О.
Проблемы совершенствования законодат ельства о профсоюзах // Вопросы теории общественных организаций .
– М., 1977. – С. 126.

21

Soviet Union , namely, the Voluntary Society of Assistance to the Army, the Air
Force and the Navy) was established based on an order of the Council of Ministers
of the USSR as of August 20, 1951. The all -union community of old Bolsheviks was
liquidated by order of the Central Committee of the all -union Communist Pa rty of
Bolsheviks as of May 25, 1935. These agency acts were indeed effective “law,” and
a kind of realization of the formal right to association. The totalitarian regime did
not allow study of and reference to foreign experience of the right to associatio n, and
hindered international cooperation in this area. Total state ownership of all aspects
of society was extended to public organizations, as well. Trade unions, the Young
Communist League (so -called “komsomol”), creative unions and voluntary
communitie s became adjuncts to state structures.
An indispensable condition of their creation and activity was the obligation to
work under party guidance to build communism. The legal status of public
organizations was determined by Orders of the Central Executive Committee and the
Council of National Commissioners of the USSR as of January 6, 1930, “On the
procedure for establishment and liquidation of all -union communities and unions
which do not pursue profit -making” and as of September 7, 1932, “On the procedur e
for activity within USSR of foreign and international voluntary communities and
unions ” as well as by the Order of the All -Russian Central Executive Committee and
Council of National Commissioners of Russian Soviet Federative Socialist Republic
(RSFSR) a s of July 10, 1932, “On approving the Regulation of voluntary
communities and unions.” In the third program of the Communist Party of the Soviet
Union (“CPSU”), adopted in the XXII party session, an increase in the role of public
organizations in building communism was declared in order to further transform the
socialist state into a public, communist self -administered state. 19
New legislation regulating the legal status of citizen associations appeared
only in 1990, particularly the Law of USSR as of Octob er 9, 1990, “On public
organizations,” and approved by the Order of Council of Ministers of USSR as of
January 10, 1991 # 21 “Rules on consideration of applications on registration of
charters of all -union, inter -republic and international public associati ons.” 20
The existing public organizations in the Soviet period thus had a unique
feature: they were state -owned and were under the total control of the CPSU, and
they were adjuncts to the administrative and bureaucratic system. 21
Significant changes appeare d during the years of perestroika. Due to
democratization, the public and political role of the population increased, the
quantity of public associations increased, and new associations had no relation to the
CPSU (for example: the Democratic movement of K yrgyzstan, the association of
builders, etc.), and existing public organizations, due to objective reasons, began to
change the nature of their activity. There was a need for legislative regulation of
19 Бюл. междунар. договоров. – 1994. – № 9. – C. 8 – 9. 20 Курс международного права. Т 1. – М., 1994. – С. 218 – 219. 21 Чиналиев У. Особенности формирования гражданского общества в Кыргызской Республике. – М., 2001. – С. 44 – 45

22

relations, connected to the creation and operation of p ublic associations. Based on
the union Law “On public associations,” the Supreme Council of the Kyrgyz SSR on
February 1, 1991, adopted the Law of the Kyrgyz SSR “On public associations,”
which regulated the activity of public associations, political parti es, trade unions and
consumer cooperatives. According to Article 1 of the law “On public associations,”
a public association could be formed voluntarily, as the result of the free will of
individuals, united based on common interests.
After the independen ce of Kyrgyzstan, and with the adoption of a new course
of development of the Kyrgyz Republic, there were many proposals on the adoption
of a new law for regulation of the activity of public associations. As a result, on
December 15, 1999, the Law of the K yrgyz Republic “On noncommercial
organizations” was adopted whereby a special chapter was dedicated to the
regulation of public associations.

§ 2. Sources of the Law of NCOs

The sources of legal regulation of organizations are legal norms, codified in
different legal acts. The sources of legal norms regulating NCOs are the following:
1. international treaties and other international documents, which are
effective on the territory of Kyrgyzstan;
2. national legislation and administrative law of the Kyrgyz Rep ublic;
3. corporate acts of NCOs.

Sources of International Law

Development of NCOs is based on the realization of the right to freedom of
association (or unions) codified by different international acts. The primary
international acts effective on the te rritory of the Kyrgyz Republic, according to
Article 6 of the Constitution of the Kyrgyz Republic, 22 are the following:
 The Universal Declaration of Human Rights as of December 10, 1948 (Art.
20.);
 The International Covenant on Civil and Political Rights a s of December
19, 1966 (Art. 22);
 The International Covnenant on Economic, Social and Cultural Rights as
of December 19, 1966 (Art. 8);
 The Internatinal Labor Organization (“ILO”) Convention concerning the
Rights of Association and Combination of Agricultu ral Workers # 11 as of
Otober 25, 1921;
22 International agreements, generally recognized principles and norms of international law in compliance with part 3
article 12 of the Constitution of the Kyrgyz Republic are the main part of the l egal system of KR.

23

 The ILO Convention concerning Freedom of Association and Protection of
the Right to Organise # 87 as of June 9, 1948.
The above -mentioned international acts possess universal character and their
codified provisions w ere not only reflected in provisions of national legislation, but
have also been duplicated in international documents of a regional character. For
example, the right to freedom of association is codified in Article 11 of the
Convention for the Protection of Human Rights and Fundamental Freedoms adopted
by the Council of Europe on November 4, 1950; in Article 16 of the American
Convention on Human Rights as of November 22, 1969; and in Article 12 of the
Commenwealth of Independent States (“CIS”) Convention on Human Rights and
Fundamental Freedoms as of May 26, 1995. 23
Conventions agreed by international intergovernmental and nongovernmental
organizations play a special role as sources of legal regulation of NCOs — in
particular, resolutions and recommendatio ns of UNESCO, the specialized UN
agency on the issues of education, science and culture. 24 Referring to such source
materials, Russian legal scholar G.U. Tunkin fairly noted that “they are not bodies,
expressing state will,” therefore their opinions and res olutions do not directly result
in the process of codification of international norms. Even so, these sourc es of law,
first of all, influence the platform of particular state and facilitate the formation of
international law; secondly, they directly regula te relations within these
organizations. Many provisions developed by nongovernmental organizations are
considered to be doctrine and international practice. 25

Legislation of the Kyrgyz Republic

In national legislation, the leading role belongs to the Constitution, which has
the highest legal force. The activity of NCOs gets its Constitutional grounding in
Articles 4 and 35 , which codify the right to association as accepted by the
international community.
After the Constitution, an important source of the legal regulation of NCOs is
the Civil Code of the Kyrgyz Republic. It codifies major provisions on NCOs and
sets out their separate types. Further development of provisions of the Civil Code are
set out in special laws, of which at the present time th ere are more than ten,
including the Law of the Kyrgyz Republic “On Noncommercial Organizations,” the
Law of the Kyrgyz Republic “On Philanthropy and Charitable Activity,” the Law of
23 See p. 714. 24 Deistvuushee mejdunarodnoe pravo [ Effective international law] (prepared by prof. U.M.Kolosov and
prof.E.S.Krivchikova), Moscow (1996); Kurs mejdunarodnogo prava [International law course] – p 205 – 208;
Mejdunarodnye org anizatsii sistemy OON [ International organizations of UN system]. Handbook. Mscow (1990) ;
Mejdunarodnye normativnye akty UNESKO [ International noramive acts] UNESCO, Moscow (1993). 25 Kurs mejdunarodnogo prava [International law course], pp 218 – 219 .

24

the Kyrgyz Republic “On Freedom of Religion and Religious Organizations,” the
Law of the Kyrgyz Republic “On Partnership of Homeowners,” and others.
Other sources of legal provisions on NCOs include decrees of the President of
the Kyrgyz Republic, Government orders of the Kyrgyz Republic and legal acts of
ministries and agenci es.

Corporate Acts of NCOs

Corporate or local normative acts of NCOs are the internal documents of the
organization. Such acts are adopted by the governing bodies of noncommercial
organization and apply only within the organization. Despite their speci al nature and
intention, corporate provisions take a special place in the system of sources of legal
norms. Local norms are codified in charters, regulations, instructions, statutory
agreements, minutes, agreements, etc. As a rule, they regulate the proced ural issues
NCOs, serving as its “legislation,” regulating such important issues as goals and
tasks of NCOs, structure, term and authority of management bodies, etc. As
opposed to other sources of law, the corporate norms are adopted by NCOs without
the i nterference of state bodies .
Agreements also have important meaning as a source of norms for NCOs.
They have such features as volunteerism, achievement of agreement on all
significant aspects, and equality and mutual responsibility of parties over execut ion
of obligations. 26 Agreement or consensus is actively used by NCOs, from the
moment of creation of NCOs and ending with the realization of different projects. It
is necessary to note that agreement is used not only for consolidation of legal
relationship s between legal entities and citizens on economic issues, but also for
establishing partnership relations and conducting joint events and campaigns.

§ 3. The Constitutional -Legal Bases of Activities of NCOs

In national legislation, the Constitution is a fundamental to the functioning of
legal entities, regulating the most important spheres of their relationships. In
democratic states, Constitutional norms cannot limit universally recognized
international principles and provisions on human rights, includ ing the right to
freedom of association. At the same time, it is obvious that national constitutions do
not mechanically copy international documents, but establish independent bases for
the legal status of public associations on the territory of the given state.
As legal scholars of Western countries note, following their Constitutional
norms, generally NCOs are permit ted to be created freely, although there are some
exceptions. B.A. Strashun and V.V. Maklakov, particularly, write:
26 Himenes D’Arechaga E. Contemporary international law, Moscow (1983) p – 27

25

Associations should n ot pursue the goals of making profit, as the status of
such kind of associations is regulated not by Constitutional, but civil, commercial,
industrial, agricultural law. Moreover, some categories of associations are prohibited
on political grounds. For exa mple, Paragraph 78 of the Constitution of Denmark of
1953 permits the possibility to dissolve unions that are seeking to take measures for
achievement of their goals by violence, incitement to violence or any other
punishable impact to dissidents. The Cons titution of Italy indirectly prohibits secret
communities and such associations from pursuing political goals through militarized
organizations. Lately, there is a tendency, together with a general declaration of the
right to association, to define in con stitutions the basis for some types of
associations: political parties (Art. 21 of the Basic Law of Germany; Art. 4 of the
Constitution of France; Art. 20 of the Constitution of Macedonia, etc.), trade unions
(Art. 39 of the Constitution of Italy; Paragrap h 1 of Article 23 of the Constitution of
Greece; Art. 43 of the Constitution of Croatia, etc.), economic unions (Art. 7, Part 2
of Article 37 of the Constitution of Spain; § 4 of the Constitution of Hungary, etc.).
Frequently, parties and other public asso ciations are required to have an internal
organization that corresponds to democratic principles. 27
The right to freedom of association is recognized in the main law of the
country, the Constitution of the Kyrgyz Republic, adopted on June 27 , 2010 , as in
ot her post -Soviet countries. Article 4 of the Constitution of the Kyrgyz Republic
provides that political parties, trade unions and other public associations may be
created based on free will and common interests. The given article prescribes one of
the fund amental features of the organization and activity of NCOs: this is the
principle of free participation, which is reflected in subsequent normative and legal
acts, regulating the activity of public organizations.
Constitutional and legal regulations also c over the principles of interaction of
the state and public associations. In compliance with Paragraph 2 of Article 7 of the
Constitution of the Kyrgyz Republic, in Kyrgyzstan, religions are separate from the
state. As a result, proponents of religious org anizations may not play a role in the
activities of state bodies.
In Article 35 of the Constitution of the Kyrgyz Republic, the right to
association is included in a list of inherent and guaranteed human rights, along with
other rights. The right to asso ciation is granted to all who are residing on the
territory of the Kyrgyz Republic without any limitations, and the Constitution
guarantees free enjoyment of the given right.
It is necessary to note that the Constitutional right of individuals to associat ion
is the basis for the legal status of NCOs. This Constitutional basis directly influences
the normative regulation of the right to association, embodied in legislative acts. 28
27 Uriev S.S. Pravovoi status obshestvennyh obiedinenii [Legal status of public associations] , Moscow (1995) .
http ://ngo .org .ru/ngoss /get /id13069. html 28 Aliev A.A. Konstitusionnoe pravo na obiedinenie v sisteme prav i svobod cheloveka i grajdanina [Constitutional
right for association in the system of human and citezen rights and freedom], Moscow (2000) .

26

The meaning of this right, and the legal guarantees it provides, were underest imated
and ignored for a long time. Long -term political practice ignored this right, and the
state did not try to facilitate the enjoyment of these Constitutional rights by
individuals.
At the present time, the right to association is considered an inalie nable
dimension of the political rights of individuals . This right is closely related to other
political rights, especially the freedom of opinion. There is a view that the right to
association is one of the specific rights giving meaning to the freedom of opinion
(beliefs). 29
The right to association contains two elements: the subjective right of citizens
to associate, and the right to legal status of public associations. Specifically, the right
of citizens to association is composed of:
 The right to create associations;
 The right to join them and to withdraw from them freely;
 The right to participate in the activities of an association;
 The right to protect the rights and legal interests of associations.
The legal status of a public association is a complex of its rights, obligations,
responsibilities, as well as its guarantees.
The right to association applies to citizens of the Kyrgyz Republic, as well as
to foreign citizens and stateless persons. The evidence is Par. 2 of Article 2 of the
Law of the Kyrg yz Republic “On noncommercial organizations,” which states that
“founders of noncommercial organizations may be legal entities and individuals
irrespective of the place of registration of the legal entity and place of residence or
citizenship of the indivi dual.”
A popular opinion holds that the “right to association is an important
precondition for establishment of entities of civil society.” 30 This should not be
understood only as the creation of NCOs. According to V.O. Luchin and O.N.
Doronin, “the given notion means any communities of individuals, formed in order
to meet various needs.” 31
Therefore, in spite of the fact that in the Soviet period the importance of the
Constitutional right to association was underestimated, in contemporary Kyrgyzstan,
the ri ght to freedom of association is an inalienable right of every human being and
finds its place in special legislation.

29 See : Kudryavtsev V. T oporin B.K. novoi Konstitutsii SSSR//Narod.deputat [New Constitution of USSSR//people’s
deputy] ( 1990 ) – № 1. – pp 3 – 5. 30 Aliev A.A. Konstitusionnoe pravo na obiedinenie v sisteme prav i svobod cheloveka i grajdanina [Constitutional
right for association in the system of human and citezen rights and freedom], Moscow (2000) – p.17. 31 Luchin V.O., Doronina O.N. Jaloby grajdan v Konstitutsionnyi sud RF [Citizen’s appeals to Constitutional court of
Russian Federation], Moscow (1 998 ) – p.36

27

§ 4. Civil and Legal Status of NCOs

The basements of civil and legal regulation of NCOs are found in provisions
of the Civil Code of the Kyrgyz Republic (“Civil Code”), adopted on May 1996, and
the Law of the Kyrgyz Republic “On noncommercial organizations.”
In contrast to Constitutional norms, norms of civil legislation have an applied
character. In compliance with Article 1 of the Civ il Code, “civil legislation
determines the legal status of business participants, the concept and procedure for
the enjoyment of property rights and other proprietary interests, intellectual property
rights, regulation of contractual and other obligations, as well as other property and
related nonproperty relationships.” While business participants can be individuals,
legal entities and the state, NCOs belong to the category of legal entities.
Article 85 of the Civil Code identifies all existing legal enti ties as either
commercial or noncommercial organizations. Consistent with Paragraph 1 of the
indicated article of the Civil Code, NCOs are considered legal entities, not pursuing
making profit as a major goal of their activity and not distributing received profit
among participants.
Legislators chose two criteria to divide the categories of legal entities: the
major goal of its activity and the principle of profit distribution. The major goal of
commercial organizations is making profit. Profit is distrib uted among owners.
NCOs have no such features. Therefore it may be concluded that the definition of
NCO is not based on the main features of similar types of organizations, but rather
on their negative comparison with commercial organizations.
The differe nces between commercial and noncommercial organizations
influences their legal status and legal capability. All NCOs have limited legal
capability, i.e., they have only those civil rights and obligations that are provided in
their statutory documents and c orrespond to the goals of their activity. This
conclusion derives from the provisions of current legislation:
– Paragraph 1 of Article 84 of the Civil Code provides that “a legal entity has
civil rights corresponding to goals of its activity, as provide d in its statutory
documents, and to carry out its obligations related to this activity;”
– Article 2 of the Law of the Kyrgyz Republic “On noncommercial
organizations” contains a provision that “a noncommercial organization is a
voluntary self -regulated organizations, created by individuals and/or legal
entities based on their common interests for realization of spiritual or other
nonmaterial needs for the interests of their members and/or the whole
society, for which making profit is not a major goal, a nd in which received
profit is not distributed among its members, founders and officers;”
– Article 12 of the Law of the Kyrgyz Republic “On noncommercial
organizations” prescribes that “a noncommercial organization has the right

28

to carry out any activit y that is not prohibited by law and that does not
contradict the goals and tasks of the organization, as determined in its
charter, program documents and other acts.”
The scope of legal capacity of an NCO derives from its charter. Therefore, the
statutory documents of an NCOs should indicate its goals and scope of activity.
The a rticle 183 of the Civil Code stipulates consequences in case of c arrying
out an activity by any legal entity that is beyond the scope of an organization’s legal
capability: in case of carrying out an activity that does not correspond to the
requirements of the law leads to nullity of a transaction; in case of carrying out an
activity which does not correspond to the limits established in statutory documents
leads to contestability o f a transaction .
It is necessary to note that the general provisions of the civil legislation on
licensing some kinds of activities also apply to NCOs (Article 12 of the Law of the
Kyrgyz Republic “On noncommercial organizations”). Civil legislation does not
contain any special provisions specifically applicable to NCOs; however, the
consequences of carrying out a licensed activity without permission are also
regulated by Article 186 of the Civil Code.
In the Kyrgyz Republic NCOs may be created with or wi thout formation of a
legal entity according to Article 6 of the Law of the Kyrgyz Republic “On
noncommercial organizations.” However, the Law of the Kyrgyz Republic “On
noncommercial organizations” regulates the activity of only four organizational and
leg al forms of NCO: public associations, foundations, institutions and associations
or unions of legal entities. The rest of the organizational and legal forms of NCO is
regulated by other laws of the Kyrgyz Republic, which (except for the Law of the
Kyrgyz R epublic “On trade unions” as of October 16, 1998 # 130) do not provide
the possibility of creation of nonregistered NCOs. As a result, one may conclude that
the legislation of the Kyrgyz Republic provides the possibility to establish an NCO
as a legal enti ty but without state registration not for all organizational and legal
forms, but only for certain organizational and legal forms, particularly public
associations, foundations, institutions, associations or unions of legal entities and
trade unions. The l egal status of nonregistered NCOs is described in Chapter 5,
“Creation of NCOs” of the present textbook.
According to Article 86 of the Civil Code, a legal entity is subject to state
registration and considered in existence from the moment of its state registration.
Therefore, the legal capacity of a legal entity begins upon state registration. After
state registration, an NCO obtains the elements of status of a legal entity (Art. 83 of
the Civil Code):
1) The right to own property, and to have limited prop erty rights;
2) The right to acquire and enjoy property and private nonproperty rights and
obligations (conclude a contract);

29

3) To have a seal of organization, to open settlement and other accounts in
banks;
4) To act in lawsuits as a plaintiff or defendant.
Legal entities must have a separate balance sheet or financial statement. These
provisions are based on legal doctrine, which traditionally defines four fundamental
features of a legal entity. 32 They are:
 Organizational unity, i.e., a hierarchy of governing bodi es;
 Property ownership, i.e., property belonging only to the given organization
and is separate from the property of other legal persons;
 Independent civil and legal responsibility, i.e., the organization
independently carries out its obligations;
 To act i n business transactions in one’s own name, i.e., the organization in
may acquire and enjoy in its own name civil rights and may carry
obligations; may act as a plaintiff or respondent in lawsuits.
In considering the issues concerning legal entities, it is important to remember
the founders’ or participants’ rights in the property of the legal entity. According to
Paragraph 2 of Article 83 of the Civil Code, because of their participation in the
formation of a legal entity, its founders (members) may have a right in personam in
relation to this legal entity or may have proprietary interests in its property.
Cooperatives are one such legal entity in which its participants have rights in
personam . Organizations with limited property rights are those legal entit ies in
which their founders reserve their property rights or other proprietary interests
(institutions). The following legal entities in which their founders do not have
property rights are: public associations, religious organizations, public foundations
and associations of legal entities (unions). This is an additional difference between
commercial organizations from NCOs: founders or participants of NCOs do not
have property rights, except for institutions.
NCOs created by formation of a legal entity en joy all rights provided by civil
legislation for legal entities. NCOs may create branches and representative offices,
participate in creation of other legal entities, etc.
NCOs are not prohibited from carrying out economic activity, subject to some
limita tions. Economic activity, first of all, must be directed toward achievement of
the goals for which the organization was created; and secondly, must not contradict
these goals. Moreover, income from economic activity must not be distributed
among members or participants and must only be used for achievement of statutory
goals.
Norms of existing legislation allow making some observations about what
specific kinds of economic activities are permitted by NCOs. In compliance with
Article 12 of the Law of the Ky rgyz Republic “On noncommercial organizations,”
32 See Grajdansko e pravo [Civil Law] (under the editorship of A.P. Sergeeva, U.K. Tolstogo) , Moscow (2004 ) – pp.
142 – 146.

30

an NCO has the right to carry out economic activity, including production activity,
without distribution of received profit among founders, members, officers and
members of governing body. Such activity may i nclude production and sale of
goods, implementation of works, rendering services with remuneration and other
kinds of economic activity, if they do not contradict the goal and activities of the
organization. At the same time, the legislation states that li mitations of some kinds
of activities of NCOs may only be set by law. It is necessary to note that the given
norm is one of the democratic norms of the above -mentioned law.

31

Chapter 3. Creation of NCOs

§ 1. Creation of Nonregistered NCOs and Their Status

In the Kyrgyz Republic, NCOs may be created with or without formation of a
legal entity, according to Article 6 of the Law of the Kyrgyz Republic “On
noncommercial organizations.” In other words, an NCO may not be registered as a
legal entity. However, a s it is well known, in Kyrgyzstan the legislation sets at least
16 organizational and legal forms of NCO and the Law of the Kyrgyz Republic “On
noncommercial organizations” regulate the activity of only four of them: public
associations, foundations, insti tutions and associations (unions) of legal entities. The
activity of the rest of the organizational and legal forms of NCO is regulated by
other laws of the Kyrgyz Republic, which (except for the Law of the Kyrgyz
Republic “On trade unions” as of October 1 6, 1998 # 130) do not provide the
possibility of creation of nonregistered NCOs. As such, the legislation of the Kyrgyz
Republic provides the possibility to create an NCO without state registration as a
legal entity not for all organizational and legal for ms, but only for some
organizational and legal forms, namely, public associations, foundations,
institutions, associations (unions) of legal entities and trade unions.
The Law of the Kyrgyz Republic “On noncommercial organizations” does not
define the pro cedure for creating, carrying out activity, or establishing the legal
status of a nonregistered NCO. In the given situation, one may assume that a
nonregistered NCO may be created by oral or written agreement between its
founders, and the procedure for per forming activity and legal status of nonregistered
NCO may be defined on the basis of general provisions of civil legislation.
Its legal status will depend on what kind of agreement on creation of
nonregistered NCO (written or oral) was concluded. If the agreement on creation of
a nonregistered NCO is concluded orally, then the organization will be less
sustainable and less stable compared to a nonregistered organization than one
created by written agreement. In case of disputes between members of such an NCO,
it will be difficult to settle a dispute, as there would no written document (where
would be written the rights and obligations of the parties) on the basis of which the
given dispute would have been settled. There is a high possibility that in case o f a
conflict among its members, such an organization could be easily dissolved.
If the agreement on creation of a nonregistered NCO is concluded in writing,
then the status of the given organization will depend on the conditions written in the
agreement. K yrgyzstan, as many other countries of the world, observes the principle
of “freedom of contract” in its civil legislation (Article 382 of the Civil Code of the
Kyrgyz Republic). According to this principle, parties may conclude an agreement
both as provide d by the legislation and outside its terms; the parties are free to

32

choose the conditions of the agreement. In the given situation everything depends on
the intentions of the founders of a nonregistered NCO. There are many variations on
setting up a nonreg istered NCO. Variations may depend on the structure of
governing bodies, the interrelations of the NCO and its members, the procedure for
managing community property, etc.
The legal status of a nonregistered NCO differs significantly from the legal
statu s of a registered NCO:
1) A nonregistered NCO does not have the powers of a legal entity, such as a
registered NCO:
– The right to own property, and to have limited property rights;
– The right to acquire and enjoy property and private nonproperty rights
and obli gations (conclude a contract);
– A seal of organization, to open settlement and other accounts in banks;
– The right to act in lawsuits as a plaintiff or defendant.
2) A nonregistered NCO may, but is not obliged to have, statutory documents
(charter, statutory do cument etc.);
3) A nonregistered NCO may, but is not obliged to have, a name (however,
this name will not be protected by law and may be used by other
organizations);
4) A nonregistered NCO and its donors may not enjoy tax benefits provided
to registered NGOs ;
5) A nonregistered NCO has no right to carry out economic activity;
6) Legislation does not provide for issuance of licenses for nonregistered
NCOs.

§ 2. Differences between Registered and Nonregistered NCOs

Those who are intending to create an NCO often a sk the question: “Which
NCO is better, one registered as a legal entity or one that is not registered?” It is
impossible to give one answer to this question. There are different NCOs and
different situations; for some NCOs, it is better to operate without state registration,
while for other NCOs it is impossible to operate without state registration.
After state registration, an NCO will hav e the status of a legal entity.
The example below will demonstrate the differences between registered and
nonregister ed NCOs.
Example: Young people of different professions, residents of one village,
having seen the plight of the people of advanced age of their village, decided to help
them. They made a list of people of advanced age who need their assistance,
determined the types of required assistance, distributed among themselves
obligations and started to carry out their activity: to help people of advanced age

33

with housework, to shop for them in the market, to work in their vegetable garden,
to chop the firewood for them, etc.
One would agree that these citizens created an organization (NCO, public
association) by carrying out joint activity: they planned and coordinated with each
other joint activity; their activity was goal -oriented. At that time, they did not need a
legal entity. There were no obstacles preventing them from carrying out their
activity, therefore they did not register their organization as legal entity. However,
after a while there were two events that significantly changed the situation.
Event One . One prosperous private company, having known about the noble
activity of the young people, wanted to contribute to their activity and decided to
give them an automobile as a gift. And there is a question: “In whose name should
this automobile be register ed?” Certainly, the automobile should be the property of
the organization of these young people, but until it is registered as a legal entity, it
may not own property. In other words, a nonregistered organization cannot own an
automobile.
Event Two. A dono r organization proposed that this organization of young
people conclude an agreement for the acquisition of fuel (coal) for heating premises
of people of advanced age during the winter. However, according to the conditions
of the program, it is necessary t o sign a written grant agreement, bearing the seal of
the organization, and to indicate in the agreement the bank account number of the
organization. As this organization was not registered as a legal entity, it had no right
to conclude agreements (contrac ts), no seal and no bank account. The young people
faced a dilemma whether to register their organization as a legal entity or not.
Registration of an NGO as a legal entity has its own advantages, as well as
disadvantages. The advantages were mentioned ab ove: the NGO will become a
legal entity. Disadvantages include the following:
1) First of all, during registration, it is necessary to incur some expenses with the
Ministry of Justice, statistics bodies, Social Fund, tax inspection, as well as in
preparing a set of statutory documents, notarization of founders’ signatures in
statutory documents, making a seal, opening a bank account, etc.;
2) Secondly, during registration, it is necessary to spend time to prepare the
statutory documents of the NCO, to visit the M inistry of Justice, statistics
bodies, Social Fund, tax inspection, etc.;
3) Thirdly, after registration, it is necessary monthly to submit reports to tax
bodies and the bodies of Social Fund. Correspondingly, it is necessary to hire
an accountant, to pay his or her salary, to pay taxes and make social payments
to the Social Fund.
Weighing the advantages and disadvantages of registration, the young people
decided to register their organization, as registration as a legal entity allows them to
widen their activ ity and to achieve their goals by more effective methods.

34

It is possible to conclude that Some NCOs (public associations, foundations,
institutions, associations of legal entities and trade unions) may be created and carry
out activity without state regi stration as a legal entity. However their activities will
be limited: there is certain limit (threshold) beyond which it is impossible to operate
without registration as a legal entity.

§ 3. Procedure for State Registration of an NCO

Before registering an NCO it is necessary to choose the proper organizational
and legal form. In the Kyrgyz Republic, an NCO must adopt an organizational and
legal form defined by the Civil Code or other laws. At the present time, there are at
least 16 organizational and le gal forms of NCOs: public associations, foundations,
institutions, associations (unions) of legal entities, noncommercial cooperatives,
partnerships of homeowners (condominiums), associations of water users, jamaats
(community organization), credit unions, stock exchanges, self -regulated
organizations of professional participants of equity markets, nongovernmental
pension foundations, trade unions, associations of employers, political parties, and
religious organizations. The choice of organizational and le gal form that best suits
an NCO will depend on the organization’s goals and its planned activities.
The next step after choosing the proper organizational and legal form is
preparing the necessary documents for registration. To know which documents are
ne cessary to register an NCO as a legal entity, it is necessary study the legislation of
the Kyrgyz Republic on state registration of legal entities. The procedure for state
registration of legal entities, including NCOs, is codified in the Law of the Kyrgyz
Republic “On state registration of legal entities, branches (representative offices),”
February 20, 2009 # 57.

Documents required for registering an NCO
 Registration application in a form approved by the registering body;
 Notarized d ecision on creation of NCO and on approval of the charter
and formation of the NGO’s governing bodies;
 Charter in two copies, signed by NCO manager;
 Notarized list of individual founders of the NCO including last name,
first name, patronymic and date of birth;
 List of members of the NCO’s highest body with indication to last
name, first name, patronymic, date of birth and elected position.
For state registration of a branch (representative office), an applicant Must
submit the following to the registering body:

35

 Registration ap plication in a form approved by the registering body;
 Decision of the legal entity on creation of branch (representative office);
 Other documents, as provided by the Law.
The decision on creation of branch (representative office) shall contain:
 Branch (rep resentative office) name in state and official languages;
 Branch (representative office) location;
 Decision of legal entity on appointment of branch (representative
office) manager;
 Full name, legal address, registration data of legal entity that is creat ing
the branch (representative office).
The corporate decision to create a branch office must state that all the
information provided is accurate. Where appropriate, an organization established by
law must also coordinate with the correct state bodies or local self -administration
bodies. The decision to create a branch office must also be signed by a governing
body of the legal entity and, if possible, sealed.
To acquire state registration of a branch office of a foreign or international
NCO, an applicant must additionally submit to the registering body:
 Two copies of the approved regulation of the branch (representative
office) ;
 Copies of statutory documents of the foreign or international NCO
which decided to create branch (representative office) .
A fore ign legal entity creating a branch office or founding another legal entity
must also submit documents certifying that it is a legal entity in its home country.
Apostille or superl egalization of documents is not required for legal entities
from states that are signatories to certain international treaties and agreements along
with the Kyrgyz Republic.
NCOs must submit a legalized extract that it is legal organization according to
the laws of its country dated within six months of applying to operate in Kyrg yzstan.
Founders and managers also submit a copy of their passports or other proof of
identity. The founders of public associations, partnerships of homeowners, religious
organizations, political parties and trade unions are not subject to this requiremen t.
NCOs (except for jamaats) 33 register with the Ministry of Justice in the
Kyrgyz Republic. A registration application from an NCO’s founder or other
authorized person is admitted by the registering body if all the required documents
are provided and a fee is paid. Applications must be submitted in person. An NCO
33 Jaamat (community organization) receives legal status from the moment of its registration at the representative local
self governing body, i.e. vil lage, city kenesh (local authoroty).

36

will be registered within ten calendar days of the completed application. If no
shortcomings are idenbtified in the submitted documents, then according to the
principle called “one window,” state r egistration is carried out simultaneously with
registration with tax authorities, the statistics committee and the social fund. A
certificate of state registration with a registration number, taxpayer identification
number and a code of republican classifi er of enterprises and organizations are
issued before an expiration of the 10 -day registration term. From the moment of
state registration, the NCO is considered a legal entity.
After state registration of the NCO, founders have right to complete the
foll owing steps:
 Order a seal and
 Open a bank account (if necessary).
Legally the first step is not compulsory. Laws and regulations do not contain a
compulsory requirement that an NCO have a seal and a stamp. However, in practice,
the absence of a seal may cr eate some difficulties. For example, in Kyrgyzstan, all
legal entities, including NCOs, must submit monthly reports to the tax authorities
and the Social Fund, and these reports are not accepted without a seal. Also, a seal is
compulsory for the organizati on to open a bank account. Opening a bank account is
a right, not an obligation.

Procedure for creating an NCO (NCO registration and necessary steps after
registration)
Decision to create an NCO

Preparation of the necessary documents for NCO registrati on

Submission of a registration application to the Ministry of Justice

Examination of documents in the Ministry of Justice

Registration with “one window” and issuance of a certificate of registration

Ordering a seal

Opening a bank account

37

§ 4. Notification of the registering body on changes of the information about
NCO

NCO is obliged to notify registering body in 30 calendar days if changed the
following information:
 Persons in Board, Chief changed ;
 Location (legal and postal address ;
 Phone number, fax and e -mail ;
 Passport data or data in other document , confirming the person’s identity
who is a founder, member of public fund, institution, nonstate pension
fund;
 Registered data of legal entity – founder (member) of public fund,
institution, nonstate pension fund;
 Passport data or other document confirming the identity of a Chief .
In case of changing a data which is not obliging to state re -registration of
NCO and branch (representative office) a notification signed by chief of NCO must
be pas sed to the registering body.
In case of replacement of NCO, branch (representative office) chief with
passing a notification it also must be attached a decision of appointing a new chief
and copy of his passport or other document confirming his identity in accordance
with Kyrgyz Republic legislation.
In case of changing the location of NCO, branch (representative office) with
passing a notification it also must be attached a decision of a governing body to
change the location of NCO, branch (representative office).
In case of changing the data of NCO with passing a notification it also must
be attached copies of appropriate documents with amendmends.
Registering body after receiving a notification must include necessary
information into the state register a nd notifies tax, statistic bodies and social fund.

38

Chapter 4. Management of NCOs

§ 1. Administering Principles of NCOs

Common standards on administration of NCOs are highlighted in Article 2 of
the Law of the Kyrgyz Republic “On noncommercial organiz ations,” which
characterizes noncommercial organizations as voluntary, self -administered
organizations. This provision is further developed in Article 4 of the Law which sets
the principle of self -administration as one of the fundamental principles of crea tion
and activity of NCOs. The essence of the given principle is that the organization
should pursue independently decisions on administrative, economic, human resources
and other issues. Self -administration also refers to the independent choice of goals
and manner of their pursuit by self -administered organizations.

§ 2. Governing Bodies
The governance of NCOs is, in most cases, carried out by an arrangement
similar to governance in commercial organizations. In NCOs, there is:
 A supreme governing body ( for example, the general meeting of members
in public association);
 An executive body (for example, the directorate of a foundation).

Supreme Governing Bodies

The names of the supreme governing bodies of NCOs vary. For example, in
public associations, pa rtnerships of homeowners, credit unions and other NCOs, it is
a general meeting; in trade union organizations, it is called the trade union meeting;
in political parties, the congress or conference.
The main function of the supreme governing body of a no ncommercial
organization is ensuring the compliance of organization with its goals and the pursuit
of the interests for which it was created. The competence of a supreme governing
body is determined by the charter of the NCO. In addition, Article 20 of the Law “On
noncommercial organizations” identifies issues that are under the exclusive
competence of the supreme governing body of a public association, that is, the
general meeting of members. In particular, they are:
 introduction of amendments to the chart er;
 determination of priorities of the public association’s activity and the
procedure for the use of its property;
 admission to and withdrawal from membership of the public association;
 procedure for formation of governing bodies;
 approval of annual repor t and annual statement of financial condition;
 decision on creation of branches and representative offices;

39

 participation in the activity of other legal entities;
 reorganization, liquidation and other issues.
The Law “On noncommercial organizations” does not clarify the issue of
remuneration for members of the supreme governing body for their work. An
exception is the foundation. The Law explicitly says that the supervisory council of a
foundation performs its functions on voluntary basis. However, this pr ovision does
not refer to expenses directly related to performance of the function.

Executive Bodies

The executive body of an NCO supervises an NCO’s daily activity and is
accountable to the supreme governing body. The executive body may be performed
by one or several individuals. For example, Article 26 of the Law permits the
directorate of a foundation to be composed of one or more members. The structure of
the executive body, number of its members and conditions on remuneration shall be
determined by the supreme governing body of the NCO.
The competence of the executive body must be determined in statutory
documents. Issues under the exclusive competence of other bodies, particularly the
supreme governing body, may not be delegated to the executive bo dy. Therefore, the
charter of the NCO must recite the issues belonging to executive body. At the same
time, the issues shall be designed in a way so that to achieve goals for which NCO
was created. It is necessary to indicate who will have the right to spe nd the
organization’s funds, issue a power of attorney, conclude contracts, etc.

Other Bodies

The Civil Code and the Law “On noncommercial organizations” of the Kyrgyz
Republic do not provide an exclusive right to appoint and fire the head of the
execut ive body (Executive director) of public associations and associations (union) of
legal entities. The general meeting of these forms of NCO is not granted the right to
determine the procedure for formation of the executive body. The mentioned law
grants a r ight to these NCOs to create governing bodies at their own discretion. In
addition to the supreme and executive governing bodies in such NCOs, supervisory
(or monitoring) bodies may be created. Supervisory bodies may be called differently:
supervisory coun cil, coordination council, board of trustees, board of directors, etc.
The procedure for formation and competence of a supervisory body is
determined in the statutory documents of the NCO. For example, the following issues
may fall under the competence of a supervisory body :
1) approval of long -term and key programs and priority directions of the
NCO. Approval of strategic plan of NCO and plan on financial
sustainability, as well as introduction of amendments to these documents;
2) approval of annual report and annual financial statements;
3) approval of organizational structure of NCO, as well as number of day -to –
day management personnel;

40

4) selection, appointment and dismissal of executive director and approval of
his or her administrative duties;
5) approval and intro duction of amendments of normative acts of NCO;
6) nomination of candidates for supervisory body to the general meeting and
their identification .
Control bodies may also created by NCOs. Issues such as authority, procedure
for creation and activity of such bodies must be regulated in the statutory documents
of the NCO.

§ 3. Statutory Documents

Types of Statutory Documents

The types of statutory documents required for different organizational and
legal forms of NCOs vary . Some organizations operate only with a charter, others use
a statutory agreement and a charter, and a third category of NCO relies on general
regulation of this type of organizations.
Public organizations, foundations and cooperatives, as a rule, must have one
statutory document: a char ter. Cooperatives may operate with two statutory
documents: a charter and a statutory document, which may be concluded if the,
members desire. An association of legal entities (associations and unions) must carry
out its activity with two statutory documen ts: a charter and a statutory agreement.
Statutory agreements regulate the relationships of the founders during the
process of creation, and they regulate the ongoing activity of the legal entity. Legal
experts express different opinions regarding their legal nature, with some considering
such agreements to be a type of agreement on special partnership (agreement on joint
activity) and others, as a distinct type of agreement. 34
A charter is a normative act that determines the legal position of the
organiza tion and regulates the relationships among members and the organization
itself.
Statutory documents are adopted in different ways:
 a statutory agreement is concluded, and a charter is approved, by founders;
 a statutory agreement enters into force from t he moment of its conclusion; a
charter, from the moment of registration of the organization.
When an NCO operates based on the general regulation of this type of
organization, an individual charter is not required. This relates particularly to primary
trad e unions that, according to the Law “On trade unions,” may operate based on
regulation. Some legal experts have expressed the opinion that in this case an act
based on which the given organization is created should be considered a statutory
document, and t his act should contain information prescribed by the legislation,
which would otherwise be absent and could not be stated in general regulation of this
type of organization (such as individual names, location, etc.). 35
34 See Civil law textbook , volume 1, ed. A.P. Sergeev and U. K. Tolstoy, p. 132, Moscow (1998) 35 Commentary to the Civil Code of the RF, Part I, ed. О.N. Sadikov .

41

According to the Law “On noncommercial organizations,” institutions and
other such organizational and legal forms of NCO must have a charter and a decision
of the founder -owner on creation of the institution. As described above, according to
Article 87 of the Civil Code, a legal entity operate s based on charter, or statutory
agreement and charter, or only statutory agreement; other NCOs may operate based
on general regulation on this type of organizations. As such, the Civil Code does not
consider a decision of the founder -owner to be a statuto ry document of the legal
entity. It is, most likely, an organizational and technical document, rather than a
statutory document. 36 In case of any discrepancies regarding the statutory documents
of the institution, the issue will be resolved according to the priority of the Civil
Code’s provisions in relation to the provisions of other acts of civil legislation, as
established by Article 2 of the Civil Code.
NCOs and their founders and members are obliged to fulfill the requirements
of the NCO’s statutory d ocuments.

Content of Statutory Documents

Mandatory requirements for the statutory documents of NCOs are determined
in compliance with Article 87 of the Civil Code (requirements for statutory
documents of all legal entities), Article 10 of the Law “On non commercial
organizations” (requirements of statutory documents of applicable NCOs), as well as
in compliance with laws on separate types of NCOs (requirements for statutory
documents of corresponding type of organizations).
The Civil Code requires that the following information be contained in the
statutory documents of NCOs:
 name of NCO, indicating the type, organizational and legal form of
organization and nature of its activity;
 location of NCO;
 procedure for governance of the activity;
 subject and go als of the activity.
According to the Law “On noncommercial organizations,” the charter of an
NCO must address:
 control and supervisory bodies, audit bodies, their competence, procedure
for their selection, withdrawal, as well as responsibility of officia ls;
 rights and obligations, conditions and procedure for acceptance into
membership of the organization and withdrawal from it (for public
associations);
 procedure for amending statutory documents of NCO;
 procedure for reorganization and liquidation;
 pr ocedure for allocation of property in case of liquidation;

36 See Tihomirov M. U., Uchr editelnye dokumenty nekomm ercheskih organizasii [Statutory documents of
noncommercial organizations ], Moscow (2000) .

42

 for foundations and institutions, identification of the group of people who
are receiving assistance from the organization, except for those cases when
group of people receiving from the organizat ion is not limited;
 term of activity of the organization, if it is provided;
 other provisions, so long as they do not contradict applicable law.
There is a mandatory requirement to provide in the statutory documents the
information listed in Article 87 of the Civil Code and Article 10 of the Law “On
noncommercial organizations.” Omitting the required information mentioned in these
articles may be seen as contradicting the requirements for statutory documents of the
legislation.
In addition to providing the above -mentioned mandatory information in the
statutory documents, NCOs may include other provisions, so long as they do not
contradict existing law — for example, in relation to financing the organization’s
activity, commercial secrets, the procedure for accounting and reporting, personnel,
board resolutions, etc.
The issue of allocating information between the charter and statutory
documents has a practical meaning in such cases , when the founders of an NCO are
obliged or have a right to conclude such agreement. Frequently some information is
being duplicated in statutory documents of legal entities. 37
Article 87 of the Civil Code sets a minimum of information that must be
included in the statutory agreement. In the statutory agreement, the founders ar e
obliged to declare that they are creating an NCO and must determine:
 the procedure for joint activity upon creation;
 the conditions for transfer of property;
 the conditions for participation in the activity of the organization;
 management of NCO activ ity;
 the conditions and procedure for dismissal of founders (members).
Other issues may also be included in the statutory agreement by agreement of the
founders.
The laws on separate organizational and legal forms of NCOs specify that the
general rules o f the Civil Code apply, and, in some cases, establish additional
requirements that must be included in the statutory documents of such organizations.
For instance, the charter of a political party, according to the Law of the Kyrgyz
Republic “On political parties,” additionally must include information on:
 terms for convocation of conferences, forums;
 the procedure for decisionmaking, their implementation and forms of
control;
 the sources of funds and other property of the political party.
37 Id.

43

Changes in the c harter of an NCO are applicable upon decision of its supreme
governing body, except for the charter of a foundation, which may be changed by the
foundation’s bodies only as provided in its charter.
Sometimes the charter of a foundation prohibits foundatio n bodies from
amending it, as founders have an interest in the creation of reliable guarantees so that
the transferred property will be used strictly according to its intended purpose, even if
they do not longer control it. Thus, for example, if a foundati on’s founders provided
in the charter that the foundation manager must be appointed and dismissed by the
supervisory board, then the foundation director may not have the right to make
changes in the charter relating to the appointment and dismissal from th e position of
foundation manager by the directorate. In this case, the Supervisory Board has the
right to appeal in court, claiming that the charter is void, and indicating that in Par. 1
of Article 163 of the Civil Code, the foundation director may not ma ke this
amendment.
If the failure to amend a charter will lead to consequences that were impossible
to foresee during the establishment of the foundation, and the procedure for
amendment is not provided or the charter cannot be changed by an authorized p erson,
then Civil Code gives the authority to amend to the court, upon the application of
foundation bodies, the supervisory board or another body that has been authorized to
supervise foundation activity. For example, the charter of public foundation “Sec ure
Elders,” provided that foundation property shall include only contributions . Due to
the fact that there were not enough contributions , the foundation had no opportunity
to render necessary assistance to rest homes and citizens. There was no opportunity
in the foundation charter to introduce amendements. In this case, according to Article
162 of the Civil Code, the supervisory board may refer to the court with an
application on amending the charter and asking the court to introduce such a change,
accordi ng to which the foundation could carry out economic as well charter goals. 38

§ 4. Conflicts of Interest

The notion “conflict of interest” is introduced and explained in Article 13 of
the Law “On noncommercial organizations.” In this law, transactions bet ween NCOs
and interested parties relating to disposal of the organization’s property, indicates the
presence of a conflict of interest. Therefore, a conflict of interest may be defined as a
situation in which the professional and personal interests of a pe rson (employee or
manager) influence his ability to make a decision in the interests of the organization.
There are two approaches to the given phenomenon: narrow and broad.
According to the narrow definition, used predominantly in American legislation,
co nflicts of interest include the situation in which a director or employee of the
organization has a personal, material interest in a proposed transaction in which the
38 Практическое пособие по применению части 1 Гражданского Кодекса Кыргызской Республики [Practical
manual on application of part I of the Civil Code of the Ky rgyz Republic], Technologia Publisher, pp. 112 -113,
Bishkek (1999).

44

organization is one of the parties. Lately, this definition has been interpreted more
bro adly: Conflicts of interest may also include situations in which a director or
worker has obligations in several organizations, and these obligations conflict with
each other. For example, when the manager of one organization participat ing in the
board of directors of another organization, which discusses the possibility to finance
the first organization. In such a case, the manager of the first organization must
inform the directors about his role in the first organization and refuse to participate in
the discussion and decisionmaking on financing of his own organization, so as to
avoid any conflict of interests. 39
In this regard, any relationships that are in fact, or could be perceived as, not in
the interests of the organization, may be considered conflic ts of interests. At the
same time, undisclosed conflicts of interest may bring harm to the reputation of a
person and an organization, even if the decision was made in the interests of the
organization. For example, an NCO purchased an expensive flat for its office from
the member of board of directors, or the director hired his wife, a highly qualified
specialist, for a modest salary. Despite the fact that these actions were done in the
interests of the organization, it will be difficult to avoid unfavora ble resonance, if the
organization has not taken measures on disclosing the conflicts of interest.
In order to maintain confidence to the organization, it is important to follow
some procedures on prevention and resolution of conflicts of interest. For the se
purposes, some organizations adopt an internal regulation on conflicts of interest, and
employees of the organization are required to confirm their familiarity with it by
providing a signature to that effect. And in some legal systems, there is a genera l
prohibition on conflict of interests. In such case, there is no necessity to develop
special regulations on this issue for each NCO. 40
Article 13 of the Law “On noncommercial organizations” determines who are
considered interested parties. They are:
 offi cials of NCOs;
 members of the NCO’s governing bodies;
 persons who, due to their relationship with the organization, may influence the
disposal of the organization’s property.
Self -dealing occurs when listed persons personally or through their representativ es
conclude transactions with NCOs. Conflicts of interest also result when an NCO
concludes transactions with relatives of interested parties, as well as with their
creditors.
A rticle 14 of the Law “On noncommercial organizations” includes guidelines
on d ealing with potentially interested parties. Frequently, the organization may only
receive information about a possible conflict of interest from the person with the
potential conflict. This person must inform an authorized body of the organization
about hi s interest in the transaction, so as to avoid suspicion in one’s own dishonest

39 See Sovet direktorov v NKO i Polojenie o konflikte interesov: perspektivy prakticheskoi realizasii v Sentralnoi Azii
[Board of Directors in NCO and Regulation on conflict of interests: perspectives of practical realization in Central
Asia]. 40 See Structure and governance

45

behavior. For example, in a foundation, an authorized body is the supervisory board.
Such information must be delivered before the adoption of a decision on concluding
a transac tion by the corresponding body. In such a situation, the organization may
use different means to resolve potential conflicts, including excluding the self –
interested person from participation in the discussion of issue, recusal or
reexamination of the conf lict .
Transactions that involve a conflict of interest may only be concluded only after
approval by an authorized body. The approval must be given by a sufficient number of
disinterested members of the authorized body who have agreed that the transaction
may be concluded with the disclosed conflict of interest. In case of approval, the self –
interested party does not become responsibe if there are unfavorable consequences.
The law also prescribes consequences for the dishonest behavior of a self –
interested party for failure to notify a conflict of interest in an upcoming transaction.
The court may void a transaction with a conflict of interest if an NCO or its members
bring a law suit based on Article 195 of the Civil Code. This provision sets out
transacti ons concluded with abuse of authority of the statutory body of the legal entity.
A prosecutor may also refer the case to the court, as he is by law entrusted with the
obligation to enforce the law .
If, as a result of concluding a transaction with a conflic t of interest, an NCO
suffered a loss, then self -interested parties will be obliged to pay damages to the
NCO. In addition to the payment of damages, the self -interested party must return to
the NCO all income received as the result of concluding the trans action. If damages are
awarded as the result of actions of several self -interested parties, they will carry joint
responsibility to restore the damage of NCO.

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Chapter 5. Financing NCOs

§ 1. General Provisions Concerning Financing NCOs

Sou rces of NGO Finance

The existence of NCOs in any country is impossible without the presence of
the following conditions: sound legislation facilitating the creation of an NCO; the
absence of serious barriers imposed by organs of the state hindering the ac tivities of
NCOs; and a legal framework that enhances the opportunities for NCOs to procure
financing.
NCOs often face difficulties in financing their activites. In fact, this is quite a
difficult problem that often generates intense discussion. Examining contemporary
international practice, the income of NCOs may be divided into three categories:
1. Organic income – income generated by the organizations itself (i.e.,
membership fees, income from commercial activity, income from securities
and invested capital );
2. Income received from the state;
 Specifics concerning the methods available to NCOs to generate income
vary depending on the country. In some countries, a significant portion of
an NCO’s income is received directly from the state, while in other
countr ies, the state does not provide any financial assistance to NCOs;
3. Additionally, in some countries, NCOs derive a significant portion of their
income from commercial activities. In many other countries, NCOs are not
legally permitted to engage in commercial activites regardless of whether or
not the income from these activities is for the purpose of financing the
NCO’s non -profit activities;
4. In some countries where there is a high level of philanthropic activity, both
legal entities and individuals alike d irect significant funds to NCOs for
charitable purposes. Again, in many other countries the culture of
philanthropy and charitable giving may be low.
The following table contains statistics related to NCO financing in Japan, the
United States, and some Eur opean countries. The information contained in this table
is from 1995. 41

41 L.M. Salamon, “Government – Nonprofit Relations in International Perspective” Nonprofits and Government. Collaboration and Conflict, The Urban Institute Press, W ash ington, D.C., 1998.

47

Country
Organic resources

State financing
Philanthropic
sources
(endowments of
individuals and
legal entities,
grants)
Japan 62 % 34 % 4 %
Australia 62 % 31 % 7 %
USA 57 % 30 % 13 %
Hungary 55 % 27 % 18 %
Germany 33 % 64 % 3 %
Netherlands 38 % 60 % 2 %
France 35 % 58 % 7 %
Great Britain 45 % 47 % 8 %
As one may see from the table, membership fees and income from
economic activity constitute a major portion of income fo r the NCO sector in Japan,
Australia, the United States, and Hungary. State financing is also a major source of
NCO income and, specifically, is the major sources of income for the NCO sector in
Germany, Netherlands, France and Great Britain. Philanthropic activity by legal
entities and individuals constitute a much smaller portion of NCO income than state
or organic financing; however, in the total volume of NCO ’s income the percentage
of individual and corporate endowments is quite high.

What types of NC O support and financing exist around the world?
 Direct financing programs – typically state -sponsored programs that provide
financing directly to NCOs.
 NCO financing through intermediary charitable organizations – financing may be
provided through an inter mediary that awards grants to NCOs. Financing may
also flow through a microfinance program in which the state, private sector, and
citizens all participate by providing funds to general pool that is then distributed
in small amounts to various NCOs. The i ntermediary organization is the most
prevalent mechanism for NCO financing as state and business organizations
frequently do not have funds and time to conduct such programs and the required
monitoring.
 Joint ventures – Government and private commercial or ganizations may create
joint ventures with NCOs to finance NCO activities .

Prerequisites to Government and Private Sector Financing

Certain requirements related to transparency and accountability are imposed on
NCOs that receive funding from the governm ent and private sector. Prior to

48

providing financing, both the government and the private donors often require NCOs
to provide them with information such as the following:

 The NCO’s mission, goals, and proposed activities;
 How the organization is governe d and whether the organization is working within
the framework of law? Whether the organization is demonstrating good system of
management? ;
 Level of specialization of both the NCO as an organization, and also the level of
specialization of its staff;
 Ho w the organization plans to contribute to development in the state or region.

When fundin g NCOs, both the government and private sector expect that NCOs:

1. Work exclusively in the interests of society, rather than in the interests of its
individual members and founders;
2. Have internal governance structures that are based on democratic principles,
respect human rights, and are nondiscriminatory; The governance of an NCO
should be professional, but at the same time the level of administrative expenses
should not be too high.
3. NCOs should regularly report required information in a transparent manner so as
to avoid creating mistrust on the part oft he general population, government, and
private sector. NCOs are required to publish financial reports regularly on b oth
proposed and current programs. It is critical that NCOs have in place controls that
ensure accuracy in reporting. These controls must be internal as well as external.
 Internal controls – an audit commission or other supervisory body
responsible for m anaging the reporting process; and
 External controls – independent accountants, auditors, or other experts who
examine the organization’s activities.

§ 2. Organic Income of NCOs

Membership Fees

The legislation of the Kyrgyz Republic does not contain any limitations on the
amount an organization may charge for membership fees, nor does it mandate a
particular process by which an organization may collect membership fees. NCOs
must independently determine the amount and procedure for payment of membership
fees.
However, this mechanism may not be the best option. If an NCO wishes to
change the amount of fees or the method for collection, then it must amend the
charter, meaning that it is necessary to re -register with the Ministry of Justice. As the
result, most NCOs apply methods for collecting membership payments that prevent
them from violating the legislation, among which the following:

49

 NCOs often include in their charters a provision that states that the
amounts and method for collection of membership f ees must be
determined by members at a general meeting of the NCO;
 the vote by members during the general meeting is then recorded in the
minutes.
Presently, in Kyrgyzstan, due to several different factors, it is unclear what
portion of NCO income is rece ived from membership fees. For example, NCOs such
as noncommercial cooperatives (garage, camp, apartment and building management),
homeowner associations and associations of water users fully derive their incomes
from membership fees. Trade unions also rec eive a significant portion of their
income from membership fees. Public associations, associations of legal entities,
political parties, and jamaats (community organizations) receive a much smaller
portion of their income from membership fees.

Income fro m Economic Activity

In international practice, there are different approaches of different countries
on the issue of whether or not to allow an NCO to carry out economic activity?
1) Some countries do not permit NCOs to carry out economic activity. In such
countries, NCOs are permitted to create subsidiary commercial companies that
may in turn carry out economic activity. In this case, the profit may be transferred
to the owner of the company, i.e., to the NCO, which then may direct the use of
these funds for achievement of its goals.
2) Some countries allow NCOs to carry out only certain economic activity that is
consistent with the main purposes of the NCO. For example, public association
working to support the disabled may open a shop for the sale of special ized goods
intended for the disabled (for example, wheelchairs, prosthesis, etc.).
3) Some countries allow NCOs to carry out all types of economic activity, except
those which are specifically prohibited by law. In these countries, there is a list of
prohibi ted types of economic activity. Examples may include, for example, a
gambling organization (casino, gambling machine) or sale of alcohol drinks and
tobacco products etc.
4) Some countries allow NCOs to carry out any types of economic activity as is the
case with commercial organizations.
In relation to economic activity, Kyrgyzstan, established a regime that is closer
to the last of the above -mentioned approaches. Article 12 of the Law of the Kyrgyz
Republic “On noncommercial organizations,” contains the fol lowing provision:
A noncommercial organization shall have the right to conduct economic
activities, including production, provided that the profit is not distributed
among the founders, members, officials and other employees and members of
the governing bo dies. Such activities may include production and sales of
goods, performance of services, rendering of paid services, and other types of
business activities, provided that such activities do not contradict the goals and
objectives of the organization.”

50

As appears from the given provision, in Kyrgyzstan, there are small
limitations: the types of economic activity of an NCO may not contradict the goals
and tasks of the organization. For example, a public association with the goal of
“tobacco control” may not sell tobacco products. In Kyrgyzstan, therefore, there is a
favorable regime for NCOs to pursue income from economic activity.
An NCO has the right to carry out types of activity that require special
permission (license) on the territory of the Kyrgyz Rep ublic only after receiving the
necessary license.
At the present time in Kyrgyzstan there is also not clear picture on the volume
of NCO income received from economic activity. For example, universities, schools,
kindergartens, museums, medical clinics and hospitals, receive a major part of their
income from economic activity (tuition, partial payment of patients for treatment,
etc.). Noncommercial cooperatives (garage, camp, and apartment or building
management) and most partnerships of homeowners do not c arry out economic
activity. Public associations, foundations, associations of legal entities and jamaats
(community organizations) receive a small portion of their income from economic
activity.

Income from Securities and Invested Capital

A special grou p of NCO income consists of:
 Income from securities (dividends and interest, increase in value of
securities);
 Income from capital invested in commercial structures, subsidiary
commercial companies (profit, increase in capital value);
 Interest from saving s accounts. 42

§ 3. Government Financing of NCOs

Government financing of NCO activity is an old and well -known mechanism
of NCO support in many countries of the world. At the same time, government
financing is considered one of the major sources of NCO i ncome. According to
research conducted in 1995 in 22 countries of the world, the average portion of NCO
financing from the government was 42%. 43

Why Should Government Finance and Support NCOs?

NCOs are an important element of democratic society. In olden times, NCOs
were known throughout the world as organizations that render assistance to those
who need it. However, at the present time, they have taken an additional role: to be
responsible for the development of the society as a whole, as well as for the
42 J.Kendall and M. Knapp, “The Voluntary Sector in the UK,” Manchester Univ. Press, 1996, p. 117. 43 L.M. Salamon, “Government -Nonprofit Relations in International Perspective” Nonprofits and Government. Collaboration and Conflict , The Urban Institute Press , WDC , 1998, p. 337.

51

improvement of the welfare and well -being of those in the society. It is no wonder
that because of this, NCOs have become an indispensable component of the
economic and public development of many countries. NCOs are beginning to be
accepted for their abil ity to work directly with people. NCOs began to deal with such
problems as the war against poverty, distribution of humanitarian assistance,
employment assistance, development of entrepreneurship and economy, opening
access to financial resources, democrac y development, advocacy of civil rights,
women’s problems, problems of vulnerable populations, problems of community and
regional development, and many other social and economic problems.
As NCOs play an important role in the economic and democratic develo pment
of the society, government bodies in many countries fully support NCO activity.
However the degree of support depends on the degree of government understanding
of the NCO sector’s role. In countries where the government understands the positive
role of the NCO sector in society, favorable conditions for their creation and
operation are established. Moreover, in such countries, the government, using
different means, finances and supports NCO activity.

Means of Government Financing of NCOs

Looking a t international practice, it is possible to indentify different means of
government financing of NCO.
 Grants awarded for conducting programs. The government provides financial
support to an NCO program, which is conducted in the framework of the
governmen t program. The grant may be awarded for the support of all or part of
the NCO program. The main principle of grant support is selection of the NCO on
a competitive (tender) basis.
 Contract with NCO for the conduct of particular activity. Government
organi zations usually conclude a contract with a particular NCO for the conduct
of particular program — usually, when an NCO has unique experience that may be
applied in another region (for example, work experience with the disabled, work
experience with women exposed to violence, experience in microfinancing, etc.).
 Loan/credit allocation . Loans and credits are considered as the rarest form of
NCO financing. However, with microcredit, the goal of which is to increase the
well -being of poor and vulnerable popula tion, credits or loans to microfinance
organizations (such as microcredit foundations and credit unions), are a major
source of NCO activity support.
 Reimbursement of some NCO costs . Some NCO costs may be reimbursed by
government or local bodies. These ma y include rental payments, registration fees,
custom fees, public utilities, etc.
 In -Kind Gift . An in -kind gift is usually considered a nonfinancial mean of NCO
activity support. It is a non -repayable transfer of equipment, premises, furniture,
medicinal substances, etc. into NCO ownership.
 Preferential taxation . One of the legal and fiscal mechanisms of NCO financing
is providing preferential taxation of NCO activity, as well as charitable

52

endowments of business and citizens. For NCOs to work efficiently, the
government should establish preferential mechanisms of taxation, especially for
public benefit NCOs, so that society may receive the maximum benefit from
activity of the NCO sector for social and economic development of the country.
 Issue of non -taxa ble bonds. An NCO may also issue non -taxable bonds. This is
one of new forms of NCO financing. Such financing is appropriate for NCOs
implementing housing, medical and social programs, as well as private
educational institutions.
 Conduct of lotteries and auctions. The government may finance NCO activity out
of funds received from lotteries and auctions. Frequently, lotteries and auctions
are also conducted by NCOs.

Financing and Support of NCOs by the Kyrgyzstan Government

At the present time, Kyrgyzst an has implemented certain of the above –
mentioned means of government financing of NCO activity.

Grants awarded for the conduct of programs . Kyrgyzstan does not utilize this
method of government financing.
Contract with NCO for the conduct of a partic ular activity. Kyrgyzstan does
not yet widely use this method of government financing, but, at the present time, a
draft law on social contracting is being prepared. After adoption of the new law, this
method will likely find wider application.
The regul ation “On territorial and public self -administration bodies,” as of
October 10, 2001, grants rights to local self -administration bodies to delegate by
agreement some powers to those territorial and public self -administration bodies
registered as NCOs. The delegation normally is accompanied by a transfer of the
financial resourses necessary to undertake the delegation. And most likely, the
above -mentioned powers and financial resources are transferred based on an
agreement (contract) to ensure their impleme ntation.
Loan/credit allocation . This method of government financing in Kyrgyzstan is
used for the support of credit unions. A financial company dedicated to the support
and development of credit unions grants credits to credit unions. These credits are the
major source of support of credit union activity.
Reimbursement of some NCO costs. This method of government financing is
rarely used in Kyrgyzstan .
Gift. This method of government financing is widely practiced in Kyrgyzstan.
The regulation “On terr itorial and public self -administration bodies,” as of October
10, 2001, gives local self -administration bodies the right to transfer to territorial and
public self -administration bodies (registered as an NCO) economic objects,
residential and nonresidentia l stock. There were cases when, based on the given
regulation, local self -administration bodies transferred such premises as clubs,
kindergartens and bath houses.

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Preferential taxation. Preferential taxation is widely applied in Kyrgyzstan.
The tax code p rovides a range of tax benefits for NCOs. Also, the Tax Code provides
tax benefits for legal entities that have made contributions to charitable organizations
(such NCOs as charitable foundations, government institutions: schools, universitites,
hospitals , etc.).
Issue of non -taxable bonds. This method of government financing is not
practiced in Kyrgyzstan.
Conduct of lotteries and auctions. Lotteries are very rare in Kyrgyzstan, and
auctions are not conducted; however, the legislation does not prohibi t either method
of finance.

§ 4. Business and Individual Endowments and Grants

Business Endowments

The business sector cannot exist outside of society; it is interested in social
stability in the society. The business sector also carries responsibility for providing
customers with goods and services, employing the population, development of the
social sphere and communities. In order to carry out their public obligation,s major
companies may create foundations (for example, the Hitachi Foundation in the USA
and Fundesco in Spain). Other major commercial companies and small enterprises
prefer to finance NCOs directly or through charitable foundations.
NCO financing by commercial companies from year to year is growing. For
example, in 1997, corporate fin ancing reached USD$ 8.2 billion. 44 According to the
European Foundation Center, in Europe in 1996, corporate charity reached USD$2
billion. Most donations by businesses are directed toward education, social and
humanitarian services, development of culture and arts, solving housing problems,
and environmental protection.
It is also important to note that many well -known, major, commercial
companies in the world provide support not only in their country, but also in many
other countries of the world, irrespec tive of whether they carry out business in these
countries. There is a tendency toward globalization of charitable activity by
businesses.
In Kyrgyzstan, the business sector is at the initial stages of its development and
does not yet carry out significa nt charitable activity. In order to encourage greater
charitable activity by the business sector, the government has provided tax benefits
(Article 208 of the Tax Code), as follows:
Donations, including cash and property to charitable organizations, as we ll as
to organizations of culture and sports, regard less of the form of ownerships, made
during the relevant period of tax year in an amount not exceeding 10 percent of
taxable income of the taxpayer -donor, are entitled to a deduction from total annual
inc ome.
44 A.E. Kaplan, “Giving USA 1997,” NY: AAFRC Trust for Philanthropy, 1997.

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Individual Donations

Individual charity includes material and financial charity by citizens, as well as
voluntary, unremunerated participation of citizens in NCO activity. Individual charity
is known from old times. In all countries of the world, pe ople have helped each other
either directly or through organizations. Individuals mainly contribute to the support
of social and educational programs (support of hospitals for impoverished, schools,
for medical examination), as well as for the support of c hurches.
At the present time, individual charity also is one of the sources of financing of
the NCO sector. For example, in Germany, 44% of the adult population annually
donates to NCOs approximately 0.3% of their income, which in turn comprises 2.1%
of t he total income of the NCO sector. 45 In 1995, the population of the USA directed
2.7% of income and 0.7% of equity capital (such as securities, real estate, deposits,
bonds, etc.) toward charitable activity. 46 In Great Britain in 1993, 81% of the adult
pop ulation participated in charitable activity, and made a contribution in the sum of
approximately GBP 5.3 billion. 47 There is also a well -known, traditional Islamic
charitable tradition, Al -Zakat, according to which every Muslim must give to the
poor 2.5 % o f his or her income. 48
In Kyrgyzstan, in relation to the charitable activity of individuals, there are no
statistics. However, most individual charity in Kyrgyzstan is carried out not through
NCOs, but rather, directly, by rendering assistance to needy pe ople. At the present
time, the Tax Code does not provide any tax benefits to citizens for their donations.

Grants
A grant is a non -repayable donation to an NCO, or to a particular program
carried out by the NCO. Grant -giving foundations are charitable fo undations,
allocating funds to NCOs or providing individual grants for research or other types of
activity. Grant -giving foundations exist in various forms in a majority of the
countries of the world. There are four types of grant -giving foundations:
 Grant -making foundations, whose grants are generated by income from
assets. For example, a foundation with assets of USD $20 million, generates
income which may allow it to award grants of USD $1 million per year, or a
foundation with assets of USD$2 million m ay be able to award grants of
USD$100,000. 49
 Grant -making foundations, whose grants are earned from economic activity.
Usually such foundations have different business structures, income from which is
directed to grant activity.
45 Data on New Zealand and Germany is taken from “The New Civic Atlas . Profiles of Civil Society in 60 Countries,” CIVICUS, 1997. 46 E. Wolff, “The Economy and Philanthropy,” Philanthropy and the Nonprofit Sector in a Changing America, Indiana Univ. Press, 1999, pp. 8 1-82. 47 P. Halfpenny, “Economic and Sociological Theories of Individual Charitable Giving: Complementary or Contradictory?” Volun tas, Vol .10, No 3, 1999, p199. 48 A. Kandil, “Defining the Nonprofit Sector: Egypt,” Working Papers of the John Hopkins Comparative Sector Project; National C enter for Sociological and Criminological Research, Cairo, 1993. 49 S.B.Schearer, “Building Indige nous Foundations that Support Civil Society,” Sustaining Civil Society. Strategies for Resource Mobilization, CIVICUS, 1997, p.305.

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 Operational foundations. These foundations utilize income from principal and
income received from different sources, including their own economic activity,
for implementation of their programs.
 Community foundations , whose principal derives from capital received from
different so urces. The income earned from donated principal is directed in the
form of grants to implementation of some programs, improving the well -being of
a vulnerable population within the community or the development of the
community itself.
The number of grant -m aking foundations in the world is also significant. For
example, in the USA in 1996, the activity of 41,588 foundations is registered; in
Switzerland, there are more than 8,000; in the Czech Republic, more than 4,500; in
Germany, around 7,000. 50
The assets of many foundations are valued in the millions and billions of US
dollars. For example, the assets of the MacArthur Foundation in 1996 were USD$3.4
billion; the Ford Foundation, USD$8.2 billion, and the assets of the C. S. Mott
Foundation and Aga Kahn Fou ndation, more than USD$100 million.
In Germany, grant -making foundations own assets of USD$14 – 29 million and
annually allocate grants of USD$2.5 million. 51 In the USA in 1996, grant -making
foundations had assets of more than USD$267 billion and allocate d grants of more
than USD$13 billions. 52
In Kyrgyzstan, at the present time, a majority of NCOs carry out their activity
on the basis of grants received for implementing different programs. Grant -making
foundations in Kyrgyzstan (as with the NCO sector in general) are at the initial stages
of their development. Local foundations are not yet able to make significant grants to
NCOs out of their own funds. Financing different programs of NCOs is mainly
carried out by foreign grant -making foundations, internat ional organizations and
governments of developed democratic countries.

§ 5. Limitations on Foreign Financing of NCOs

At the present time, the legislation of the Kyrgyz Republic has series of
provisions prohibiting foreign financing of activities of pa rticular forms of NCOs for
political purposes. In Article 4 of the Constitution of the Kyrgyz Republic, there are
provisions providing that:
In the Kyrgyz Republic the following are not permitted:
 activities of foreign political parties, pubic and religious organizations, and
their representative offices and branches, that are pursuing political goals;
 the formation and activity of political parties, public associations, religious and
other organizations, that are threatening the Constitutional system, or state and
nation -wide security.
50 Data on Switzerland, Czech Republic and Germany is taken from “The New Civic Atlas . Profiles of Civil Society in 60 Coun tries,” CIVICUS, 1997. 51 S. Toepler, “Foundations and their Institutional Context: Cross -Evaluating Evidence from Germany and the United States,” VOLUNTAS, Vol. 9, No 2, 1998, p.155. 52 L.M. Salamon, “America’s Nonprofit Sector. A Primer,” 2 nd Ed. The Foun dation Center, 1999, p.26.

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In Paragraph 2 of Article 161 of the Civil Code of the Kyrgyz Republic, there
is a provision stating that:
It is not permitted to finance political parties or public associations that are
pursuing political goals, or trade unions, by foreign legal entities and citizens,
foreign states or international organizations.
However, in the above -mentioned legal acts, there is no definition of “political
goals.” In a particular situation, the notion of “political goals” ma y be interpreted
differently. In its broader sense, the word “policy” means state affair (or public
affair). As such, the notion of “political goals” may include not only goals of coming
to the power, but also such goals as democracy development, war again st poverty,
struggle for fair elections, and many others.
In all countries of the world with established democratic traditions, NCOs may
receive foreign financing and use it to carry out a wide range of activities relating to
public policy formation, incl uding activities directed to promote legislative reforms,
to oppose state policy on different issues, to participate as observers during elections
or to assist the state in development of the policy in certain areas. Certain limitations
on the issues of f oreign financing have a place in relation to a few types of
organizations (for instance, political parties), and in relation to certain kinds of
activities of NCOs (for instance, financial support of candidates of election
campaigns to the state bodies).
The policy of granting these rights to NCOs in the Kyrgyz Republic was
arrived at through a democratic process, complying with international best practice;
the state does not hinder NCOs that are receiving foreign financing from carrying out
various activi ties, but rather promotes such activity and cooperates with them.
Most likely, when the Constitution and the Civil Code of the Kyrgyz Republic
were under the process of being adopted, the legislature, by the term “political
goals,” intended the narrower m eaning, the “goal of coming to power.” Any broader
interpretation of the notion of “political goals” could apply in practice a prohibition
on financing NCO activity from abroad and could contradict international law and
international best practice.

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Chapte r 6. Taxation of NCOs and Payment of Insurance to Social Fund

§ 1. Main Principles of Granting Tax Benefits to NCOs in the Kyrgyz
Republic

In Part 11 of Article 153 of the new Tax Code of Kyrgyz Republic as of
October 17, 2008 #230 (hereinafter – Tax code), there is a definition of the notion of
NCO for taxation purposes, according to which:
Noncommercial organization is an organization fulfilling the following
requirements:
1) the given organization is registered in an organizational and legal
form p rovided by the legislation of the Kyrgyz Republic for NCOs, as well as
with other legislation of Kyrgyz Republic;
2) the given organization does not pursue profit -making as the main goal
of its activity, and does not distribute received profit among its me mbers,
founders and officials.
Therefore, for taxation purposes, NCOs are those organizations that are
established in the organizational and legal forms of public association, foundation,
religious organization, association of legal entities in the form of association (union)
and in other forms provided by legislative acts of Kyrgyz Republic.
The status of NCO by itself is not a ground for an application for a special
tax regime or for enjoying tax benefits. If an ordinary NCO receives income, it is
consid ered as an income tax payer, like all other entities. If during 12 successive
months, the organization reaches the registration threshold for value -added tax
(“VAT”) (today it is 4 million soms), then it is considered a VAT -payer. Workers in
an NCO pay inc ome tax. NCOs are also subject to sales tax, land tax and property
tax.
Nevertheless, tax legislation stimulates development of NCOs, especially
charitable organizations. Charitable organizations are free from (1) profit tax (for all
kinds of incomes), (2 ) VAT, if the supplies are for charitable purposes and (3) sales
tax. As for ordinary NCOs, particular types of income, turnovers and NCO supplies
having public benefit character are exempted from taxes. This approach does not
allow any organization, havin g declared noncommercial status, to be exempt from
taxes per se . Unless its income, turnover and supplies are considered as non –
preferential, it does not pay taxes. If the organization generates taxable income,
turnover and supplies, then taxes are paid ac cording to general rules. This may occur
at any stage of activity, as NCOs have the right to carry out economic activity that is
not prohibited by law and to receive income or to acquire supplies that are subject to
taxation.

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§ 2. Income Tax

Tax legislat ion, as a rule, does not exempt NCOs from income tax. If there is
taxable income, then tax is levied at the rate of 10%. As an exception, according to
Item 2 of Part 1 of Article 212 of the Tax Code, the income of communities of certain
disabled persons (n amely, groups I and II), as well as enterprises of blind and deaf
people of the Kyrgyz community, where disabled, blind and deaf persons come up to
not less than 50% of the number of employees and their combined salaries comprise
not less than 50% of all s alaries are free from profit tax. The list of stated enterprises
is determined by the Government of the Kyrgyz Republic. The list is limited, and
along with enterprises, NCOs of disabled persons are also included into this list.
In compliance with Item 1 o f Part 1 of Article 212 of the Tax Code, the income
of charitable organizations is exempt from taxation. On the basis of this Article
incomes of charitable organizations can be exempted from profit tax.
In compliance with Part 2 of Article 153 of the Tax Code, “a charitable
organization is an NCO that is:
1) created as such, and is carrying out charitable activity in compliance with
the legislation of the Kyrgyz Republic on NCOs and charitable activity;
2) not participating in production and/or the sale of excis e goods and gambling
business;
3) not participating in support of political parties or election campaigns”.

Part 1 of the same article defines charitable activity as a voluntary activity of
an individual and/or legal entity, directed toward realization of ch aritable goals
provided for by the legislation of the Kyrgyz Republic on charitable activity on
transfer of assets, rendering services and accomplishment of works to citizens and
legal entities on unselfish (free of charge or preferential conditions) basis or for
payment which does not exceed incurred expenses.
In order to acquire the status of a charitable organization, NCOs are not
obliged to make a prior application to tax bodies and to receive written confirmation
from them on the right to tax benefits that are established for charitable
organizations. However, they shall comply with criterions established by the laws for
charitable organizations. The legislation sets quite strict criteria for the organization
to be considered charitable. In compliance with the Law of the Kyrgyz Republic on
Philanthropy and Charitable Activity, a charitable organization is an organization in
which not less than 98% of received funds are spent on charitable goals. The list of
charitable goals is also determined by this la w. It means that expenses on workers’
salaries, acquisition of equipment for them, office rental and other necessary material
resources may not comprise more than 2% of received funds. It is potentially a very
harsh framework (subject to the further provis ions set out below) and if the

59

organization cannot comply with the standards and a tax audit is undertaken, then
income tax (as well as VAT and sales tax) will be levied in addition to fines and
sanctions.
Moreover, in compliance with Part 3 of Article 189 of the Tax Code, the
following categories of income are not included in the total annual income of NCOs:
1) membership and entrance fees;
2) humanitarian assistance and grants, on the condition that they are only used
for charter purposes,
3) the value of donat ed assets, on the condition that they are only used for
charter purposes.
Parts 6 and 7 of Article 153 of the Tax Code gives the following definitions to
the notions “grant” and “humanitarian assistance”:
Grants are assets transferred free of charge by s tates, international, foreign and
domestic organizations to the Government of the Kyrgyz Republic, bodies of local
self -administration, state bodies, as well as to NCOs, not participating in the support
of political parties or candidates of election campai gns.
Humanitarian assistance consists of assets, transferred free of charge by
states and organizations to the Government of the Kyrgyz Republic, bodies of local
self -administration, state bodies, NCOs, as well as to needy individuals, in the form
of foo d, hardware, outfit, equipment, medical drugs and medicines, and other
property, for improvement of life conditions of the population, as well as for warning
and liquidation of emergency situation of military, ecological and technological
character, on con dition of their use and/or free of charge distribution.
Parts 4 and 29 of the same Article gives the following definitions to
membership and entrance fees:
Entrance fees are assets transferred by a person, during his or her initial
entrance into the NCO, b ased on membership in the amount and in the order
provided in constituent documents of the given organization, on condition that the
given transfer may not be conditioned exchange of services to the member of the
given organization free of charge or at a p rice below cost.
Membership fees are assets transferred by a member of an NCO, in the
amount and subject to the order provided in constituent documents of the
organization, on condition that the transfer was not be conditioned on the exchange
of goods, w orks, services to a member of the given organization either free of charge
or at a price below cost.
Not including abovementioned incomes into aggregate yearly income of NCO,
it is important to have in mind that revenues related to deriving income that is free
from taxation do not fall into deduction for tax purposes. Consequently, it is
necessary to keep separate records of incomes and revenues on statutory
noncommercial activity and on commercial activity (if an NCO conducts commercial
activity). It’s log ical. However there are still some moments that are not reflected in
legislation. For instance, how to be with capital assets acquired for this funds, if it’s

60

possible to depreciate them, as it is usually done. There are no answers for this
question in leg islation.
There are many problems with distinguishing between fees for rendered
services with membership and entrance fees. The definitions in the legislation do not
fully solve this problem. There is a range of cases when sports and health -related
instit utions, rendering services to the population, re -name fees for services as
membership fees so as to avoid taxation. These examples show that there is an urgent
necessity to prepare official commentaries on the given issues.
Commercial enterprises and individual entrepreneurs also enjoy particular tax
benefits on income tax for charitable activity. In compliance with Article 208 of the
Tax Code, assets, including cash and property, gratuitously delivered to charitable
organizations (at balance value), a s well as to organizations of culture and sports,
regardless of the form of ownerships, in the tax period, in an amount not exceeding
10% of taxable income of the taxpayer who transferred them, providing that these
assets are not used for the benefit of ta xpayer, are entitled to deduction from total
annual income.

§ 3. Income Tax and Social Payments to the Social Fund

All commercial and noncommercial organizations are obliged to:
1) pay, out of their own funds, insurance fees to the Social Fund in the a mount
of 17.25% of all payments accrued for the benefit of hired workers
(employer’s portion);
2) deduct from accrued salary of workers and transfer:
 insurance fees to the Social Fund in the amount of 10% of the worker’s
accrued salary (employee’s portion);
 income tax to the state budget in the amount of 10% of the worker’s
accrued salary.
Incomes of employees of NCOs are liable to income tax according to general
rules. They also pay income tax when their salaries are paid out of non -taxable
income, such as grants, entrance and membership fees. Income tax is usually levied
on the organization -employer that pays salary.
However, certain incomes received by individuals from NCOs , particularly,
assets gratuitously delivered to individuals hard up in social reha bilitation and
adaptation, medical assistance with incomes lower than subsistent minimum: (a)
refugees and (b) severely ill, are not liable to income tax. This provision is reflected
in Part 37 of Article 167 of the Tax Code.
The Tax Code does not offer a ny incentives for individual taxpayers, who are
not registered as individual entrepreneurs, to make charitable donations.

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Donations received by individuals are not reflected in tax legislation. The
definition of grant included in the Tax Code does not con template these payments
and consequently they are included in the total annual income of the individual for
taxation purposes. Of course, such situation is not rational, since grants, for instance,
that are awarded to individuals for education, research, literature and other activity
have specific designated purposes. Grants are not “pure income” of the grant
recipient, as they are allocated for conducting particular activity (work).
Similar problems may rise if individuals receive donations from an
orga nization that is not considered to be charitable. These funds must be included in
the total annual income of individual for taxation purposes. At the same time, net
worth value of humanitarian aid received by individual (Part 23 of Article 167), as
well as gratuitous assistance received from an individual are considered by the Tax
Code as gifts, and are not subject to taxation.

§ 4. Value Added Tax

In general, NCOs are exempt from VAT. However, in most cases they do not
pay this tax, as the volume of ta xable supplies usually do not reach the registration
threshold, which today is KGS 4 million over a period of 12 successive months. If
the registration threshold is reached, an organization must, during the month
following, register with the tax bodies as VAT payer and monthly pay this tax and
submit reports until the organizations ceases acquiring taxable supplies and annuls its
registration.
VAT is levied in the following way. If goods, works and services are acquired
from a VAT payer, then the taxable amount on acquisition is indicated separately
from the final acquisition price in the invoice. While preparing a report, a taxpayer
must calculate the VAT sum produced by the buyer during the month, and then
deduct paid and payable VAT. If VAT on supplies exceeds VAT on acquisitions,
then the difference is paid to the state budget. If the difference is negative, then paid
sum is accrued and used for payment of taxes in future periods.
Nevertheless, Article 252 of the Tax Code exempts from VAT taxation
par ticular supplies that are carried out by NCOs: supplies by NCOs for payments that
do not exceed the expenses to carry out these supplies are free from VAT, if these
supplies are:
1) for the social welfare and protection of children or indigent citizens of
advanced age; or
2) in the sphere of education, medicine, culture and sports.
It seems that granting such benefits is well -grounded. If there is no positive
difference, then there is no value added tax. However, the given article in fact does
not work. It is very rare to have an organization that carries out the types of supply
indicated in the given article. In practice, in order to receive the tax benefit, an
organization submits to the tax bodies a planned cost estimate, in which income
equals expenses — in other words, there is no profitability. It is difficult to follow and
check this cost estimate, as short periods of income and expenses do not coincide.

62

Moreover, due to price changes, expenses will change as well. If there is a savings,
then VAT is l evied, with the application of punitive measures and fines. There is also
another problem. If all supplies are not profitable, and profit is not earned, then the
organization cannot purchase fixed assets unless they are purchased with income not
generated as the result of supplies — such as grants, membership and entrance fees.
In compliance with Article 251 of the Tax Code, charitable organizations are
exempt from payment of VAT, if supplies are for charitable purposes. However the
Tax Code does not ex plain what is meant by “supplies for charitable purposes.”
Article 1 of the Law on Philanthropy and Charitable Activity enumerates the goals
for which charitable organizations may be created. These goals may be considered
an interpretation of “supplies fo r charitable purposes.”
It is necessary to note that if a person supplies goods to NCOs free of charge,
then the responsibility for payment of VAT is on the supplier.

§ 5. Excise Tax

NCOs are not exempt from excise tax on excise goods they may produce.
However, as a rule, they do not produce such goods. Charitable organizations dealing
with such types of activity immediately lose their status, even if they are guided by
good goals.
According to tax legislation, excised items include a limited list of g oods, such
as alcoholic drinks, tobacco products, combustive -lubricating materials and some
other luxury goods. Either the physical volume or value of good is counted as a
measurement for taxation. Basic rates of excise tax are determined in the Tax Code.
The Tax Code does not stipulate any benefits applicable to NCOs, including
charitable organizations.

§ 6. Land Tax

Land tax is collected from individuals having abstract of title or a document
confirming right of enjoyment of land plot. Land tax includes tax on agricultural
lands and lands of human settlement, industry, transportation, communication,
defense, nature preservation, health -improvement, recreation, forest resources, etc.
Rates are determined by the Tax Code on a case -by -case basis, depending on location
and classification of lands (their purpose of use).
Particular NCOs are exempt from payment of land tax. In compliance with
Item 5 and 9 of Paragraph 1 of Article 343 of the Tax Code the followings are
exempt from land tax:
5) lands of organizati ons of disabled persons, war participants and similar
categories of people, and lands of communities of blind and deaf people;
9) lands of liturgical objects of religious organizations, registered in the way
prescribed by legislation of Kyrgyz Republic
Land o wned by an NCO that does not qualify for any of these exemptions is
subject to land tax according to the general rule.

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Liturgical objects are immovable property of religious organizations meant for
committal of rituals, blessings in purpose of joint affili ation and advancement of
religion.

§ 7. Property Tax

Immovable and movable properties that are in state, municipal and private
ownership are liable for property tax. Property tax is differs from land tax in that land
tax can be used only for land plots, while the property tax is used for constructions
raised on land plots.
Taxpayer of the property tax is its owner. In case when it’s impossible to
determine ownership (for instance, when there is no registration of deeds), the
taxpayer of property tax is or ganization or individual using this property. State
property given in use of individual is subject to property tax; in this case tax is
collected from property user.
Property tax was introduced in Kyrgyzstan with the adoption of the Tax Code,
which was ef fective January 1, 2009.
However on March 27, 2009 a moratorium was introduced on application of
this tax pending development of new mechanism of its implementation. With
adoption of subsequent amendments in the Tax Code this tax was enacted on January
1, 2011.

Groups of Property

According to the Tax Code, property is divided into four groups:
 1 group: dwelling houses, apartments, detached houses meant for permanent or
temporary living and not used for conducting entrepreneurial activity;
 2 group: dw elling houses, apartments, detached houses, rest homes,
sanatoriums, health resorts, industrial, administrative, manufacturing, as well
as other capital constructions meant and/or used for conducting entrepreneurial
activity;
 3 group: permanent premises fr om metal and other constructions, such as
kiosks and containers meant and/or used for conducting entrepreneurial
activity;
 4 group: transportation vehicle, including self -propelled machines and
mechanisms.

Tax Rate

Calculation of ratable value of immo vable property (1, 2, 3 groups) depends on
year of construction, type of building materials (brick, concrete etc.), location of

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property, not only in within the country, but also within the particular inhabited
locality
The tax rate for property used for e conomic activity is 0.8 percent of the
taxable value. If the property is not used for carrying out an economic activity, the
rate is set much lower — only 0.35 percent of the taxable value.
The tax rate for property of 4 th group depends on type of the engin e, engine
displacement, useful life of the vehicle and other specifications (Article 328 of the
Tax Code).

Features of Property Tax Payment by NCO

According to the Tax Code property of an NCO used by the NCO for
noncommercial purposes (for instance, used as office) and not used for conducting
entrepreneurial activity does not fall into any of abovementioned groups. Therefore,
such property of NCO shall not be subject to property tax. But, even if some part of
NCO’s property is given in rent or used for en trepreneurial activity, then all property
is classified as 2 group and is subject to property tax at the rate of 0,8 % of taxable
value. In other words, there is no mechanism in Tax Code that could make it possible
to proportionally correlate parts of one immovable property to different groups (1 or
2 second group).
Invariant of purpose of use particular NCOs are exempt from property tax
depending on spheres of their activities. In accordance with Items 2 and 3 of Part 1 of
Article 330 of the Tax Code the f ollowings are not subject to property tax:
(2) property of associations of disabled persons of the I and II groups,
organizations of Kyrgyz communities of blind and deaf, where disabled persons
compose not less than 50 % of all employees and their sala ry amount to not less than
50 % of the whole salary fund, as well as institutions and enterprises of correctional
system. The list of mentioned organizations is determined by the Prime Minister’s
office of Kyrgyz Republic;
(3) property of organizati ons conducting activities in the spheres of
science, education, healthcare, culture, sports, social welfare and protection of
children or needy citizens of advanced age.

§ 8. Sales Tax

Sales tax is indirect tax (extra charge for goods’ or services’ price ) that is
levied from customer and paid to budget by vendor from total price of good or
service. Sale of goods, accomplishment of works and rendering services are subject
to sales taxes. The sales tax rate varies, depending on whether the sale of goods,
wo rks and services is subject to VAT or not. The other criterion for determination of
the sales tax rate is whether it is for trading activity or not.
For t he sale of goods, works and services that are either subject to VAT and
VAT -exempt, the rate is 1% on trading activity and 2% on any other activity. If the

65

sale of goods, works and services is not subject to VAT and is not VAT -exempt,
sales tax rate is 2% on trading activity and 3% on any other activity, correspondingly.
According to Paragraph 2 of Article 315 of the Tax Code, the sale of goods,
accomplishment of works and rendering of services by NCOs are exempt from VAT,
so long as the payment does not exceed the cost, and if it is:
1) for social welfare and the protection of children or indigent citizens of
advanced age;
2) in the sphere of education, medicine, science, culture, and sports .
In compliance with Part 4 of Paragraph 1 of the same Article, charitable
organizations are fully exempt from sales tax on any activity, including an
entrepreneurial a ctivity.

§ 9. Conclusion

The development of NCOs in democratic state should be encouraged.
Frequently, they may solve those social tasks that cannot be solved alone by a
developing country with a limited budget. NCOs are in a position to accumulate
ava ilable funds of economic players, foreign donors and individuals and direct them
toward the achievement of public benefit goals.
The tax regime for NCOs in Kyrgyzstan is far from ideal and has substantial
shortcomings. The Tax Code does not preserve the n orm of (1) encouraging citizens
(other than individual entrepreneurs) to make donations to charitable organizations,
(2) exempting charitable organizations from land tax, (3) exempting of NCOs from
property tax (except for some part of NCO conducting activ ities in particular
spheres). Property tax is a crushing burden for NCOs, as well as charitable
organizations. Above are only some, the most obvious shortcomings of the Tax
Code. There is a lot to be done to bring the conditions of NCO taxation in
Kyrgyzs tan closer to conditions established for NCOs in developed democratic
countries.

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Chapter 7. Reorganization, Liquidation and Bankruptcy of NCOs

The termination of an NCO occurs as a result of its reorganization (other than
merger or acquisition), liqui dation or bankruptcy .

§ 1. Reorganization of NCOs

Basic Notions and Forms of Reorganization

The reorganization of an NCO is one of the most interesting and at the same
time the least -studied areas of private law, including for domestic law experts as
well.
In the legal literature, the reorganization of a legal entity is considered as one
of the means of termination its activity. This method differs from liquidation by the
presence of succession, 53 i.e., where there is a passing of rights and obligatio ns to
another entity or entities, which are successors of the reorganized legal entity.
A reorganization of an NCO, as with any other legal entity, may be in the form
of a merger, accession, splitting up, separation, or transformation.
A merger of organi zations results from the creation of a new organization with
all rights and obligations of the prior organizations, and termination of the former
organizations. The rights and obligations of each of them pass in compliance with
deed of assignment to the ne wly created legal entity.
The accession of an organization results from the termination of one or more
organizations, with the passing all rights and obligations to another organization in
compliance with deed of assignment . During accession, a new legal entity is not
formed, but rather changes the legal status of legal entity (volume of rights and
obligations), to which acceded one or several other organizations.
The splitting up of an organization results from termination of its activity, with
the passin g of all rights and obligations to a newly -created organization, in
compliance with a separation balance sheet.
The separation of an organization is considered the creation of one or more
organizations with the transfer of some of the rights and obligation s of the
reorganized legal entity, but without termination of the former, in compliance with a
separation balance sheet.
The transformation of an organization means the change of its organizational
and legal form, and as a result a legal entity of a differ ent type appears. During the
transformation of the organization, all rights and obligations of the reorganized legal
entity are passed to the newly -created legal entity in compliance with a deed of
assignment.
The reorganization of an NCO, according to t he general rule, is carried out
either voluntarily, by a court decision or decision of the founders, or by the statutory
53 Telukina M. V., Reorganizasia kak sposob prekrashenia deyatelnosti juridicheskih lis’ [Reorganization as a mean of
termination of legal entity], 2000, p.40.

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body, which is authorized by statutory documents; or involuntarily, by a decision of
the state body authorized in relation to financial and credit organizations or
institutions, for which the licensed activity is the only permitted type of activity. An
example of the latter are microcredit agencies, created in any organizational and legal
forms of NCO, which may be reorganized by decision of National Bank in
compliance with Article 10 of the Law “On microfinance organizations in the Kyrgyz
Republic.”
The use of any of above -mentioned forms of reorganization may not lead to
disadvantageous consequences for creditors of the reorganized legal entity.
Therefore, the law requires founders, members of the organization or the body which
adopted the decision on reorganization of the legal entity, in written form, to inform
all creditors of the reorganization. The creditors have the right to demand termination
or execution of obligations before a due date, and compensation for damages.
The requirements for the contents of the deed of assignment and separation
balance sheet are set by the Civil Code. These documents must contain a plan for
successio n of all obligations of the reorganized legal entity in relation to its all
creditors and debtors, including obligations that are in dispute by the parties. The
deed of assignment and separation balance sheet must be approved by founders
(members) of legal entity or body that adopted the decision on reorganization. If the
separation balance sheet does not identify a successor of the reorganized legal entity,
the newly created legal entities will carry joint responsibility for obligations of the
reorganized legal entity in relatin to its creditors. These rules comprise the most
important legal guarantees of rights and interests of creditors of the legal entity to be
reorganized.

Specifics of NCO Reorganization

In relation to NCOs, it is problematic to dete rmine permissible reorganization
forms. The concern is preserving the status of the NCO, as well as changing the type
of organization – that is, the transformation of an NCO to a commercial type of
organization.
Frequently, special NCO laws on reorganizat ion refer to the Civil Code, thus
the law related to admissible reorganization forms does not directly regulate the
relationships. And the Civil Code provisions dedicated to reorganization and NCOs,
set out only general reorganization procedures (Art. 92 – 95 of the Civil Code), while
the transformation of commercial organizations is considered only in relation to
associations of legal entities (associations and unions).
The absence of legal provisions dedicated to detailed regulation of NCOs is
typical n ot only for domestic private law; the same is true in many foreign
jurisdictions.
The table below was prepared for clarifying the application of reorganization
procedures to NCOs. In it, existing forms of NCOs are divided into two basic types:
1) Non -mem bership organizations;
2) Membership organizations.

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Table 2

Merger

Accession

Separation

Splitting up

Transformation to noncommercial organization

Transformation to commercial organization

Non -membership organizations
Institution + + + + + –
Fou ndation + + + + – –
Membership organizations
Public association + + + + + –
Association of legal
entities
+ + + + + +
Religious
organization
+ + + + + –
Political party + + – + – –
Trade union + + + + + –
Credit union + + + + – –
Noncommercial
coo perative
+ + + + + –
Association of
employers
+ + + + + –
Association of water
users
+ + + + + –
Partnership of
homeowners
+ + + + + –

Some forms of NCOs that are the most interesting in terms of regulation, will
be further considered in more detail.

Institution
The Law of the Kyrgyz Republic on NCOs does not include provisions on
procedures and permissible forms of reorganization of the so -called “institutions.”
Neither does the Civil Code regulate these relationships. Therefore, the process of
reorg anization of institutions is the same as the process of reorganization of other
NCO forms.

69

At the same time, separate special normative and legal acts of the Kyrgyz
Republic provide some limitations, for example, for educational institutions.
According to Article 42 of the Law of the Kyrgyz Republic “On education,”
educational groups may be reorganized to educational organizations of other types, if
the founder undertakes a personal obligation to meet certain requirements of
educational organizations. The reorganization of educational organizations is carried
out, as a rule, at the end of the academic year.

Foundation
The organizational and legal form of foundation takes a special place in the
domestic system of legislation on legal entities. The Law of t he Kyrgyz Republic
“On noncommercial organizations” determines that the supervisory council has the
competence to adopt a decision on reorganization of a foundation (Art. 28).
However, permissible reorganization forms are not set out. Relying on the gene ral
rule , it would not be possible to reorganize a foundation with in the framework of
organizational and legal forms of the foundation. However, one also needs to take
into account civil enforcement practice when reorganization relationships are not
regula ted and therefore sometimes it is interpreted that reorganization of foundation
is not admissibil e.
According to the opinion of Russian legal expert D.I. Stepanov, “foundation
reorganization in the form of transformation to the legal entity of an other typ e
according to the general rule is not permissible , otherwise , in practice , people will
stop following the norm on inadmissibility of out -of -court liquidation of a
foundation .54
Of special , practical interest is the issue o f the interrelationship between
pr ovisions dedicated to the organizational and legal form of foundation and
provisions on non -state pension foundations. In contrast to public foundations, the
law “On non -state pension foundations in the Kyrgyz Republic” directly sets out
permissible reorga nization forms for the non -state pension foundation . In particular ,
the law permits four forms (merger, accession, splitting up, separation), in addition to
transformation. And the reorganization of a pension foundation is carried out based
on the decisio n of the general meeting of foundation founders in coordination with its
regulating body, and in compliance with the resolution of an independent auditor
(Art. 31).

Association s of Legal Entities
Reorganization of an association of legal entities is carr ied out according to
general rules of reorganization of legal entities, as set out in civil legislation.
In contrast to other organizational and legal forms of NCOs, in relation of
which the legislation does not provide an opportunity to change the type o f legal
entity from NCO to commercial, an association of legal entities may be subject to
54 D.I. Stepanov, Formy reorganizasii nekommercherskih organizasii [Reo rganization forms of noncommercial
organizations], published in attachment to the magazine “Khozyaistvo i pravo” [Economics and law] (2003), # 10, p.
16.

70

transformation to an economic partnership or community , if its members decide to
carry out economic activity (Part 1 of the Article 165 of the Civil Code). The
decisi on is related to the specifics of the organizational and legal from of association s
of legal entities, as the association does not have the opportunity to carry out
economic activity. Th is requirement of the legislation is set only for association s of
comm ercial organizations. Note that , should such an association carry out economic
activity, it is not oblige d to transform in to an economic partnership or community.

Other NCO forms
As regards such NCOs as public association, trade union, religious
organiza tion, noncommercial cooperative, partnership of homeowners, association of
employers and association of water users, the relevant law of the Kyrgyz Republic
does not define which specific reorganization forms are permitted . As such , it is
possible to refer to the general rule that such NCOs may utilize different
reorganization forms.

Specifics of Transformation of NCOs to Commercial O rganizations

The legislation dedicated to reorganization of NCOs does not fully regulate the
range of possible transforma tion forms. The general principle is that transformation
of a legal entity is possible only by preserving the initial level of legal capacity
(general or special). Otherwise , it would be impossible to apply the rule of universal
succession, because certain rights and obligations arising out of general succession
would hang in the air when the successor is only capable of assuming certain,
specific obligations . And , vice versa, an organization with special legal capacity may
not transfer to a successor more rights than it has .55
Thus, the transform ation of an NCO to a commercial entity, and vice versa , is
an exception to the general rule. The legislation of the Kyrgyz Republic regulates
such transformation only in relation to association s of legal entities, w hich may be
transformed to an economic partnership or community. Utilizing this approach , one
may read the legislat ion as implying the non -application of the reorganization
procedure to other organizational and legal forms of NCOs. However, developed
syste ms of corporate law have gone further and established a general principle on the
possibility of reorganization of NCOs , as a result of which a commercial organization
is created , and vice versa .56 The possibility of such reorganization is considered one
of the manifestations of the principle of freedom of incorporation .57
The specifics of reorganization as transformation means as well that the
number of parties to the civil relationships does not change ; all rights and obligations
of the organization to be r eorganized pass to the newly -created organizational and
legal form. Therefore the legislation, in a range of cases , appl ies limitations on
55 Civil law textbook, volume 1, 6 th edition, updated under the editorship of A.P. Sergeev, U.K. Tolsto y, Publisher
“Prospekt” (2003), p. 162
56 Edward P. Welch, Andrew J.Turezyn. Folk on the Delaware General Corporation Law: Fundamentals. Boston, N.Y.,Toronto, London. 1993, p.618,625,689.
57 Marta Meinema, Mandatory and Non – Mandatory Rules in Dutch Corporat e Law, 6.4 EJCL 157,158 (2002), www.ejcl.org/64/art64 -10.html[08.01.03]

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transformation from one form to other, taking into account the specifics of different
NCOs and the diversity of goals they are pursu ing .
Considering the above -mentioned points, it is possible to conclu de that the
legal regulation of reorganization of NCOs is not uniform and not consistent. In
practice , this problem frequently leads to difficulties, and therefore it is n ecessary to
conduct legislative reforms directed to its improvement, and to build a consistent
system of legislation on legal entities.

§ 2. Liquidation of NCOs

Basic N otions ; Grounds for Liquidation

Liquidation of noncommercial organization differs fr om reorganization.
During liquidation , the NCO terminat es its existence as a legal entity without passing
its rights and obligations to other subjects. The Civil Code regulates in detail the
grounds and procedures for liquidation, with the help of imperati ve norms, defining
the content and sequence of actions during liquidation.
According to the general rule established by Article 96 of the Civil Code, a
voluntary liquidation is carried out by the decision of its founders (members), or the
statutory body o f a legal entity, as authorized by statutory documents. Typical
grounds for voluntary liquidation are:
– inexpediency of further existence of the organization;
– expiration of the term for which it was created;
– achievement or impossibility of achieving the charter goals of the
organization.
Paragraph 1 of Part 2 of Article 96 of the Civil Code contains an additional
basis for voluntary liquidation : the decision of a court on the nullity of registration of
the legal entity. This rule causes confusion, because if the decision of the court enter s
into force, then the participants of the organization must respect it . It means in this
case , liquidation is carried out based on a court decision, not on the willingness of
participants.
Forced liquidation of noncommer cial organization is carried out only by court
decision. In Part 2 of Article 96 of the Civil Code , only certain grounds for forced
liquidation are listed:
 carrying out an activity without proper permission (license);
 carrying out an activity prohibited b y law;
 carrying out an activity with other repeated or gross violations of the
legislation;
 systematic ally carrying out an activity that contradicts charter goals;
 withdrawal of a license from financial and credit organizations or institutions,
for which the operations established in the license are the only permitted type
of activity.

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The l ist of grounds for forced liquidation is not exhaustive; there are also other
grounds for liquidation of the organization by court decision, in cases provided by the
Civ il Code.
In relation to liquidation of particular types of NCOs , the law provides specific
procedures . A d ecision on liquidation of a public foundation may be decided only in
the courts by application of interested parties. Grounds for th is type of liqui dation
include :
First of all, insufficiency of foundation property for carrying out its goals ,
when the probability of receiving necessary property is unlikely (this additional
ground for liquidation of foundation s is not relevant to other legal entities,
considering the special importance of property for achievement of charter goals) ;
Secondly, if foundation goals cannot be achieved and the necessary changes of
foundation goals may not be produced ;
Thirdly, if a foundation deviat es from its charter goal s of activity ;
And many other cases, provided by the law.
Bankruptcy may be considered one of the bases for forced liquidation.

Liquidation Procedure

The legislation of the Kyrgyz Republic set s a general procedure for liquidation
that must be in strict c ompliance with the Civil Code and other laws. The l iquidation
procedure generally may be divided into three stages:
Stage 1 includes decisionmaking by founders (members) or the authorized
body on liquidation of the NCO , appointment of a liquidation commis sion
(liquidator), and setting procedures and terms for liquidation in compliance with the
requirements of the Civil Code. Next, the founders (members) of the NCO or
authorized body must adopt a decision on liquidation, and they are obliged
immediately to inform the body that carries out the state registration of legal entities.
Stage 2 includes activity of the liquidation commission on identification of
creditors, paying debts and distribution of property. At this stage , the liquidation
commission works to identify creditors and bills receivable. For this purpose , the
liquidation commission publishes in print media information on liquidation of the
NCO , including procedures and terms for application of creditor’s claims. T he t erm
for application of creditor ’s claims may not be less than two months from
publication. The l iquidation commission has the power to control actions of
authorized body relating to disposal of the property of the legal entity. In p articular,
the statutory body may only transfer propert y or repay debt with the consent of the
liquidation commission.
By the deadline for the application of creditor’s claims , the liquidation
commission must prepare an interim balance sheet reflect ing the assets of the
organization to be liquidated once the creditor’s claims have been consider ed . The
interim liquidation balance sheet must be approved by the founders (members) of the
organization or the body that adopted the decision on liquidation.

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If the available funds of the organization to be liquidated ( except for
institution s and association s of legal entities) are not sufficient for settlement of
creditor’s claims, then it may be liquidated in bankruptcy (insolvency) (see chapter
9.3). A ccording to Article 164 of the Civil Code, if an institution lacks sufficient
funds, its owner retains subsidiary liability on obligations of the institution .
Similarly , according to Article 165 of the Civil Code, its members carry subsidiary
liability on obligations of association s of legal entities . In other words, th e creditors
of these organizations have a right to settlement of their claims at the expense of
institution owners and members of association s of legal entities.
Creditors of the organization to be liquidated are paid by the liquidation
commission as set by the Civil Code and in compliance with the interim balance
sheet as approv ed .
Stage 3 includes completion of the liquidation procedure . This involves
preparation of the final liquidation balance sheet by the liquidation commission,
which describes liqu idation results of the organization and completion of the
creditor’s claims settlement. The l iquidation balance sheet must be approved by
members or by the body that adopted the decision on liquidation.
The l iquidation of an NCO is considered complete an d the organization
terminated after a note is entered into the unified state registry of legal entities in
compliance with the procedure set by the Law of the Kyrgyz Republic “On state
registration of legal entities .”

Specifics of Liquidation s of Particu lar Forms of NCO

The legislation of the Kyrgyz Republic provides some specifics relating to the
procedures on distribution of NCO property after settlement of creditor’s claims in
liquidation. During foundation liquidation, any remaining property is put toward the
goals indicated in the foundation charter and not otherwise subject to distribution to
the founders. During the liquidation of a non -state pension foundation , pension assets
are directed only to settlement of depositor and recipient claims.
Fun ds from the of pension foundation property intended for ensuring its charter
activit ies are directed to settlement of depositor’s and recipient’s claims , if there are
insufficient pension assets and all other debts in compliance with sequence set by the
le gislation of the Kyrgyz Republic. Foundation funds , including revenues from sale
of its property and after settlement of all obligations, are directed to the goals
indicated in the foundation charter.
A c redit union charter may stipulate that , in case of voluntary liquidation and
after settlement of all obligations that exceed the total sum of paid savings shares,
credit union assets may be distribut ed among its members in compliance with the
conditions set out in the credit union charter. The l iquidation of a credit union is
carried out taking into account the following specifics:
 the credit union must submit its original license to the National Bank of the
K yrgyz Republic with in three days from the decision on self -liquidation;

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 the credit union must cease granting loans from the moment of the decision
on self -liquidation;
 the credit union must settle all claims of its creditors and members.
Property and financial funds of association s of water users left after settlement
of all obligation s, other than fixe d assets received from the government free of
charge, are subject to distribution among association members by decision of the
liquidation commission or body, having decided on liquidation in compliance with
the conditions set by the charter.

§ 3. Bankru ptcy of NCOs

Basic N otions ; Legal Regulation of NCO Bankruptcy

Bankruptcy (insolvency) refers to the inability fully to settle creditors’ claims
on monetary undertakings, including the inability to make compulsory payments to
the state budget and off -bu dget foundations (Part 1 of Article of the Civil Code),
once such inability is recognized by a court or declared at a meeting of creditors held
with the consent of the legal entity . A court must make an a cknowledgement that a
legal entity is bankrupt. The legal entity may also be declared bankrupt extra –
judicially , in compliance with the legislation on bankruptcy.
Contemporary legislation defines the notions of insolvency and bankruptcy. In
prerevolutionary Russian law , these notions were differen t. Insolv ency was
considered as insufficien t property for settlement of creditors’ claims, and
bankruptcy was considered to be causing damages to creditors by increasing and
hiding property of the owner, i.e. , the “criminal side of those civil relationships
which i s called insolvency .”58 Such a difference is sometimes reflected in foreign
legal schemes. 59
In contemporary legal regimes, the rules on insolvency are applied to legal
entities, as well as to individuals, and not exclusively to those carrying out economic
activity. Therefore , bankruptcy is not only related to the liquidation of commercial
organizations.
It is important to note the legislati ve progress in this direction, which
strengthens the tendency on broadening categories of entities subject to bankrup tcy
(insolvency), and gradually backing down from direct dependence between carrying
out an economic activity and possibility of the debtor being recognized as bankrupt.
Previously , the Law of the Kyrgyz Republic “On bankruptcy” as of January 15, 1994 ,
No. 1431 –ХII , permitted an application of bankruptcy procedures only on the part of
economic subjects (enterprises and banks irrespective of ownership forms, and their
economic associations). The Civil Code of the Kyrgyz Republic, adopted in 1996 ,
backed down from th is principle, having recognized as bankrupt (insolvency)
subjects foundations and cooperatives, and having legislated at the same time the
58 G. F. Shershenovich, Kurs torgovogo prava [Trade law course], volume 4, Moscow (1912), p. 148, 580. 59 Grajdanskoe i torgovoe pravo kapitalisticheskih gosudarstv [Civil and trade la w of capitalistic states], Moscow
(1993), p. 441.

75

impossibility of applying bankruptcy procedure to institutions (Art. 96 of the Civil
Code). Is it possible to consider the given norm as imperative?
An answer to this question is in the Law of the Kyrgyz Republic “On
bankruptcy (insolvency)” as of October 15, 1997 , No. 74 . Th is law sets bankruptcy
procedures of commercial and noncommercial organization s. The giv en law is
applied to noncommercial organiza tion s only in cases directly provided in the given
law or other normative and legal acts on particular organizational and legal forms of
NCOs (except for institutions).
It is important to note that the Law “On ban kruptcy (insolvency)” as well as
the Civil Code identify those organizational and legal form s, association s of legal
entities and institutions , to which application of bankruptcy procedure is
meaningless, as there is a possibility of recovering debt from m embers.

Criteria for Application of Bankruptcy Procedure s to an NCO

As bankruptcy is applicable to NCOs as well as to commercial organizations, it
is necessary to pay special attention to the answer to the question: why is bankruptcy
of NCOs possible, and which forms of NCOs may be recognized as bankrupt?
In analyzing norms, defining notion of bankruptcy (insolvency) and goals of
application of bankruptcy institute, it is important to set criteria for attributing NCOs
to legal entities, which may be sub ject to bankruptcy.
Part 1 of Article 100 of the Civil Code sets out the criteria for application of
bankruptcy to legal entities, including NCOs as well . Major criteria are their
participation in civil and legal relationships in which legal entity posse sses civil
rights , corresponding to its goals, and carries obligations related to them. NCOs
participate in different proprietary relationships and may be in the role of debtor and
creditor. Like commercial legal entities, NCOs (except for institutions, as well
associations of legal entities) are independently responsible for their undertakings.
Any way the re is responsibility for non -execution or improper execution of an
obligation.
There are insignificant limitations on participation of NCOs in economic
turnover. Participation in economic activity does not contradict the essence of NCOs ;
the major difference with commercial organizations is that NCO profit must be
directed to achievement of charter goals, and may not be distributed to founders.
Therefore , in relation to its opportunities to enter into different transactions, the legal
capacity of NCOs in essence does not differ much from legal capacity of commercial
organizations. Moreover, the definition of bankruptcy (insolvency) does not indicat e
to the criteria that indebtedness must occur only while economic activity is being
carri ed out .
The next criterion necessary for an application of bankruptcy is the presence of
a property in the ownership or economic management control of the organization,
whic h may be claimed to. Th is criterion is related the legal entity ’s independent
prop erty responsibility.
Most NCOs hold property based on the right of ownership. Institution s own
property based on the right of day -to -day management , and as such, have quite

76

limited property disposal opportunities. The a pplication of bankruptcy procedure s
here is meaningless, as all property belongs to the owner, who carries additional
responsibility in relation to the organization’s debts. Due to this fact, bankruptcy is
not applicable to institutions.
It is thus possible to conclude that one of the criteria for non – application of
bankruptcy on NCO is the presence of a subsidiary responsibility of its founders. Due
to this, such NCOs as association s of legal entities may no t be considered as
bankrupt, as its members carry subsidiary responsibility on its debts .60 It is also
possible to conclude that almost all NCOs have economic prerequisites to
bankruptcy.
As NCOs actively participate in civil transactions , it is necessary to ensure as
creditors’ interests, including interests of organization’s workers, as well as interests
of the organization itself in case the organization becomes insolvent. As such, one
task of bankruptcy is to protect creditors’ interests and proportiona l settlement of
their claims in established sequence procedure, as well as granting an opportunity for
the debtor to restore its financial standing, and to continue activity after settlement of
creditor’s claims. The n on -application to NCOs of bankruptcy n ot only decreases the
opportunity for creditors to recover debts from insolvent NCOs , but also infringes the
interests of the organization -debtor, as the organization is no longer entitield to use
funds provided by the legislation on bankruptcy in order to restore solvency .61
H owever, it is unlikely to apply bankruptcy to NCOs without taking into account the
goals of their activity.
Therefore , in order to ensur e the equality of subjects of civil relationships, it is
necessary to solve the problem with bankr uptcy of NCOs by conducting legislative
reforms, particularly by introducing amendments to the Civil Code and legislative
acts on bankruptcy, identifying the types of NCOs to which bankruptcy is applicable.

Bankruptcy of Particular Types of NC O

Bankrup tcy of NCOs is regulated by the legislation on bankruptcy . Certain
specifics are described below.

Bankruptcy of public foundations
A p ublic foundation may only be recognized judicially as bankrupt. During
bankruptcy , a special administration (liquidatio n method) or out -of -court settlement
is applied. The p rocedure of readjustment or rehabilitation is not applied.
The judicial bankruptcy process is carried out by the manager of a public
foundation , based on a decision of the s upervisory council or other supervisory body.
In the case of liquidation of a public foundation , any property left after settlement of
60 Civil law textbook, volume 1, responsible editor professor E.A. Suhanov, 2 nd edition, updated, Pub lisher “BEK”,
Moscow (2002), p. 207, 272, 268. 61 U. Svit, Vozmojno li bankrotstvo nekommercheskih organiz asii [Whether bankruptcy of noncommercial
organizations is possible], ‘Rossiiskaya justisia’, # 10 (2000) .

77

creditors’ claims are directed to social, charitable and other public benefit goals, as
indicated in the foundation charter and as directed by the ad ministrator.

Bankruptcy of cooperatives
A c ooperative may be accepted as bankrupt judicially , upon the application of
creditors. The c onditions for bankrupt cy and liquidation of cooperatives are:
 non -settlement of creditors’ claims for payment of debts and other
obligations (for goods, services etc.) fully at maturity;
 debtor’s refusal to settle such claims fully at maturity;
 debtor’s inability to settle such claims fully at maturity;
 non -settlement of creditor’s claims by debtor in the process provided by
Article 27 of the law on bankruptcy prior to the court’s decision on the
merits of bankruptcy case;
 ascertainment of fact by the authorized supervisory body on the excess of
debtor’s obligations over its assets ;
 within three months of approval of an ann ual balance sheet that includes
cover ing losses by additional fees , the non -execution of obligations by
cooperative members.
At the same time , cooperative members carry subsidiary responsibility on
cooperative’s obligations to the extent of the invested po rtion of the additional fee s of
each cooperative member.
Provisions on bankruptcy in case of insolvency also are applicable to credit
unions and micro -credit agencies, and they are liquidated like banks, and in
compliance with the legislation on bankruptc y.
Specifics of Legal R egulation of M embership NCOs
Chapter 8. Public A ssociations

Public associations are the most widespread organizational and legal form of
NCOs , due to both the long history of their recognition in law and the relative
simplicity of their creation, management and activity.

§ 1. The Right of A ssociation

According to Article 35 of the Constitution of the Kyrgyz Republic , each
person has the right to freedom of association. Individuals have the right to create
public associations on t he basis of free will and common interests. The state insures
the observance of the rights and legitimate interests of public associations. Thus, the
right to association does not mean that it is only the right to create registered public
association. It i s much wider and includes a right to associa te without forming an
organization.

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Free dom depends in part up on individuals’ level of organization. W ithin the
framework of a public association , individuals have the opportunity to protect their
interests by u sing various forms of jointly organized public activity and unit ing their
efforts to carry out particular tasks .62 The right to association, and to creation of
unions and associations , is enscribed in most current European Constitutions. Some
of them give t his right only to citizens 63 (Austria, Belgium, Bulgaria, Germany,
Greece, Denmark, Italy, Kazakhstan, Lithuania, Luxembourg, Macedonia, Moldova,
Monaco, Portugal, Romania, Ukraine, Croatia, Sweden) ; others , to everyone who is
on the territory of the countr y. 64
M ember s of a public association possess all the rights and perform all the
duties stipulated in the charter: to participate in the decision -making process on
issues related to the activity of association ; to select and be selected to its governing
bod ies , etc. One may serve as member of more than one public association.
The f ormation and activity of public associations and other organizations may
not caus e damage to the Constitutional system, the state or national safety ( Item 4 of
Article 4 of the Con stitution). The Criminal Code of the Kyrgyz Republic , in Item
259 , provides financial penalty or jail for term up to 2 years for creation of a public
association which trespasses to the person and rights of individuals and Consitutional
system .
Association s are forbidden from creat ing militar y formations. The c reation of
secret associations is not allowed. Article 4 of the Constitution permits associations
to undertake any actions and activity, except th os e that are forbidden or limited by
the Constitution and laws of the Kyrgyz Republic.
This discussion has described how the basic right of citizens to freedom of
association is regulated today. At the same time, the historical roots of public
associations are much deeper.
§ 2. The History of the L egal R egul ation of Public A ssociations

The status of public associations ha s been changing as society and the status of
individuals has chang ed : from an unlimited right to association in Ancient Greece ;
un til regulation of the separate rights and duties of associat ions in Ancient Rome ;
through professional medieval corporations , with rigid regulation of labor and the
way of life of members, and prohibitions for creation of political organizations ; to
trade unions and political parties of the XIX century, and assignm ent of the right to
freedom of association to national legislat ures; and , in the middle of the XX century ,
to international norms .65
62 Soodanbekov S.S. and Ukushev M.K., Konstitusionnoe pravo Kyrgyzskoi Respubliki [Constitutional right of the
Kyrgyz Republic] (General and Specifics parts ), Bishkek ( 2001 ), p. 210 63 Specific of Island’s Constitution is that this right is granted to the population (i.e. citizens by essence of art 74 and
others ). 64 Konstitusionnoe pravo gosudarstv Evropy [Constitutional law of European states: textbook for student of law
universities and departments, responsible editor D.A. Kovachev, Moscow ( 2005 ). 65 See Uriev S.S., Pravovoi status obshestvennyh ob’edinenii [Legal status of public associations] , Moscow ( 1995 ).

79

International recognition of human rights in the General D eclaration of Human
Rights of December 10 , 1948 , became a signifi cant event in the world history. The
status of public associations received an international legal basis and everyone’s right
to freedom of associations (unions) was recognized as an inalienable human right.
In spite of the fact that the right was proclaim ed in the very first editions of the
Constitutions of Soviet Union and union republics, any public organization un til the
beginning of the 1990 s was created with the permission, approval and control of
party bodies.
The normative status of public associati ons was defined by Orders of Central
Executive Committee and Council of National Commissioners of USSR as of
January 6, 1930 “On procedure for establishment and liquidation of all -union
communities and unions which do not pursue profit -making” and as of Se ptember 7,
1932 “On procedure for activity within USSR of foreign and international voluntary
communities and unions”, as well as by the Order of All -Russian Central Executive
Committee and Council of National Commissioners of Russian Soviet Federative
Soc ialist Republic (RSFSR) as of July 10, 1932 “On approving Regulation on
voluntary communities and unions”.
The Law of the USSR “On public associations” became the first law regulating
the legal status of associations , in 1990. One year later, on February 1 , 1991 , the Law
“On public associations” was adopted in the Kyrgyz Republic, which provided the
right to unite into organizations on the basis of common interests. The law defined
the legal status of public associations, regulated in detail the procedure for their
creation, rights and activit ies and the financial basis of public associations. Public
associations directly included political parties, mass movements, trade unions,
women ’s and veteran organizations, organizations of disabled persons, youth and
children’s organizations, scientific, technical, cultural and educational, sports and
other voluntary communities, creative unions, foundations, associations and other
associations.
The development and liberalization of c ivil relationships have necessit ate d
amendments to the laws of public associations. Today , the legislation in this sphere
has been completely updated. The Civil Code of the Kyrgyz Republic of 1996 , along
with the regulation of general provisions on NCOs in Item 161 , sets out the legal
basis for public associations. The basic normative -legal act that defines the legal
status, procedures of creation and principles of the activity of public associations is
the Law of the Kyrgyz Republic “On noncommercial organizations ,” from October
15 , 1999 , N o. 111.
§ 3. Notion and Features of Public A ssociations

According to Item 85 of the Civil Code , a public association is an independent
organizational and legal form of NCO. 66 The notion of public association is described
in Item 161 of the Civil Code and i n Item 2 of the Law “On noncommercial
66 In Russian Federation in contrast to legis lation of the Kyrgyz Republic public association is a generic term, which
means any voluntary , self -administered, noncommercial formation , created by initiative of citizens united based on
common interests for implementation of common goals, determined in the charter of public association .

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organizations .” Public associations are recognized as voluntary associations of
individuals who have united on the basis of their common interest in satisfaction of
spiritual or other non -material needs.
A legislative definition of the notion of “public association” highlight s the
general features characterizing this type of NCO:
• Volunteerism,
• Association of citizens,
• Basis – common interests,
• Purpose of creation – satisfaction of spiritual or other non -materia l
needs.
Each of these features is discussed below in more detail.
Voluntary association. The C onstitution of the Kyrgyz Republic guarantees
that join ing and withdraw ing from public association is voluntary . Public
associations are created as a result of the free will of its members . It is not possible to
create a public association on the basis of an administrative act, such as an order, for
example.
Association of individuals . A p ublic association may only be created by
physical persons. It is one of few forms of NCOs in which legal entities cannot
participate as members . Th is feature of public association s distinguishes them from
other organizational and legal form s. By contrast , associations (unions) may only
have legal entities as members .
The featur e of common interests of citizens characterizes public organization s
as those created by people pursuing the same goal .
The purpose of creation is satisfaction of non -material needs . Public
associations are created in order to satisfy various , non -material and, first of all,
spiritual needs. In general, the notion of “non -material needs” includes any interest
that is not directed to ward the generation of material benefits .67 The notion of
“spiritual needs” also covers a wide range of goals . This term is very often used to
indicate only the religious needs of citizens, which is unjustified narrowing of the
given concept. In broad terms , spiritual is opposed to material . Spiritual needs are
needs from the world of ideas, knowledge and art values .68 As much as sp iritual
needs may vary , public associations created for their satisfaction may also vary . And
it is necessary to note that the satisfaction of spiritual needs is frequently identified
with the satisfaction of material needs , f or example, in the activit ies of such public
associations as a u nion of writers, union of composers or chamber of tax advisers, or
the Association “Lawyers of Kyrgyzstan .” The ir m ain purpose is representation and
protection of the participants ’ interests — that are connected to variou s kinds of
economic activities, which ultimately provide realization of basic , non -material
purposes. There are also examples of charitable funds that have create d commercial
organizations, for example, in order to process agricultural product s for the mar ket ,
67 Nekommercheskie organizasii Kyrgyzstana [Noncommercial organizations of Kyrgyzstan: legal basis, accounting
and taxes] , Bishkek ( 2004 ), p. 136 . 68 Grajdanskoe pravo Rossii [Civil law of Russia: general part], ed. O.N. Sa dikov, Moscow ( 2001 ).

81

directing profit s to needy and large families for clothes, books and school supplies
for high school students. This activity of a fund corresponds to the requirements of
the law and satisfies its charter goals. The n on -material needs of individuals ar e very
diverse. Therefore, the legislation regulates the activity of associations only in the
most important spheres (political parties, trade unions, religious organizations, co –
operatives , etc.).
In spite of the fact that public associations and religiou s organizations are
mentioned in one of the article of the Civil Code , they are not identical, because the
goals, organizational principles and activit ies of public associations and religious
organizations have different and specific character s. For this r eason, the activity and
legal status of public associations and religious organizations were always regulated
by different laws. The law on NCOs does not regulate the activity of religious
organizations.

§ 4. The Creation and A ctivity of Public A ssociatio ns

To obtain the status of legal entity , public associations must register with the
Ministry of Justice. Only after state registration , and from the date of inclusion into
the state register of legal entities , a public association obtains the rights of a legal
entity and its inherent legal capacity.
The Law on NCOs also acknowledges the existence of public associations
without state registration and without the rights of legal entit ies . Some types of
unregistered public associations are known in domestic legislation as “territorial and
public self -administration bodies ” (“ТPS Bodies” ). TPS Bodies are voluntary
associations directed to solve local issue s, i.e. issues that arise where the members are
living. They include councils and committees of micro -districts, housing complexes,
house s, street s, quarter committees and oth er bodies created by residents, taking into
consideration local conditions and traditions. Comparing the legal capacity of such
organizations with organizations that have the status of legal entity, it is necessary to
note that the former do not become sub jects of civil relationships .69 For example,
Item 173 of the Civil Code permits that participants of transactions may be either
physical or legal entities. Therefore, a public association may not conclude a
transaction as such without forming a legal entity . Instead, for example, an agreement
may be concluded by a participant of the public association independently , or on the
basis of a power of attorney on behalf of other participants. Thus, state registration of
public associations essentially expands the volume of legal capacity of the given civil
society institutes.
Public associations registered as legal entit ies possess additional rights in
pursuit of its charter goals and for the protect ion of the common interests of
participa nts.70 A p ublic associatio n may own lands, buildings, transport, equipment,
property for social purposes, mone tary resources, securities and other property
69 See Grajdanskoe pravo [Civil law. Volume I], ed. E.A. Suhanov, Moscow ( 2004 ). 70 Melnikov T.E., Novii poryadok registrasii obshestvennyh ob’edinenii [New registration procedure of public
associations], Magazine “Advokat”, # 11 (2002 ).

82

necessary for the material maintenance of its activity specified in the charter . I t may
also have the opportunity to participa te in a certain public legal relationships.
Public associations have the right to carry out an economic activity. However,
as public associations are NCOs , economic activity should not be their main goal .
The e conomic activity of these organizations shoul d be of the means of obtaining
resources used for realization of charter goals. Such activity may include
manufacture and realization of goods, work performance, services providing with the
goal of receiv ing compensation , and other types of economic activi ty , if it do es not
contradict the goals of the organization.

§ 5. Membership in Public A ssociations

The main feature of a public association is its membership. A p ublic
association is an organization created for the protection of the common interests of its
members and for the achievement of its charter goals through joint activity. A
voluntary association assumes free , conscious will ; therefore, such organizations
allow capable citizens to pursue their common interests in satisfying spiritual or other
non -material needs and in seeking a joint solution to the charter tasks of the
organization.
The legislation on p ublic association s include s as participants only founders
and members . The difference between them is when they join ed the public
association. A t the moment of creation , public association must have no less than
three founders. All members have equal rights in managing the activity of the
association: each member ha s one voice in decision -making. They also bear equal
responsibilities, including me mbership fees , for which failure to pay they may be
excluded from the organization according to the process set out in the charter. The
legislat ion does not limit members of public association s from participating in
several such organizations.
Membership i s based on an individual application or document that allows
existing members to consider the overall number of members of the organization.
The rights and duties, conditions and procedure for membership admission and
withdrawal is an essential component o f the charter of a public association.
The p roperty relationships between a public association and its members
develop on a voluntary basis. The legislation does not place limit ations on the
founders in defining the amount of membership fees and types. The refore, the
founders may hand over any property as a membership fee , including monetary
funds. Payment of membership fees is not based on a civil -law obligation and ,
therefore, an application for recovery of these fees is not possible. The only
consequence for default is expulsion from the organization. According to Item 518 of
the Civil Code , membership fees may be considered as donations made with a certain
purpose. This purpose is to provide for the adequate functioning of the organization.
Thus, each me mber of a public association has no ownership right to the property
share that belongs to public association, even in the case of withdrawal or expulsion
from membership. The ownership right received or purchased by a public association

83

belongs to the publ ic association , as it is a legal entity. A p ublic association is an
entity and the only owner of its property , and its members do not receive any
property rights . For this reason , the legal relationship that develop s within the
membership organization fram eworks carries only an organizational, non -property
character. There is no mutual property responsibility between these organizations and
their members. As a legal entity , a public association is responsible for its obligations
and is not responsible for its member’s obligations. Members of a public association
are likewise not responsible for the obligations of a public association. A
participant’s withdrawal from an organization does not involve any property
consequences for him.

§ 6. Governance of Publi c A ssociation

According to Item 88 of the Civil Code , the bodies through which a public
association exercises its civil rights and takes up civil duties are the leading and
controlling bodies. The supreme body of a public association is the g eneral meetin g,
which consists of all its members. A g eneral meeting has a quorum if no less than
one -third of its members who should participate in the decisionmaking process are
present , except that when a public association has more than 100 members , then no
less th an 25 members must be present . W hen the legislat ure establish ed the quorum
requirement, it derived from the fact that a public association may have a great
number of people as its members who might be difficult to gather for general
meeting. However, in pr actice , the problem turns out to be a lack of legal regulation.
For example, in a public association consisting of 3 members , a decision is
recognized as legitimate if it was made by one of them. In that case , each member of
the public association has the right to take functions of general meeting and to make
decision s.
The competence of a general meeting is the most important issue reflected in
the charter. Thus, the exclusive competence of the general meeting includes the
following issues:
 to introduce amendments to the charter ;
 to define priority directions of the activity of public association and the
procedure for property use;
 to accept and expel and permit the withdrawal of members of the public
association (if otherwise is not provided by the char ter);
 to provide the procedure for formation of governing bodies;
 to approve the annual report and annual balance;
 to make decision s on creation of branches and representat ives ;
 to participate in the activity of other legal entities;
 to reorganize and liqu idate;
 to decide other issues , except those referred by the charter to competence of
other bodies of public association.

84

A p ublic association may make decisions by carrying out sessions of the
general meeting and by written questioning of members. The ma nner of carry ing out
sessions of the general meeting and written questioning is regulated by the charter.
A p ublic association may create other governing bodies. In this case , the
members of the public association are granted broad freedom. Such governing bodies
are created and have the powers and activities delegated by the charter of the public
association. For example, a permanently operating executive body (board, directorate
etc.) , the head of which is a n individual executive body of the organization may be
created in public association. The res olution of issues that are not indicated as being
within the exclusive competence of the supreme body are considered to be within the
competence of the governing bodies of public association. The members of a pu blic
association may also decide to establish a supervisory body (supervisory board,
council , etc.).

§ 7. Reorganization and Liquidation of a P ublic A ssociation

The rules for r eorganization and liquidation of a public association are
contained in the civ il legislation. Of all the different types of reorganization , the
legislation only refers to merge r, split ting up and separat ion, in reference to public
associations . As a result of the splitting up or separation of a public association , at
least two new entities emerge. Concerning merg er, it is important to note that
because of the different legal capacity and also purposes of creation of commercial
entities and NCOs , these two types of entities may not merge.
Members of a public association have the righ t to decide to liquidat e their entity, in
accordance the general rules of civil legislation. In contrast with funds and
noncommercial co -operatives , a public association cannot be put into bankrupt cy.
The property remain ing after satisfaction of the requir ements of creditors is
distributed pursuant to the decision of the liquidating commission or the body that
decided to liquidat e. For example, the p ublic association “Ukuk ,” an international
legal fund , decided to liquida . Its charter requires that the prop erty remain ing after
liquidation goes on the purposes specified in the charter. “Ukuk” handed over the
property to the a ssociation “Lawyers of Kyrgyzstan ,” which has the same purposes .71
Thus, if legal continuity is not raised during liquidation , the remain ing property
(taking into consideration the noncommercial character of the given organization) is
not subject to division among members, and will continue to be used for the initial
purpose s for which the public association was created .

Summary
Public ass ociation possesses the following basic characteristics:
• Participants – only individuals ;
• Voluntary association;
• Basis – common interests;
71 Practical manual on application of part I of the Civil Code of the Kyrgyz Republic , Bishkek ( 1999 ), p. 7 – 8.

85

• Purpose – satisfaction of spiritual or other non -material needs;
• Noncommercial organization , but ha s the rig ht to carry out industrial or
other economic activities only for achievement of purposes for which they were
created;
• Participants do not retain the rights to property handed over to public
association, including membership fees;
• Participants are not l iable for obligations of the organization, and the
organization is not liable for obligations of its members;
• The property and membership fees handed over by members to the
public association belong to public association;
• Presence of a charter.

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Chapt er 9. Association s of Legal Entities ( A ssociations and U nions)

For legal entities , the tendency to co -ordinate joint efforts is the same natural
process as for physical persons. Therefore, the norms that regulate associations of
legal entities are similar to those for public associations. For legal entities , the
necessity to unite is historically and politically caused by reaction to “external
irritants .” The obsessive financial and political control of bureaucratic institut ions ,
imprudence of competitors, intervention of foreign business, variability of economic
climate force one organization to unite with others on the basis of common interests.
In this chapter , the legal and political aspects of this phenomenon are considered in
more detail.
§ 1. Notio n and Forms of A ssociation s of Legal Entities
Associations of legal entities are associations of commercial and/or
noncommercial organization s, whose members themselves corporations, which have
the purpose of coordinat ing their members’ activit ies and also represent ing and
protect ing their common interests. Associations of legal entities are independent legal
entities that pursue non -commercial goals, and thus are also considered NCOs.
Associations and unions are forms of association s of legal entities. Dom estic
legislation , as with other legislation of CIS countries , does not differentiate between
“association” and “union .” Both are considered variet ies of associations of legal
entities. At the same time , according to universal rules on interpretation, asso ciation
is an association of one type of activity ,72 while union is an association for
achievement of particular joint goals .73 Thus , for an association , the domina nt feature
is a single type of participants, while for a union , it is the common goals of the
association. In practice , an association is an association of one type of organization ,
as considered from the perspective of the features of the organizational in general ,
while unions are association s in which the basis are shared issues (for example,
te rritorial generality, or common market on sale of products).
In developed l egal systems , mainly on the European continent, the division of
legal entities into corporations and institutions , where corporations represent
voluntary associations of physical and (or) legal entities, organized on the basis of
membership of their participants , is traditional. Associations of legal entities
(associations and unions) 74 may be in a group of corporate (member) organizations.
Also , in western legislation , the notion ” association” is applicable to associations of
both physical and legal entities .75

72 Ojegov S.I., Shvedova N. U., Tolkovyi slovar’ russkogo yazyka [Russian dictionary], Moscow (1993), p. 28 73 Id, p. 779 74 Civil law textbo ok: volume 1, ed. E.A. Suhanov, 2 nd edition, Publisher “BEK”, pp. 180 -181 (2002) . 75 Regulirovanie pravovogo statusa nekommercheskih organizasii v grajdanskih kodeksah gosudarstv mira
[Regulation of legal status of noncommercial organizations in civil cod es of states of the world] , ed. V. Ovcharenko,
4th edition, p. 47 (2005) .

87

§ 2. Legal Status of A ssociation s of Legal Entities

In Bases of the Civil Legislation of the USSR and U nion Republics (hereafter
“Bases of Civil Legislation”) , developed du ring the last years of USSR’s existence ,
the term “economic association” is used. This term included voluntary associations
of legal entities (commercial organizations) , created on a branch, territorial or other
principle , with the goal to coordinate acti vity, protect the rights, and represent the
common interests in the state and other bodies as well as in international
organizations. Article 23 of Bases of Civil Legislation permitted that “ [e] conomic
associations may be created by their participants in t he form of economic
associations (unions) and enterprises .” That is, according to Bases of Civil
Legislation , associations and unions were equal. However, according to the same
source, economic associations belonged to the group of commercial organizations .
This was due to the fact that the legislation allowed associations to carry out the
centralized performance of certain industrial and other economic functions by mutual
decision of participants. Also, according to Item 18 of the “Bases of Civil
Legislati on ,” economic associations of legal entities (commercial organizations) were
considered legal entities, the participants of which preserved their liability rights.
In 1991 , with adoption of the Law of the Republic of Kyrgyzstan “On public
associations ,” pu blic associations we re granted the right to unite into unions on a
voluntary basis. Public associations included political parties, mass movements, trade
unions, female and veteran s’ organizations, organizations of disabled persons, youth
and children’s or ganizations, scientific, technical, cultural and educational, sports and
other voluntary communities, creative unions, community , funds, associations and
other associations of citizens. Thus, the above mentioned law provided that either
commercial or noncom mercial organizations s could unite into associations and
unions.
On October 29 , 1994 , the Inter -Parliamentary assembly of CIS state –
participants adopted the Model Civil Code for CIS M ember States (Part 1 ) (“Model
Code” ), which is the basis of the Civil Co des of CIS countries and has defined the
legal bases of the organization and activity of association s of legal entities
(associations and unions) . As such, associations of legal entities were recognized as
NCOs without the right to realize economic activi ty (for commercial organizations) ,
and the possibility to create associations of commercial and (or) noncommercial
organizations was provided .
In 1996 , on the basis of the Mode l Code , the first Part of the Civil Code of the
Kyrgyz Republic was developed a nd adopted. And , in 1999 , the Law “On
noncommercial organizations” of the Kyrgyz Republic was adopted and it defined
the legal status of associations of legal entities.

88

Specifics of Regulation of A ssociations of Commercial O rganizations

The goal of an association of commercial legal entities is to coordinate the
economic activity that is carried out by them, as well as to represent and protect their
common interests. The possibility to implement other activities by the association ,
including economic activity , is excluded. Thus, in comparison with other NCOs that
independently define their spheres of activity and possess the right to carry out
certain types of economic activity , the legal capacity of associations of commercial
organizations is limited.
If, by decision of its participants , an association of legal entities carr ies out
economic activity, the association will be transformed in to an economic community
or partnership , or may create an economic community for realization of economic
activity , or may participate in such a community. However, the income received from
such activity may not be distributed among participants of the association; it should
go for needs of the association as a whole.
Property of A ssociation s of Legal Entities
A n a ssoci ation of legal entities is the owner of the property purchased with the
regular and one -time inpayments from participants, and also other sources permitted
by the legislation. The property of an association of legal entities is primarily formed
from entran ce and membership fees of participants and their donations , which
become association property. The law does not set any requirements for minimum
property of such NCOs, or in relation to participants ’ fees. Th is property may be used
by the association consi stent with the special legal capacity provided in its statutory
documents. While there may be some rights of participants in a legal entity to its
property, this is not the case with associations of legal entities . In these groups, the
founders and partic ipants do not preserve obligations or rights in relation to that
property. In addition, founder s and participant s of the legal entity do not have rights
to property upon withdrawal from the organization, nor at its liquidation.
In the event the organizatio n becomes indebted, the members of an association
of legal entities bear subsidiary responsibility in the amount and in the order provided
by the statutory documents. Such subsidiary responsibility of members of an
association of legal entities is an essen tial feature of its civil -legal status. The
possibility to define independently the amount and order of subsidiary responsibility
represents an exception of the general rules on subsidiary responsibility on
obligations.
§ 3. Creation and Termination of A ssociation s of Legal Entities
Founders of association s of legal entities may be two or more legal entities.
The legislation does not establish any restrictions concerning the types of uniting
organizations, for example, commercial and NCOs, national and for eign legal

89

entities. It is not necessary that it should be noncommercial or commercial
organizations of one type, for example, or only fund or only religious organizations,
only joint -stock companies or limited liability companies. It is acceptable to crea te
mixed unions, al though the practical necessity to coordinate the activity or jointly
protect common interests often arises in groups (types) of legal entities with similar
activity.
Also, the legislation does not provide a minim um number of participant s for
such organizations ; this is defined by the founders. The same legal entity may be in
several associations of legal entities, including associations with similar activit ies . As
a rule , the statutory documents of associations of legal entities provide for simplified
manner of acceptance and withdrawal of members. It allows them to add and remove
members without going to the Ministry of Justice.

Statutory documents of association of legal entities include the statutory
agreement signed by its members, and the charter confirmed by them. There are
numerous requiements for the charter. The legislation establishes obligatory
requirements concerning the name of the association. The name of the association of
legal entities should contain the main goal of i ts activity and activity of its members
with inclusion of word “association” or “union .”
Besides the general data for all legal entities ( Item 4 of the Article 87 of the
Civil Code of the Kyrgyz Republic ), such as name of a legal entity, legal address,
pur pose and goal of the activity (that defines the character of its special legal
capacity), the s tatutory documents of an association of legal entities should contain
the conditions on the structure and competence of the governing bodies and the
procedure fo r making decisions . Decisionmaking should includ e the issues that are
to be decided unanimously and those that require a qualified majority of votes of
members . I t also should contain the order of distribution of the property remaining
after liquidation and the order of responsibility of members for the obligations of the
association. The legislation does not regulate in detail the legal capacity and
procedure of the activity of association of legal entities, provid ing some flexibility
for its founders an d members .
Termination of activity of association of legal entities through reorganization
and liquidation is carried out according to general rules of reorganization and
liquidation of legal entities that are provided in civil legislation. An a ssociation of
legal entities (of commercial organizations), if permitted to carry out an economic
activity, may be transformed into economic partnership or community. Upon the
liquidation of an association of legal entities , the rest of the property which remained
after its liquidation goes on the purposes defined in its charter.
There is a question whether it is possible to use bankruptcy procedure in order
to terminate the given organizational -legal form . According to Item 165 of the Civil
Code , members of an asso ciation of legal entities carry subsidiary responsibility on
obligations in the amount of and order stipulated in statutory documents. Thus, in
case of insufficien t means , creditors may demand repayment of their debts at the

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expense of the personal propert y of the members of the association. For this reason,
bankruptcy is not meaningful here, in spite of the fact that these matters are not
regulated by the legislation.
§ 4. Administration and Legal Status of M embers of the A ssociation
As association s of l egal entities are created on the basis of corporate
memberships, its supreme body is the general meeting of participants (i.e., their
representatives) , the competence and operating procedure of which should be defined
in the charter. The legislation of the Kyrgyz Republic applies to associations of legal
entities the regulations that regulate activity of public associations. According to Item
20 of the Law of the Kyrgyz Republic , “On noncommercial organizations ,” the
exclusive competence of the general meet ing of an association includes the
following issues:
 to introduce charter amendments ;
 to define priorit ies of the activity of public association and the order of
property usage;
 to accept and withdrawal members of public association (if otherwise is not
provided by the charter);
 the order of formation of governing bodies;
 to approve the annual report on the activity and annual balance;
 to make decision on creation of branches and representations;
 to participate in the activity of other legal entities;
 to reorganize and liquidate;
 Other issues except those referred by the charter to competence of other
bodies of public association.
As with other governing bodies , the legislation of the Kyrgyz Republic preserves the
right of their creation to participant’s decision, but the ir power s and the order of
creation and activity should be regulated in the charter.
Members of an association of legal entities preserve their independence and
the rights of their own legal entity. A n a ssociation of legal entities is not responsible
for the obligations of its members. Members of an association of legal entities carry
subsidiary responsibility on obligations in the amount s and order stipulated in
statutory documents. The bas is and limits of members s responsibilit ies are def ined in
the statutory documents of the association.
Members of an association of legal entities have the right to participate in
decisionmaking regarding the organization’s activity on an equal basis with other
members. Members of an association of legal e ntities also have the right to use its
services free of charge, if not otherwise stated in the statutory documents and if not
otherwise considered to be services.

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The legislation provides a special procedure for withdrawal of members of an
association of l egal entities. A member of an association of legal entities has the right
by its own decision (voluntar ily) to leave the association upon completion of the
fin anc ial year, since his withdrawal does impact his duty to make certain payments.
However, for two years from the moment of withdrawal , the member carries
subsidiary responsibility for the obligations of the association, in an amount
proportional to his or her fees. The subsidiary obligation of members follows from
the fact that an association of legal entities is financed by its members.
A member of an association of legal entities has those responsibilities set out in
statutory documents, including the payment of member fees and other payments, for
violation of which it may be expelled (compulsory or der) from the association by a
decision of the other participants.
In relation to property payment and member’s withdrawal from association of
legal entities the rules on withdrawal from association of legal entities are applied ,
i.e. he or she carries su bsidiary responsibility on obligations of association
proportionally to his or her fees within two years from the moment of his withdrawal.
New members may be accepted into an association by the decision of its
participants. The order of acceptance of new members and voting procedure should
be stipulated in the statutory documents of the association of legal entities.
§ 5. Some Problems of the Laws regarding the A ctivit ies of A ssociations of Legal
Entities
The most problematic legal issue s in relation to associations of legal entities
are their creation and functioning . Another important aspect that is necessary to
highlight is the issue of the composition of association members. As mentioned
above, in the Civil Code and the Law of the Kyrgyz Republic “On noncommercial
organizations ,” associations (unions) are presented as association s of legal entities.
The definition says that individual entrepreneur is a person who is carrying out
economic activity without formation of a legal entity , according to the ci vil
legislation.
In the legislation of the Kyrgyz Republic there are no norms that provide the
possibility for an association of legal and physical persons to unite within the
framework of an association of legal entities. The given situation demands resol ution ,
as , in practice , associations of such entities are widely disseminated in the Kyrgyz
Republic, and moreover, there are legislative norms regulating independent forms of
associations, such as associations of water users, partnership of homeowners and
associations of employers representing associations of physical and legal entities.

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By its legal nature , associations of legal entities (associations and unions) are
close to public associations . The general rules on public associations apply for
associa tions of legal entities as well .
Following the examples of the structure of association s of physical persons
(public associations) and legal entities (associations and unions) in foreign countries ,
it would be possible to create a legal form of association that would explicitly permit
legal and physical persons to associate.
Economic Activity of Associations of Legal Entities
The legislation does not contain restrictions on economic activity by
associations of NCOs. However, Item 1 of Article 165 of the Ci vil Code restricts
economic activity of associations of commercial organizations: “if by a decision of
its participants , an association (union) carr ies out an economic activity, such
association (union) is a subject to transformation to an economic communi ty or
association .”
In legal practice , there are certain complexities with the application of norms
on associations of legal entities, as the legislation does not regulat e the economic
activity of associations of legal entities that have both commercial an d
noncommercial members . It would be reasonable for the legislator not to differentiate
between regulation of the activity of association of commercial and NCOs, as the
specifics of the organizational -legal form “association of legal entities” is
coordinat ion of the activity of their participants as well as representation and
protection of their common interests.
§ 6. Political and Economic Impacts of A ssociations of Legal Entities
The experience of economic reforms in countries with a transition economy
shows that their success depends in part on support of reforms by associations of
entrepreneurs interested in effective economic transformation. The mechanism of
their interaction with the state in the process of political and economical
transformation is straightforward: companies through their associations jointly wield
political influence on the legislative process in order to effectuate their interests.
In addition , associations of legal entities are actively involved in legislative
activity and discus sions of new normative legal acts , national concepts and
development programs on the initiative of state bodies . Associations of legal entities
also participate in advi ce and coordinati on of state formations. As an example, the
Higher Economic Council of the Government of the Kyrgyz Republic created in
February 2006 included representatives of the business community in addition to
senior officials of the Government and Parliamentarians.

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The main principles of political and economical influence of associatio ns of
legal entities on community development are:
• Participation in legislative activity;
• Joint participation with public authorities and local self -government
bodies in re solving social and economic problems and in defining
priorities of social and ec onomic policy;
• Making joint decisions on building economic relations within the private
and state sectors.
The state also may look to associations of legal entities to achieve certain purposes.
Associations of entrepreneurs are frequently used as a tool of economic control from
the government side. For example, in Latin America , some authorities concluded
large -scale agreements with trade unions and groups of business people , who
influence salaries, prices and other major economic parameters. Though these
agreements strengthen stable economic conditions, they frequently limit market
reaction to changing conditions, and also narrow market openness for competing
companies, which are not key goals of business .76
In other words, there are also some problems wi th reliance on these
associations . Private companies do not always have or express common interest in
regulatory or legislative changes . In fact , enterprise structures often have opposite
views on legislative and political decisions. Very often , the effort s of associations of
entrepreneurs focus on creation of advantages for themselves , for example, in
preference to competitors by restricting the latter’s access to the market. Such
associations may begin with latent pressure on the government in order to pr eserve
their advantages , and they may gradually become opponents of reforms.
D ue to the low level of political culture in countries with transition econom ies,
there are some negative tendencies that may distort the public role of associations of
legal enti ties, namely:
• Lobbying of interests to narrow enterprise fields (clos ing market s,
raising barriers to healthy competition);
• Use of associations of legal entities to carry out latent monopolies ,
favoritism and other anti -market economic tendencies.
76 Association of entrepreneurs and democratic reforms : John Sallivan , Economic Reform Today , Number 2,
1995 .

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Chap ter 10. Noncommercial C ooperatives

§ 1. Historical D evelopment of the Legal Status of N oncommercial
C ooperatives

A study and assessment of the situation surrounding noncommercial
cooperatives is impossible without considering the history, emergence, a nd
development of the cooperati ve system. It is necessary to begin with an examination
of the time period during which Kyrgyzstan was still a member of the USSR. It is
during this time period whe n the cooperative system origin ated .
On May 20, 1924 , the A ll-Russian Central Executive Committee and the
Council of National Commissioners of the USSR adopted a decree titled “On
consumer cooperation,” which marks the beginning of the cooperati ve system’s
existence in the USSR. It is well known that , during the e xistence of the USSR , there
was a strong sector known as “consumer cooperati ves ” in the country. The activity of
consumer cooperati ve s was regulated by various legal acts of the Council of
Ministers of the USSR. On May 26, 1998 , the law “On Cooperation in USSR,” which
united all normative acts concerning the regulation of cooperatives, was passed. This
law divided cooperatives into 2 types: industrial and consumer.
There is currently a false belief that all consumer cooperatives are
noncommercial cooperati ves and that the terms “consumer cooperative” and
“noncommercial cooperative” are synonymous. However, the meaning of “consumer
cooperative” during Soviet times was different from the current meaning of the term
“noncommercial cooperative .” During the exi stence of the USSR, the system of
consumer cooperati ve included domestic service organizations (food stores, tailor’s
workshops, shoe repair shops, photo shops, and beauty salons), markets, housing,
dachas, garage cooperatives and many other organizations. When comparing these
entities to contemporary organizations, it becomes apparent that the majority (except
for housing, dachas, and garage cooperatives) transformed into commercial
organizations.
Upon gaining independence, Kyrgyzstan began the process o f reforming
major ity branches of national legislation. In addition, the legislation on cooperatives
was partially reformed. On December 12, 1991 , the law of the Kyrgyz Republic “On
Cooperation on the Republic of Kyrgyzstan” was adopted. This law divided
cooperatives into two groups:
1) Industrial cooperatives; and
2) Consumer cooperatives.
The new law contained elements of the Soviet approach to the regulation of
cooperative relationships. The chapter en titled “Consumer Cooperatives” included
material on the s o called “Commercial Consumer Cooperatives .” The “Consumer
Cooperatives” chapter also listed types of consumer cooperatives (home builder s,
house operating, dacha, garden and other types of consumer cooperatives) , and

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dedicated one or more articles to each item of the list. The articles of the law
discussed the goals of creation and legal status of each.
In 1996 , the Civil Code of the Kyrgyz Republic (“Civil Code”) was adopted,
which required that cooperatives be divided into two types:
1) Industrial cooper atives; and
2) Consumer cooperatives.
Article 160 provided a definition of the term “consumer cooperative .” A major
feature of consumer cooperatives was that income received by a consumer
cooperative could not be distributed among its members. However, Articl e 160 of the
Civil Code did not list the types of consumer cooperatives and did not provide
specifics of their legal status.
In February of 2003 , Article 160 was removed from the Civil Code. From then
on , the notion of “noncommercial cooperative” began to be widely used , instead of
the notion “consumer cooperative.”
On June 2, 1999 , the law of the Kyrgyz Republic “On Cooperati ves ” was
adopted, remaining in effect until June of 2004. This law divided cooperatives into
two distinct categories, different from those already discussed:
1) Commercial; and
2) Noncommercial cooperatives.
On June 11, 2004 , the law of the Kyrgyz Republic “On Cooperatives” was
adopted. This law contained a one -sided approach: the majority of the norms
contained in the law regulate relations hips related to agricultural cooperatives. In
fact, the June 2, 1999 law “On cooperatives ” and the June 11, 2004 law “On
cooperatives” were adopted in light of events conducted to reform agricultural
cooperatives .

§ 2. Notion of Noncommercial C ooperative

In compliance with Article 152 of the Civil Code, the term “cooperative” is
defined as a voluntary membership association of individuals and legal entities . The
goal of a cooperative is joint ly to meet material and other needs by organizing on
democrati c principles, as provided by the charter, and funded in addition by
members’ fees. In other words , a cooperative (from the Latin for cooperation) is an
organization based on the principle of individual membership with the goal of
meeting material and other needs of a material -economic character.
The essence of a noncommercial cooperative is that citizens (sometimes
natural persons and legal entities) are united with the goal of meeting some need. For
example, a noncommercial cooperative may be formed to me et housing needs in the
form of apartments or cottages, or to meet automobile storage needs in the form of a
garage for automobiles
One of the best examples of noncommercial cooperatives is the house -building
cooperative. Individuals who are unable to clai m a free apartment from the state,
those who have the right to receive an apartment from the state, but are unable to
because of social norms and those who are not able to buy at market price, are able to

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unite into a house -building cooperative. Its primar y activity will be housing
construction. The members will build e nough separate apartments or other residential
premises in order to meet the needs of each member of the cooperative. The
construction is funded by the fees from members (shareholders) of the cooperative.
The members of these house -building cooperative s are provided with
residential premises at self – cost of these premises . U nder Article 85 of the Civil
Code , NCOs are permitted to carry out economic activity in furtherance of their
purpose . On the basis of this provision, house -building cooperatives are permitted to
carry out economic activity in order to receive additional construction financing,
assuming there are no further limitations in the cooperative’s charter. It is important
to note that income received from the economic activities of house -building
cooperative s may be used solely for housing construction.
According to data compiled by the Ministry of Justice of the Kyrgyz Republic,
there are currently 580 noncommercial cooperatives registered in 2010 .
The law of the Kyrgyz Republic “On Cooperatives” redefines the legal and
economic bases for the formation and activity of cooperatives and their unions in the
Kyrgyz Republic. According to the law , a cooperative is a voluntary associ ation of
individuals and legal entities based on membership and created to meet members ’
economic and other needs. The a ctivity of a cooperative is based on the following
principles:
 voluntary association;
 membership of citizens;
 funded by member fees;
 eco nomic independence;
 creation of a charter as the statutory document;
 participation of the cooperative’s members in governance of the
cooperative, each with the same rights , regardless of the amount paid
in fees;
 membership cannot be limited to one consumer cooperative, i.e. a
member of a house -building cooperative may be simultaneously a
member of a dacha building cooperative, garage building
cooperative, etc.;
 members must be obligated to contribute additional fees to cover
losses of the cooperative;
 subsi diary responsibility of cooperative member for any unpaid
portion of the membership fee;
 income received by the cooperative may not be distributed among
members of th e cooperative.

§ 3. Procedure for Formation of Noncommercial C ooperatives

The procedure for the formation of a noncommercial cooperative is regulated
by the law of the Kyrgyz Republic “On Cooperatives” and the law of the Kyrgyz
Republic “On State Registration of Legal Entities and Branches ( Representative

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O ffice s),” as of February 20, 2009. A n oncommercial cooperative may be formed as
a legal entity. The establishment of a noncommercial cooperative includes 2 stages:
1) the adoption of a decision on the establishment of a noncommercial
cooperative; and
2) state registration of the noncommercial coo perative.
According to Article 8 of the law of the Kyrgyz Republic “On Cooperatives,”
in order to create a cooperative , the individuals and legal entities wishing to form the
cooperative must form an organizational committee. The organization committee
mus t then prepare a draft of the cooperative’s charter, prepare and conduct a statutory
meeting, and prepare and conduct the meeting for the noncommercial cooperative. At
the statutory meeting the cooperative’s members must :
 Decide on the formation of the coo perative and accept membership
in the cooperative;
 Prepare a registry of the cooperative’s members indicating, for
natural persons: last name, first name, patronymic, date of birth, and
address, and for legal entities: the name, legal address ; and , for bot h
individual and corporate members, the quantity of paid and unpaid
share s assigned to each member, along with the signatures of the
cooperative’s members;
 Determine the value of each share;
 Approve the cooperative’s charter; and
 Elect the governing bodies of the cooperative.

The following requirements are set in the cooperative’s charter:
 The cooperative’s name;
 The location of the cooperative;
 The cooperative’s legal address;
 The purpose and goals of the cooperative’s activity;
 The term for which the co operative is created;
 The procedure for entrance into the cooperative;
 The procedure for termination of membership in the cooperative;
 The conditions for the amount, composition and procedure for
contribution of share and entrance fees of cooperative’s mem bers;
 Descriptions of all types of shares, if there is more than one type; an
indication of the quantity of each type; which members may own
which types; and the rights and privileges granted to each share type;
 The voting rights of members;
 The procedure for distribution of revenues and losses of the
cooperative;
 Provisions regarding the composition and competence of the
cooperative’s governing bodies along with their decisionmaking ,
including issues which are adopted unanimously or by a qualified
majority of votes;

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 The rights and obligations of members;
 The procedure for formation and use of the cooperative’s funds;
 Liability of members, including liability for failure to contribut e or
pay for a compulsory share;
 Liability of members in should the cooperat ive incur losses or
become bankrupt;
 The terms and procedures for returning a member’s share fees in case
of membership termination;
 The procedure and conditions for reorganization and liquidation of
the cooperative;
 The procedure for calling a general mee ting;
 The procedure for organizing work with persons who are cooperative
members;
 The minimum value of real estate, alienation and other transactions
which are subject to approval by the general meeting;
 The cooperative’s name must include the word “cooper ative .”
The cooperative’s charter may also contain other provisions necessary for its activity
that are not contrary to the legislation of the Kyrgyz Republic.
An important consideration in the creation of noncommercial cooperatives is
the number of found ers. According to the law “On Cooperatives,” the number of
cooperative members may not be less than seven.
To register with the state as a legal entity, a consumer cooperative must submit
a number of documents to the registering body, including:
 An appli cation form approved by the Ministry of Justice of the
Kyrgyz Republic;
 The minutes of the statutory meeting;
 The statutory agreement or decision of founders on creation of the
organization; and
 The charter.
Refusal of registration is possible only as the result of:
 Failure to comply with requirements concerning statutory documents ;
 Invalidity of submitted information; or
 The unreliability or illegality of one of the founders.
If an application for registration is denied, a written denial must be issued, wh ich
may then be appealed.
§ 4. Rights and O bligations of Members of N oncommercial C ooperatives

Chapter 3 of the law of the Kyrgyz Republic “On Cooperatives” is dedicated to
the rights and obligations of the cooperative. As long as it is not contrary to the terms
of the cooperative’s charter, a single cooperative may include both individuals and
legal entities as members. A cooperative’s individual members must be 18 years and

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older . A legally authorized person may represent the interests of a legal entit y that is
a cooperative member .
A cooperative’s members have the following rights:
 to withdraw freely from the cooperative;
 to enjoy all services provided by the consumer cooperative;
 to participate in the cooperative’s governance , to select and to run for
office of the governing and controlling bodies of the cooperative in
compliance with cooperative’s charter, to make proposals related to
cooperative’s activity;
 to enjoy the benefits and advantages provided by the charter of the
cooperative for it s members;
 to be familiar with the documentation of financial -economic activity
of the cooperative , according to the procedure set by the charter;
Members of the cooperative are obliged:
 to contribute entrance and share fees in the amount and according to
the procedure set in the cooperative’s charter;
 to follow the legislation of the Kyrgyz Republic along with the
charter and other internal acts of the cooperative;
 to contribute an additional fee to cover any of the cooperative’s
losses.
Article 12 of the law “On Cooperatives” provide s that individuals or legal
entities who wish to join a cooperative after its state registration must submit a
membership application to the directorate of a cooperative. The membership
application must include an agreement to fulfill the requirements of the cooperative’s
charter and other internal documents, as well as an agreement to pay a declared share
fee. The cooperative directorate decides whether to accept or deny the application
within 4 weeks from the day of receipt o f the application. The decision to accept an
application is approved during a regular general meeting of cooperative’s members.
Each member of the cooperative is given a membership book, which includes:
 The last name, first name, patronymic and address, d ate of birth, and
date of entrance into cooperative of each member ;
 The quantity of both declared and paid shares and the dates of their
contribution;
 The quantity of additional shares and dates of their contribution.
The cooperative’s charter sets forth: the procedure for accepting members of
the cooperative, termination of membership, ex pulsion from cooperative
membership, and other conditions surrounding issues of membership.
Article 14 of the law sets forth the procedure for termination of membership i n
the cooperative and prescribes the following cases of withdrawal:
 Voluntary withdrawal;
 Death of member;
 Expulsion;
 Liquidation of a legal entity that is a member of the cooperative.

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A member has the right to withdraw from the cooperative by submission o f a written
application to the directorate of the cooperative no later than 12 months prior to his
or her withdrawal. A withdrawing member may only transfer his share fee to another
individual or legal entity if such transfer does not conflict with procedu res set forth in
the cooperative’s charter. If share fees will be transferred, the members of the
cooperative enjoy a preferential right to purchase such share fee. A member of the
cooperative transferring his share fee to another member of the cooperative may
terminate his membership prior to end of the 12 -month notification term normally
required for withdrawal.
An individual’s membership in the cooperative may also be terminated based
on additional grounds provided in the cooperative’s charter, such as:
 if he or she does not carry out the obligations set forth in the law “On
Cooperatives” and in the cooperative’s charter;
 if as a result of his or her actions, or inaction, the cooperative
incurred damages.
The cooperative council has the authority to term inate an individual’s membership.
The council’s decision is then subject to approval during a regular general meeting of
cooperative’s members.
The decision to exclude members of cooperative’s council , members of
cooperative’s directorate may only be made by the general meeting of the
cooperative’s members for violating of copperative corporate acts and criminal law.
A person who has been denied membership in the cooperative has the right to
appeal the decision of general meeting in court according to the p rocedure provided
by the legislation of the Kyrgyz Republic.
A member of a cooperative who terminates his membership shall be paid the
value of his share fee or shall be given property equivalent in value to his share fee.
This and any other amounts due to be paid, as set forth in the cooperative’s charter,
shall be paid no later than 3 months after the end of the financial year in which he
terminated his or her membership in the cooperative. At the same time, a member of
cooperative who terminated his m embership has no right to demand the return of that
particular property which he contributed as a share fee, unless permitted by the
cooperative’s charter.
§ 5. Conclusion

There are presently gaps in the legislation relating to the regulation of
noncommer cial cooperatives. One may argue that the reforms on legislation in the
Kyrgyz Republic did not significantly alter the legislation on noncommercial
cooperatives. Moreover, laws adopted in later years , focused on the development of
agricultural cooperative s, led to partial removal of the legal basis for noncommercial
cooperatives that existed prior to the reforms. Currently, cooperatives are regulated
by more than one law. We would propose that i t is necessary to adopt two laws:

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1) A law “On Commercial Cooper atives” or a law “On Agricultural
Cooperatives” to regulate the creation, rights and obligations of commercial
cooperatives; and
2) A law on “Noncommercial Cooperatives” which would set procedures for
the creation, rights and obligations of various NCOs such as housing
construction, housing, garage, dacha cooperatives, and similar
organizations .
The law on noncommercial cooperatives should regulate, in detail, all relationships
existing in this sphere, including a determination of the various types of
noncomme rcial cooperatives and other specifics of their legal status.

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Chapter 11. Partnership of H omeowners
§ 1. Notion and G eneral Provisions on Partnerships of H omeowners
Legal experts and normative legal acts use the notion of “partnership” t o define
various types of associations – subjects of economic turnover. Researchers studying
civil legislation of the 19 20 s divided partnership s into two major categories:
partnerships pursuing commercial goals and cooperative partnerships .77 The goal of
co operative partnerships was defined as “meeting various needs of the human mind,
feeling, sense of taste , etc .”78
After elimination of nongovernmental commercial organizations at the end of
the 19 20s and beginning of the 19 30s, including partnerships, the te rm “partnership”
was used rare ly, and it began to be used in relation to some types of consumer
cooperatives. For example , the term was used for horticultural or dacha partnerships.
Partnership forms were not fully reconsidered until the adoption of the la ws of the
USSR “On Cooperation in USSR ,” “On Property in USSR ,” “On Enterprises in
USSR ,” and later in a range of other legislative acts.
Based on an analysis of contemporary legislation, the partnership classification
is utilized for various entity types . However, the key differentiating factor is the goal
of the organization and activities of the partnership. Part O ne of the Civil Code of the
Kyrgyz Republic covers such types of partnerships as general and special
partnerships . It indicates that partners hips are legal entities whose primary goal is
profit -making , and, thus, they may be called commercial partnerships.
In addition, the chapter titled “Some Types of Obligations” in the Civil Code
of the Kyrgyz Republic allows for the possibility of creatin g an entity called a
contractual partnership. In this form of partnership, individuals agree amongst
themselves to act jointly and to provide contributions , without creating a formal legal
entity.
In contrast to associations there are partnerships created to meet the needs of
their members — for which reason they are call ed partnerships of the consumer type.
These partnerships are further divided into two independent organizational and legal
forms: consumer cooperatives and homeowner’s partnerships.
Ther e are c onflicting points of view frequently found in legal literature
concerning these entities . A majority of researchers think that homeowners ’
partnerships belong to the consumer cooperatives category. 79 Those supporting this
idea base their argument on the fact that the legislature imposed similar requirements
on homeowners ’ partnerships and consumer cooperatives. Indeed , both homeowners ’
partnerships and consumer cooperatives are considered to be NCOs in terms of their
legal entity status. However, ther e are weighty arguments for classifying
homeowners ’ partnerships as an independent organizational and legal form.
77 Danilov E.N., Tovarishestva // Sovetskoe hozyastvennoe pravo [Partner ship. Soviet economic law],
Moscow, p. 77 (1926) . 78 Ratner A.S. Grajdanskii kodeks sovetskih respublik [Civil code of Soviet republics], Kiev, p. 490 (1927) . 79 See eg. Commentary to the Civil Code of the Russian Federation, Moscow, p. 313 (1995); Mushinski i V.O.,
Osnovy grajdanskogo prava [Bases of civil law], Moscow, p. 40 (1995); Civil law of Russia: textbook, Moscow, p. 220
(2003) .

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One of the major differences between homeowners ’ partnerships and consumer
cooperatives, particularly when considering housing cooperatives ( the closes t by goal
of activity), is that there are no equity relationships in homeowner’s partnerships. In
cooperatives, members own share funds , which are funds of the legal entity . The
funds have a strictly target ted purpose; they are intended exclusiv ely for the payment
of construction or value of a constructed house .80 Members of homeowners ’
partnerships own the premises outright , i.e. they paid or purchased residential
premises based on other grounds before entering the partnership or before the
partn ership’s formation.
Another difference between homeowners ’ partnerships and consumer
cooperatives is that members of a homeowner’s partnership have no obligation to
cover the organization’s losses by contributing additional fees, whereas members of
cooper atives are required to cover losses.
A significant difference is based on property relationships. According to the
general rules, a homeowner’s partnership does not own or have rights in the premises
or in common areas of an apartment building . A house -building cooperative on the
other hand, is the owner of the residential premises, as well as the common areas
within it .
The organization and activity of homeowners ’ partnerships is narrower than
the corresponding sphere of consumer cooperatives. Homeowner s’ partnerships may
only be formed by owners of residential and other premises , and only for the
purposes of ensuring operation of the apartment complex and for use of apartments
and their common areas (Art. 248 of the Civil Code and Art. 1 of the Law of t he
Kyrgyz Republic “On Partnership of Homeowners”). In regard to consumer
cooperatives, they may be formed with the goal of meeting various material and other
needs.
Taking into consideration the above -mentioned differences, and also taking
into account a norm contained in Part 3 of Article 85 of the Civil Code, which
permits the creation of different forms of NCOs provided by law, it is possible to
discuss a new organizational and legal form, the homeowner’s partnership formed as
an noncommercial organiz ation .
For a more detailed analysis of the differences between consumer cooperatives
and homeowners ’ partnerships, it is necessary to indicate that homeowners ’
partnerships may be created based on several types of consumer cooperatives — for
example, hous ing and house -building cooperatives where members fully pay share
fees. In these cases , the last part of the fee transforms relationships; compulsory
housing relationships transform to property relationships. The core of house building
relationships, share relationships, ceases to exist, and the right to use the house is not
based on membership in the cooperative, but rather on the ownership right.
As such, we propose that, i n compliance with Article 1 of the law of the
Kyrgyz Republic “On Partnership of Homeowners ,” a homeowner ’s partnership is
a form of association of homeowners : a noncommercial organization created for
80 See Gene khadze E.N., Jilishno – stroitelnye kooperativy v gorode i na sele [House building cooperatives in
the city and village], Moscow, p. 105 (1976) .

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joint management and operation of real estate, maintenance of common property, and
disposal of the property within established legislat ive limits.

§ 2. Organization and A ctivity of Partnership of H omeowners

In compliance with Article 248 of the Civil Code, a homeowner ’s partnership
(hereinafter “partnership”) is a noncommercial organization, created and operating in
compliance with t he legislation. The Civil Code assumes that a law has been adopt ed
regulating the organization and activity of this “type ” of noncommercial
organization. However, taking into account the necessity to regulate property
relationships regarding the common are as of apartment complexes, the legislator,
having adopted the law of the Kyrgyz Republic “On Partnership of Homeowners” on
October 28, 1997, extended a subject of indicated legislative act in the Civil Code,
having added regulation of relationships of shar ed property of owners of residential
and nonresidential premises of apartment house.
The creation of two or more partnerships in one building is not permissible
(Article 3 of the Law of the Kyrgyz Republic “On Partnership of Homeowners” ).
According to A rticle 84 of the Civil Code , legal entit ies are subject to state
registration by the Ministry of Justice according to the procedure prescribed by the
Law “On State Registration of Legal Entities” . A homeowner ’s partnership comes
into existence as a legal e ntity immediately upon registering with the state.
In order to meet the needs of its members, a partnership enters into
relationships with various legal entities and individuals. The purpose of a
partnership’s activities may include:
 Ensuring that owners consent to the procedure for exercising their
rights of ownership, use, and disposal of common property;
 Ensuring proper technical, fire -safety, ecological and sanitary
conditions of the apartment complex;
 Carrying out reconstruction, maintenance, repair and management of
the apartment complex;
 Providing public utilities to owners;
 Ensuring the implementation of rules on usage and maintenance of
the house and its adjacent territory;
 Protecting the interests of the owners;
 Representing the common interests of the owners with public
authorities and bodies of local self -administration, as well as in court.
Certainly the main task of a homeowner ’s partnership is carrying out the functions of
a supervisory or management organization, which will ensure efficient management
of common building areas and services for the residents . The partnership may take
care of the management, servicing and exploitation of the residential and
nonresidential premises , or it may outsource to other organizations.
In the first case, the partnership may contract with those who specialize in
servicing residential and adjacent premises such as locksmiths, electricians, cleaners,
custodians , etc. By suggestion of the directorate head, rules may be adopted at a

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general meeting regarding th e labor personnel of the partnership , including
regulations on payment.
If the partnership chooses to outsource, it may contract with a management
organization to provide services to the residential complex. Under the contract, the
management organization is obliged to carry out routine repair of the house (except
for individual apartments), clean the nonresidential premises and adjacent areas ,
dispose of garbage, maintain the central heating, water supply , etc. G as and elevator
equipment is normally maint ained through the use of specialized organizations, with
which the partnership or the management company may conclude the necessary
contracts.
Because partnerships are NCOs, they are only able to perform activities
specifically enumerated in the ir charter. The Civil Code of the Kyrgyz Republic
allows partnership s to carry out economic activity subject to two limitations:
1) The economic activity must serve the goals for which the partnership was
created; and
2) The organization may not distribute any pro fits earned from the activity
among participants of the organization.
A partnership carrying out an economic activity is independently liable for any
debts incurred. The members of the partnership, however, are not liable for its debts.

§ 3. Legal Statu s of M embers of Homeowners’ Partnerships

According to the provisions of Chapter 11 of the Civil Code and the law of the
Kyrgyz Republic “On Partnership of Homeowners ,” the following persons may be
members of the partnership:
 First, individuals who own r esidential premises in apartment complexes
and thus have an interest in the common property of the real estate. The
interests of minors, as well as individuals lacking legal capacity, are
represented by their parents, guardians or trustees.
 Second, legal entities that own residential premises in apartment
complexes, along with an interest in common property, based on
ownership rights, economic management rights (state and municipal
enterprises) or day -to -day management rights (state and municipal
instituti ons), may be members of a partnership.
In instances of termination of a member’s ownership rights in residential
premises due to death of the individual, liquidation of the legal entity, sale of the
premises, or other grounds, membership in the partnershi p is terminated immediately
upon the loss of the ownership rights.
In case of the reorganization of a legal entity that is a member of the
partnership, or the death of a partnership member, the member’s successors or heirs
may enter the partnership followi ng a decision of the general meeting of the
partnership’s members.
All members of a partnership possess broad rights and have a range of
obligations. The major rights and obligations of a partnership’s members are set out

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in the law of the Kyrgyz Republic “On Partnership of Homeowners .” The d etailed
rights and obligations are further named in the partnerships’ charters. A home owner
has the right to sell, rent, devise , transfer, and dispose of the premises in any other
way that is in compliance with the legi slation of the Kyrgyz Republic. When
ownership rights are transferred to a new owner, the rights to the partnership’s
common property is also transferred. The home owner cannot alienate his or her share
in the partnership’s common property separate from his or her ownership rights over
the premises. A member of a partnership retains voting rights and all the obligations
imposed by the legislation and partnership’s charter even if he or she resides
elsewhere or transfers his or her accommodation right over t he premises to another
person.
If a homeowner uses the premises as security for a particular obligation or
mortgage, the partnership should immediately send written notification to the creditor
holding the pledge or mortgage in the following cases:
 If the homeowner is more than 60 days late on payments owed for
common expenses;
 If the insurance on the common property is changed or terminated;
or
 If a decision of the partnership regarding a delay on payment for
common expenses is adopted by the court on appeal .
Homeo wners are obliged:
 To comply with requirements of the law of the Kyrgyz Republic
“On Partnership of Homeowners” and the partnership charter;
 To comply with all technical, fire -safety, sanitary and
maintenance rules of the complex, residential premises and
adjacent territory; and
 To pay for common expenses of the partnership proportionally to
their share in the common property.

Procedure for Creation of a Partnership

A partnership may be formed if no less than 51 percent of the apartment
own ers in the complex consent. An initial group of apartment owners may call for a
founding meeting. As a result of the principle of voluntary membership, some owners
may decline to join the partnership ; however, all owners of the premises are required
to pa y common expenses according to Article 26 of the law. Any owner of the
premises who later desires to become a member of the partnership has the right to do
so without consent from the partnership. Persons who do not own property in the
premises cannot beco me members of the partnership.
A partnership has no right to violate the rights of homeowners who refused to
become members of the partnership. The partnership may not create advantages and
benefits regarding the use of common shared property and extend th ose advantages
and benefits only to members of the partnership. The partnership may not also
impose additional obligations upon homeowners who refuse to become members of

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the partnership which are not necessary expenditures on management of the
partnership .

§ 4. Govern ance and C ontrol of Homeowners’ Partnerships

Partnerships form govern ance and control bodies. Such bodies may be divided
into the general meeting , in addition to executive -administrative, control and other
bodies.
The general meeting o f the partnership is its highest governing body. The
following issues are under the exclusive jurisdiction of the general meeting of the
partnership:
 Approval and introduc tion of changes to the charter;
 Selection and dismissal of directorate, officers of the partnership,
and members of the revision or audit commission, when
necessary;
 Approval of the annual report of the directorate;
 Approval of the annual budget;
 Consent for loan s that exceed 10% of the annual expenses for
maintenance of the partnership’s common areas ;
 Approval of capital expenditures related to improvements of the
common property;
 Restoration of the partnership’s building , in case of damage or
destruction to more than 50% of the building as a result of natural
disasters;
 Determination of the penalty for delay in payment by membrers of
common expenditures;
 Approval of special fees not provided in the annual budget;
 Decisionmaking regarding the transfer of management
responsibilities over the partnership’s common property to an
individual or legal entity, as well as determination of the services
the manager will provide the partnership;
 Consideration and adoption of terms and conditions of contracts to
be concluded;
 Limits on the use of common property;
 Terminati on of the partnership.
Each ap artment belonging to a member of the partnership is granted one vote in the
general meeting of the partnership , even if there is more than one owner of the
apartment, unless provided otherwise in the charter.
The general meeting of the partnership may de cide on issues if at least 51% of
votes are represented at the meeting. Decisions of the general meeting of the
partnership require a majority vote of the members present at the meeting, except for

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decisions regarding the following issues , which require at least 75% of the votes
present at a general meeting :
 Approval and introduction of changes to the charter;
 Approval of capital expenditures related to improvements to the
common property;
 Restoration of the partnership’s building in cases of damage or
dest ruction to more than 50% of the building as a result of natural
disasters;
 Transfer of management responsibilities over the partnership’s
common property to an individual or legal entity, as well as a
determination of the services the manager will provide to the
partnership;
 Consideration and adoption of terms and conditions of contracts to
be concluded;
 Setting limits on the use of common property;
 Terminati on of the partnership.
The unanimous consent of all members of the partnership is required to take out a
loan that exceeds 10% of the annual expenses for maintenance of the partnership’s
common property. When a tie occurs, the vote of the chairman of the organization is
decisive. Decisions of the general meeting are binding all owners, including those
who were not present in the meeting, irrespective of their reasons for not being there.
The general meeting of the partnership has the right to consider other issues , as well.
At the request of at least 20% of members present at a meeting , either in person or
through their authorized persons , a decision may be adopted by secret vot e.
The director ate must send written notification to all members of the partnership
indicating that a general meeting of the partnership will be held. The notices must be
handed to each member of the partnership personally, under signature , or by
registered letter.
Partnerships may form a revision or audit commission , composed of members
of the partnership appointed to a 2 -year term , in order to conduct a financial audit of
any s phere of activity of the partnership. The commission audits the annual report and
the directorate’s budget . Members of the directorate and their family members may
not be members of the revision commission, which is accountable to the general
meeting of th e partnership.

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Chapter 12. Jamaat ( C ommunity O rganization)
§ 1. Notion of Jamaat
In order to discuss jamaat, i t is first necessary to determine the nature of a
community, or a community organization. There are a variety of definitions
associated with t his term because the community, as a particular phenomenon and
institute, is studied by various sciences. Despite the abundance of differences, the
term community is defined here as an autonomous social substructure of society,
which is united by common te rritory of residence and constant and permanent
activity. Relating this definition to real life, it is possible to say that a community is a
group of individuals residing in one geographical territory wh o have common needs
and resources , and carr y out join t activities for the benefit of the community itself.
The origins of the Kyrgyz community go back to ancient times. From the
XVII th through the first half of the XIX th centuries , it was a main carrier of tribal way
of life , which occupied a significant p lace in public life during that period. The
community of Kyrgyz people was considered during that period to be an
administrative and public unit. Rural community of farmers , community of nomads ,
community in documents of the Kokand khanate and in Kyrgyz o ral language was
called jamaat (from Arabic jamaa ). The historically tribal or community
organization with strong internal links was supported by the Kokand khanate in the
first half of the XIX th century. As a main unit of society, the community contained all
of the elements of the public -economic and ideological inter -relationships of the
Kyrgyz people in ancient times. Communities had broad authority on particular
territorial units; they solved problems in the economy and the social sphere, everyday
life problems, in marital -family relations, and determined ideology within the
community . The community was composed of several groups related to each other by
tribe, common economic interests, and ideological unity .81
It is important to remember that the comm unity was the first type of
organization. Therefore, it is necessary to provide a definition of the meaning of
“organization.” An organization is an association of people, jointly implementing
interests, programs or goals based on a set of particular norms and rules. It is
necessary to remember that organizations may a have formal (registered with
particular state bodies) or informal status.
Arranged according to particular territorial units, local self -administration
bodies interact with public authoritie s and other local self -administration bodies to
create good -quality li ving conditions for the local population and to meet the social –
economic needs of local communities. However, in order to ensure efficient
resolutions of local affairs, it is necessary f or the population to actively participate in
any given activity in additional to creating compulsory local -self -administration
81 Ploskih V.M., Istoriya Kirgizskoi SSR: s drevneishih vremen do nashih dnei [History of Kyrgyz SSR: from
ancient times till the present], Frunze (1984) .

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bodies (executive -administrative, representative). This mobilization of the population
into particular formations is one type of local self -administration. It also constitutes
one form of direct participation by citizens in local affairs. By uniting into
community organizations, the population of a particular territory is able to become
more organized, consolidate to solve specific issues, prioritize the directions of an
activity, fairly distribute resources, etc. Today, the activities of communities facilitate
the process of determining the interests, needs, and sets of values of local
communities, thereby providing local state admi nistration and local self –
administration bodies the ability to judge the degree of aspirations of residents. This ,
in turn , means that the local state administration and local self -administration bodies
are able to more objectively assess the existing soci al -economic situation during
managerial decisionmaking . For self -administration bodies, community organizations
act as additional mechanisms to not only identify problems, but also to help provide
solutions to the problems while also meeting the demands of the people. At the same
time, community organizations may be used by local self -administration bodies as a
means to disseminate information to the population. Communities are one of the
population’s means of control over the activity of local public autho rities and local
self -administration bodies. Finally, it is necessary to make note of the representative
function of community organizations. The community represents the interests of its
members, and groups within the population whose views have been form ulated and
expressed, in front of local public authorities.
In the Kyrgyz Republic the rights of existence and activity of communities are
codified in legislation. The law of the Kyrgyz Republic “On Jamaats (communities)
and their Associations,” as of F ebruary 21, 2005, defines “jamaat” as a form of local
self -administration organization that is a voluntary association of members of local
communities who reside in the same street, block or other territorial formation of
village or town, created for joint decisionmaking in local affairs.
§ 2. Legal Status of Jamaat

Community formations are similar to public associations in many aspects of
their organizational and legal form s. They are voluntary, self -administered
associations of individuals , created on their own initiative and based on their
common interests in implementing their common goals.
A j amaat is a noncommercial organization, which, in compliance with the law
of the Kyrgyz Republic “On Jamaats and their Associations,” may become a legal
entity . The noncommercial status of these community organizations does not prohibit
them from carrying out economic activity; however, economic activities must strictly
comply with the charter’s goals. Any profit generated by economic activity must be
directed t o solving the main issues of the community and may not be distributed
among the members of the community organization.
The activity of a jamaat is carried out based on principles of legality and social
justice; voluntary membership; democracy; publicity; transparency and

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accountability of public opinion; collegiality; free discussion during solving social –
public problems, ecological, housing and other issues concerning interests of
members of the jamaat; self -determination, self -regulation and self -financi ng based
on economic independence; ensuring equal representation of households; and
common interests of members the of jamaat. The jamaat independently organizes and
carries out its activity within the territory where its members permanently reside.
The major goals of a jamaat are:
 Creating a sense of belonging among members of the jamaat in
order to jointly solve the local issues for which they are
responsible ;
 Meeting the social -economic needs of members of the jamaat and
the local community;
 Involvin g members of the jamaat in management of the jamaat
and the local community;
 Rendering mutual assistance to members of the jamaat;
 Increasing the activity of the population on social mobilization.

Rights of the jamaat . The rights of a community organizati on depends on the
role it plays within a particular territory. It is possible to say with certainty that a
jamaat is a public association, which means that it has the right to deal with social
problems. A jamaat also has the right to carry out economic act ivities in order to
achieve the goals set in its charter, to participate in managerial decisionmaking s by
local self -administration bodies in order to ensure citizens’ rights, etc. A jamaat has
the right to purchase and sell property it owns , to render con sultation and information
services, to organize and conduct learning seminars and practical lessons on issues
related to the activity of jamaat , and to carry out other tasks within its powers.
The list of rights belonging to community organizations is de termined by the
legislator and relates to communal economic activity. A jamaat has the right:
 To open accounts in financial and credit institutions;
 To interact on a contractual basis with local representative bodies,
their executive -administrative bodies , local state administration,
enterprises, institutions, cooperatives, other jamaats and other
entities ;
 To use its own financial resources, and other sources provided for
such causes, to accomplish improvements of its territory through
construction and re pair of residential premises and other
soci ocultural, domestic and economic facilities ;
 To pay rent for buildings, construction, and nonresidential
premises that are owned by the jamaat;
 To solicit funds and investments from international donor
organizatio ns for the implementation of the goals and tasks of the
jamaat.
Responsibility of the jamaat. Along with the above -mentioned particular rights,
the jamaat has responsibilities proportional to its rights. The major goal of the jamaat

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is to meet the social -economic and spiritual needs of the local community and to
improve the quality of life of community members. Therefore , the community has a
responsibility before the local community, and members of the community. The
jamaat is responsible to individual and legal entities for all contractual undertakings
when carrying out an economic activity. A jamaat becomes liable to the state when
its activities do not comply with requirements set forth in the legislation of the
Kyrgyz Republic.

§ 3. Creation of Jamaat
An essential difference between jamaats and other NCOs is the procedure
involved with acquiring legal entity status. The legislation stipulates that a jamaat
acquires its legal entity status immediately upon registration with the representative
body of th e local self -administration. Registration is based on applications of the
jamaat’s members, minutes of the general meeting, and the charter. There are several
requirements that must be complied with during the process.
First of all, to organize any asso ciation, including a jamaat, an initia l group
must be created. Founders of the jamaat must represent at least ten households that
have been united voluntarily. The legislator defines a household as a group of two or
more people, jointly residing in a singl e housing unit, who obtain the necessities of
life through joint housekeeping and through fully or partially uniting and spending
their funds. These individuals may be affiliated through kinship or marriage
relationships, or they may be unrelated. However , it has been acknowledged that a
household may be composed of only one person, residing in a housing unit and
obtaining the necessities of life. Therefore, to register a jama at, it is necessary to have
at least ten people from one territorial unit.
Seco ndly, during the general meeting, a charter is adopted, which regulates the
activity of the jamaat, and the head of the community is elected. As a vital document
of the jamaat, the charter must contain the major principles of the organization,
priorit ies for the association’s activity, and the principles of interaction with local
self -administration bodies and public authorities. The community’s charter,
according to the legislation, must also fulfill several requirements and is required to
contain the foll owing information:
 The full and short name of the jamaat;
 Provisions on the rights and obligations of members;
 The procedure and conditions for acceptance and withdrawal or
expulsion of members;
 The minimum price of the entrance and membership fee for the
community along with the procedure and conditions for
contributions;
 Provisions on the powers and functions of the head of the
community;
 Procedure for decisionmaking by governing bodies;
 Procedural rules on the activity of jamaat;

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 Procedure for el ection and dismissal of the head of the jamaat;
 Procedure for funds formation of jamaat and their use;
 Procedure for amending the charter;
 Procedure for accounting and audit;
 Conditions on termination of activity (reorganization and
liquidation).
The last step in creation, registration of the jamaat and acquiring the status of
legal entity is submission of yhe necessary package of documents to the
representative body of local self -administration. Such documents include the
application to create a jamaa t, the minutes of the general meeting and the charter,
which must meet the noted requirements.
Membership in and withdrawal from a jamaat, as in the majority of other
NCOs, is voluntary. Nevertheless , the charter of a jamaat may determine a special
proce dure for entering into the community and withdrawal from it. Involuntary
withdrawal or expulsion from community organization is possible only if there is a
violation or improper execution of provisions and norms of charter of jamaat. Such
measure in relati on to members of community organization may be performed only
after preliminary notice of a person to be excluded, thirty days before and after
granting to him or her right to speak at the general meeting. At the same time , a
member subject to such a measu re preserves the right to appeal the expulsion
decision of the general meeting.
A person permanently residing in a particular territory of local community,
who pay s membership fees, is related to the jamaat by mutual interest, who
represent s the interests of one household in compliance with the charter of a jamaat
may become a member of a jamaat. Members of the community have equal access to
use of the property of a jamaat.

§ 4. Interaction of Jamaat with State Bodies and Local Self –
A dministration Bodies

The state guarantees NCOs the conditions for carrying out their charter tasks.
State bodies and officials must respect the rights and legitimate interests of NCOs in
compliance with the Constitution and the legislation of the Kyrgyz Republic , and
mu st provide support for their activity.
Public agencies and local self -administration bodies provide assistance to
community organizations in:
 Creation of necessary legal and organizational conditions for establishment
and development of the jamaat;
 A ttrac tion of investments, grants and micro -credits for establishment and
development of jamaat, and for the exercise of its right of self –
administration.
Public agencies and local self -administration bodies may conduct consultations
with jamaats during prepara tion and decisionmaking on issues concerning their

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mutual interests. Public agencies and local self -administration bodies are compelled
to consider an a ppeal by a jamaat on issues that concern its interests.
§ 5. Financial -Economic Bas is and Property of Ja maat
A j amaat may own, use and dispose of financial funds, movable and
immovable property , in compliance with its charter. The f inancial bas is of a jamaat is
comp rised of entrance and membership fees, revenues from use of jamaat property,
sponsor fees, vo luntary contributions of legal entities and individual of the Kyrgyz
Republic and foreign persons and entities, grants, as well as borrowed funds , credit
and other financial resources. A jamaat may also make acquisitions and obtain
property by transfer fro m legal entities and individuals.
The f unds of a jamaat may be used by its members for improving the social –
economic condition s of the population residing on a given territory, as well as for
charitable goals.
Public agencies and local self -administratio n bodies may not interfere with the
financial -economic affairs of a jamaat, except as provided by law .

§ 6. Governing Bodies of a Jamaat
The highest governing body of a jamaat is the general meeting , consisting of
all the members of the jamaat . The p roc edure and frequency of conducting a general
meeting is determined by the charter. The first general meeting of a newly formed
jamaat should be open ed by one of the members of of the initial jamaat group . The
agenda of the first general meeting should inclu de election of the head, development
and adoption of the charter, and decisions about the activity of the jamaat . Decisions
during general meetings are adopted by a simple majority of votes in the presence of
not less than two -thirds of the members of the jamaat .
Competence of the general meeting of a jamaat. The following issues are
within the exclusive competence of the general meeting:
 amending the charter;
 setting goals ;
 acceptance and expulsion from membership (if not otherwise provided by
the charte r);
 election and dismissal as head of the jamaat ;
 approval of annual report and annual balance sheet of jamaat ;
 issues of participation of jamaat in the activity of other legal entities;
 reorganization and liquidation of jamaat ;
 receiving loan s and credit; use of property of jamaat ;
 other issues as set out in the charter of the jamaat .
Head of jamaat . The h ead of the jamaat plays a significant role in
decisionmaking of the general meeting of the jamaat, as well as in the distribution of
resources of the co mmunity, disposal of the property, and social -economic planning

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in the local community. Being a leader of the jamaat , s/he is responsible for the
effective operation of the jamaat. The h ead of the jamaat prepares the statutory
documents of the jamaat and r egisters them with the representative body of local self –
administration of the particular territory. The p osition of head of the jamaat is an
elective office. S/he is elected in the first general meeting out of members of
community by open or secret votin g by a majority of members present in the general
meeting. T he t erm of the head of the jamaat is determined in the charter.

§ 7. Formation and A ctivity of a L ocal D evelopment Foundation
Jamaats may unite in order to pursue social -economic tasks and ther eby
increas e the welfare of the members of the local community . When they unite, they
may create on a voluntary basis a noncommercial organization called a local
development foundation, which is a legal entity.
A local development foundation is a public foundation formed by
contributions from jamaats and their associations, sponsors, organizations and
international donors on voluntary basis. The charter of a local development
foundation regulates the procedure for formation and liquidation of the entity a nd sets
the conditions for collection of funds . The entity must also be registered with the
Ministry of Justice.
The d irectorate of the foundation is elected during the general meeting of
founders , in compliance with the charter.
The fees of jamaats , contributions of individuals and legal entities, and
sponsor ship funds of international donors, nongovernmental and other organizations
may be solicited a s contributions to local development foundations.
Grant s of funds from a local development foundation are carried out publicly
by the directorate.

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Chapter 13. Credit U nions
§ 1. History of C redit U nions
One of the major activities of financial organizations is accepting deposits and
providing credit to legal entities and individuals. Credit relations hip s have a difficult
position in world history. Two thousand three hundred years before our century ,
trading companies were established to provide loans. In support of these loans, ships,
goods, houses, valuables, as well as slaves were pledge d as security .
As regards the history of credit unions, they first appeared thanks to efforts of
weavers in Rochda le, England in 1844. Their positive experience spread to Germany,
where , in 1850 , Hermann Schulz e Delitzsch created a “loan association” in a
Prussian villa ge . By 1859 , in two German provinces , there were 183 cooperatives
that united more than 18 thousand share holders . A great contribution in the
emergence of movement of credit unions was made by Friedrich Wilhelm Raiffeisen ,
a public figure of the XIX th cen tury. As the mayor of a small Bavarian town, he
organized the first financial cooperative for residents of his district, where people
could make deposits and extend loans to each other.
People trusted credit consumer cooperative s because they united peopl e with
similar interests or of one region , which provided the basis for confidence in the use
of the money. Banks could not provide such a basis , because they worked with those
who had money. These depositors – the owners of the “people’s cash” — formed a
movement that expanded very quickly.
In Canada , the first “people’s cash” entity was opened by Al ph onse De sjard ins
on December 6, 1900 , in a Quebec town. And today , the network of such
organizations is spread throughout Canada , even among people who do no t live a
poor life. After credit was extended to private persons in this way, the institutions
were legislatively codified in 1906 and began to be popular. T he t otal sum of credit
union assets exceeded CAD$ 77 billion. It consists of the cooperative sector —
around 1 .5 thousand “people’s cash” institutions throughout Canada — and the
corporate sector – insurance companies, investment and consulting firms and
processing centers that servic e credit cards.
In many countries , credit unions had a particular orientation. For example, in
agrarian countr ies, they were created with the goal to support farmer economics
during crop failure years. And in more developed countries , credit consumer
cooperatives were more specialized in loan and savings transactions of t heir
share owne rs. Credit unions have demonstrated their stability during economic crisis.
There are many well -known examples in which, during a crisis , banks became
bankrupt while credit unions survived.
As regards Russia, the idea for a credit cooperativ e was imported from
Germany. In 1865 , Prince A.I. Vasilchikov organized the first loan and savings
partnership in the Costroma district. In 1869 , the Tver’ district organized depositaries
of small art isans, which allowed 60 nail workshops to be opened in t he course of
several years . In Odessa in 1874 , a credit partnership was organized by German
craftsmen. At that time , cooperatives, partnerships, union s, and associations of

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mutual credit were organized predominantly near agricultural producers (agricultura l
credit cooperatives) , or else credit cooperatives united small craftsmen, members of
artisans’ guilds or traders — but there were also consumer credit communities. Such
credit cooperatives were a strong system of support of small entrepreneurs and tra de.
At the end of the XIX th century , such organizations were widespread in Russia. And
Russia had at that point already developed legislation on credit cooperatives. After
the revolution of 1917 and un til the 19 30’s , credit cooperatives successfully
develo ped in Russia, mainly in the form of credit and savings and loan s for
agricultural and commercial cooperatives.
After the introduction of the monopoly of the State Bank of the USSR , all
credit cooperatives were forc ibly liquidated ( 19 30’s of the XX th centu ry).
Nevertheless, the traditions of mutual credit s between people were preserved in the
substitute form of mutual assistance depositories and “black cash” depositories,
which existed un til the reforms of the 19 90’s.

Microcredit

Microcredit, or providi ng credit to g roup s without an underlying pledge of
security, was the idea of Professor of Economics Muham ma d Yunus from
Bangladesh, the founder of Grameen Bank. Since 1983 , this type of group credit
without pledge has demonstrat ed to the whole world its e fficiency and profitability —
not only in relation to credit organizations, but also in relation to their clients. It is
important to note that its main users are women. The other specifics of microcredit
are as follows :
 The credit institution gives credi t to the poorest population, predominantly
rural;
 Pledged property is not required;
 The b orrowers, not the credit organization , decide how funds will be spent;
 The credit organization support s clients in realization of their plans;
 Interest rates are very low .
The microcredit approach has assisted 10 ,000 poor families to overcome poverty.
Grameen Bank has provided credit for around USD$ 3 billion. At the present time ,
the Grameen model is used in 56 countries of the world. A ccording to its founder ,
Gram een Bank is probably the most -studied financial organization in the world.
According to assessments of the World Bank , more than one -third of its borrowers
have overc ome poverty , and the remaining one -third is approaching the same goal .
The Grameen model h as been accepted not only by its nearest neighbors – the
Philippines, Malaysia, China and other Asian countries, Latin America and Africa,
but also by Europe and the USA. The m ajority of microcredit organizations in the
USA operate according to the Grameen model. And in developed countries , the
primary reason for the success of microcredit is the inaccessibility to the majority of
people of traditional bank services, as the result of which the difference between poor
and rich is increasing.

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Microcredit p rograms have been officially recognized throughout the world.
The General Assembly of the U nited N ations adopted a decision in 2005 to make
microcredit accessible to more than 100 million poor people around the world .82
In Kyrgyzstan , the creation and devel opment of the market for micro -financial
services has been assigned an important role . The leader in this respect is a network
of credit unions that has been expanding during the past four -plus years.
§ 2. Major Features of C redit U nions
The Law of the Ky rgyz Republic “On credit unions” as of October 28, 1999 ,
regulates the procedure for the creation and activity of credit unions. According to
the law , a credit union is a noncommercial financial -credit organization, created for
providing assistance to its members by combining the personal savings of members
of the credit union and providing mutual credit at acceptable interest rates, as well as
rendering financial services (Article 1 of the Law) . A c redit union is a special type of
non -bank credit organizat ion empowered to enter into particular transactions and
specific tasks.
Credit union s differ from bank s in certain consumer specifics. Members are
shareowners of the credit union ; they are not mere clients, as in a bank. As such,
many forms of bank legisl ation may not be applied to credit unions. The s hare holder s
are the owners of the credit union and have more rights than bank clients, particularly
as they participate in management and control of the credit union.
The Law of the Kyrgyz Republic “On micro -financial organizations” assume s that
credit institutions may be commercial as well as noncommercial institutions . Credit
unions may only transact financial -credit activity , and their transactions are strictly
regulated by the Law and their individual lic ense (Article 4 of the Law of the Kyrgyz
Republic “On credit unions”). A c redit union is, first of all, a financial -credit
institution created for the purpose of providing mutual assistance to its members.
The e xperience of other countries shows that the major source of internal
investments into the national economy is the savings of households and enterprises.
Credit unions may become efficient instrument s for domestic inv est ment of funds of
the population. Individuals become investment owner s, and the accrued investment
income of citizens increases the overall national welfare level.

§ 3. Governance of C redit U nions

Credit unions, which are legal entities and which have special legal status,
need to create a system of governing bodies as with any lega l entity. The
organizational structure of credit union s includes its governing bodies, set by the
legislation of the Kyrgyz Republic on credit unions, as well as state control over the
activity of credit unions. There is a classic , international model for the structure of
governing bodies which is applied to credit unions around the world.
82 Monthly publication “Panorama ”, pp. 12 -16, Almaty (1998).

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The t asks required of governing bodies are the following:
 to ensure an opportunity for online decisionmaking ;
 to facilitate development;
 to ensure control;
 to facilita te realization of the goals for which the entity was created.

Structure and Functions of G overn ance of Credit Unions

The i nternal organizational structure of credit unions is built on the same
principles that were established during the creation of the first credit unions. The se
principles have acquired a fundamental character and have not los t relevance through
the present. They are:
 mutual assistance;
 self -administration;
 equality of members of credit union;
 one person – one vote;
 common interests;
 de mocratic control.
It is important to not e that these principles found reflection in the Law of the Kyrgyz
Republic “ On c redit unions ” (referred to as the Law in this chapter). C hapter IV of
the Law , concerning the g overning bodies of credit unions , is dedi cated to their
internal organizational structure. For a more detailed analysis , it is necessary to look
in detail at the articles of the Law that set out the structure of the governing bodies of
credit unions.
Articles 14 – 19 of the Law envisage the foll owing structure of governing
bodies of credit unions:
 general meeting of members;
 directorate;
 credit committee;
 revision or audit commission;
 external audit.
Article 14 of the Law determines the competence of the general meeting of
members of the credit u nion, and define s the most important issues that are of
concern to the members. This A rticle also indicate s the procedure for conducting the
general meeting of members. Although issue on quantity of conducting general
meetings of members is not provided, a nd there is a reference norm to the charter of
credit union, it shall be conducted not less than once in a year and no later than three
months after end of financial year. There is not prohibit ion against conduct ing
unscheduled meetings.
The g eneral meet ing of members is the main governing body of a credit union.
The Law determines its powers , includ ing :
1) approval and amendments to the charter;
2) approval of business plan and budget and financial and annual reports;

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3) approval of interest, credit, investment a nd dividend policy in compliance with
set principles and norms;
4) election and withdrawal of members of directorate, credit committee and
revision commission and regulations of the se bodies ;
5) announcement of the dividend to be distribut ed ;
6) decision on reorgan ization and/or liquidation of credit union;
7) determination of the amount of remuneration for members of directorate, credit
committee and revision commission , if such remuneration is permitted by the
charter;
8) other issues, as permitted by law .
The following issues must be decided at the annual meeting of credit union
members:
1) approval of annual financial plan and report on its implementation;
2) approval of annual results and report of the directorate of credit union;
3) election of members of directorate, credit committee and revision commission.
Article 15 of the Law determines the quorum and procedure for voting by
members during the general meeting, and requires that member s of the credit union
may not vote through an authorized representative. In contrast to c ommercial
organizations ( joint stock company, limited liability company), where voting may
depend on the contribution of members based on a proportionality principle, the
member s of the general meeting of a credit union ha ve only one vote irrespective of
the amount of their share holding . In order to be effective, a quorum of not less than
50% of members of credit union must be present at the general meeting .
The executive body of a credit union is the d irectorate. The m embers of the
directorate must be mem bers of the credit union. Issues related to the day -to -day
activity of the credit union and not in the competence of general meeting may be
included in the powers of directorate . They are:
1) approval and changes to the rules o n activity of the credit union;
2) preparation of proposals in relation to credit, interest, loan and investment
polic ies, in compliance with set principles and norms;
3) setting the procedure and amounts for contribution s of additional fees by
members;
4) solving issues related to acceptance of new members and expulsion of current
members;
5) determination of the procedure for remuneration of hired employees, if not
otherwise provided by the charter of theh credit union;
6) carrying out other functions related to daily activity of credit union and whic h
are not under the competence of the general meeting.
Decisions of the d irectorate are considered to be approved if not less than 2/3
of members participate in the session. Decisions are adopted by the majority of votes.
Directorate meetings must be recor ded in minutes and signed by the directorate
members.
Article 17 of the Law determines the scope of work of the credit committee
and sets its sole power : deciding on granting loans or credit to members of the credit

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union. Given the committee’s ongoing wo rk with lending, the legislat ure provided a
norm setting the quantity of meetings depend ing on the quantity of applications. The
goal of the meeting s of credit committee is to decide on each loan application. In case
of a denial, the applicant has the righ t to appeal to the general meeting of the credit
union or to the directorate.
The r evision commission is responsible for the regular control of accounts,
documents and financial standing in credit union . A ccording to art. 19 of the Law,
other external aud it functions may also be delegated to it, if the credit union decide s
against an external audit.
The r evisions commission interacts with the credit union’s governing bodies,
although Article 18 of the Law does not invest it with the competence to make
mana gerial decisions. The r evision commission has a control function, which allow s
it to review the activity of a credit union and to develop recommendation s directed
to ward the elimination of violations.
Overall, the internal structure of governing bodies of credit unions corresponds
to the structure utilized for other legal entities. A range of issues under the
competence of governing bodies, according to Article 19 of the Law , is related to the
decision whether to conduct an external audit.

§ 4. State R egulation of C redit U nions
The basis for regulation of c redit unions is the state policy codified in the
Order of the National Bank of the Kyrgyz Republic as of June 5, 2000 , # 22/8 , “On
the concept of regulation of credit unions .” According to the concept , “ [c] redit unions
should become in the future the financial infrastructure of the village .” In order to
fulfill this goal, the “role of the state is to create favorable conditions for
development of credit unions .”
On the basis of the state policy mentio ned in the Concept and the Law “On
credit unions ,” one may distill the principles of external administration. They are:
 preserving a stable financial system;
 protectin g members’ interests;
 minimizin g risk.
From the se principles , the follow ing roles are ass igned to the regulating bodies:
 to facilitat e development of an efficient and competitive system of financial
institut ions ; and
 to guarantee that the activity of credit unions is in compliance with the
legislation of the Kyrgyz Republic.
The major function s of external governing bodies are:
 regulating , in the form of issuance of normative and legal acts and issuance of
licenses ;
 monitoring , by which governmental bodies are granted the right to review and
monitor the activity of credit unions for compliance with legislation of the
Kyrgyz Republic ;
 supervisory , which is in the form of issuance of normative and legal acts

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directed to ensuring rights of regulating bodies to apply sanctions and to
terminate activity of credit unions by suspending their activity b y legislative
acts of the Kyrgyz Republic .
The interest of the state in the development of the system of credit unions, as a
financial structure, is reflected in the definition of the bodies that are part of external
governance of credit unions. According to Article 30 of the Law “On credit unions ,”
the regulat ory function is delegated to the National Bank, which sets the financial
standards for credit unions and proposes changes to the legislati on .
In compliance with the order of National Bank ’s directora te # 19/7 , as of
September 16, 1997 , National bank delegated supervisory functions over the activity
of credit unions to Financial Company on the support and development of credit
unions (further ‘Financial Company”). In order to carry out its functions , t he
Financial Company provides borrowed funds to credit unions, controls the efficiency
of use of credit resources, the credit financing of credit unions ’ members , accounting,
and compliance with legal principles.
In a credit contract concluded between the Government of the Kyrgyz
Republic and the Asian Development Bank (ratified by Decree of the President of the
Kyrgyz Republic # 25 , as of January 26, 1998), it is possible for credit unions to
privatize the Financial Company. If privatiz ed, credit unions w ill have the possibility
to impact the policy of Financial Company, including regulatin g the activity of credit
unions. The regulatory “c oncepts ” currently in effect provide the possibility (after
privatization of Financial Company) to return supervisory f unctions over credit
unions to the National Bank.
In connection with the system of external administration of credit unions , it is
necessary to note the role of associations of credit unions, which have functions to
protect and represent common interests of credit unions, to coordinate their activit ies ,
to carry out joint projects and to solve other common tasks and problems.
Article 9 of the Law of the Kyrgyz Republic “On licensing” as of March 3,
1997, the r egulation “On licensing of credit unions ,” appr oved by the order of the
directorate of the National Bank as of November 15, 2000 , # 40/2 , and the r egulation
“On licensing particular types of economic activity ,” approved by order of the
Government of the Kyrgyz Republic as of May 31 , 2001 , do not permit credit unions
to carry out activit ies without a license from the National Bank.
Article 11 of the Civil Code of the Kyrgyz Republic and the r egulation “On
licensing particular types of economic activity” set features according to which
activit ies carried out by individuals and legal entities will be considered “financial .”
They are:
 independent activity;
 activity carried out at one’s own risk;
 profit -making is the main goal of the activity;
 an entity or individual should be registered as one c arrying out financial
activity.
The absence of one of these features indicates that the activity is not “financial.”

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§ 5. Credit Transactions
A c redit union, being a credit -financial organization, in its essence is created
for meeting the needs of its members in vari ous financial services. Therefore , an
important aspect of the activity of a credit union is a study of its transactions. The
principal activity of credit unions is rendering financial services . In Article 3 of the
Law “O n credit unions ,” the major goals an d categories of credit union activit ies are
set out :
 meeting the needs of members by combining their funds and providing loans ;
 attracti ng members of credit union to participate in administration of its
activity;
 rendering financial services .
Article 4 of the Law “O n credit unions ” provides the right of credit unions to conduct
the following transactions:
 attraction of monetary funds from their own members by purchase of savings
share;
 granting loans to members on the condition of maturity , credit recovery and
payment of interest .
Part 4 of Article 4 of the Law “O n credit unions ” establishes the rule that credit
union s have the right to attract deposits and render other financial services upon
fulfillment of certain requirements and receipt of additional li cense in compliance
with the requirements of bank legislation.
Thus the law envisages permission for certain activity in connection with
rendering financial services. A ccording to Article 4 of the Law “On banks and bank
activity ,” a credit union is a spec ialized credit institution and operates base d on a
license from the National B ank and is eligible to carry out particular bank
transactions, part of which as it was noted earlier are financial services included in
the list of financial services, according to the Tax Code of the Kyrgyz Republic. A
credit union may render bank services (based on a license from the National B ank)
and other financial services , under license, if required .
Therefore in the regulation “O n licensing credit unions ,” it is desirable to
define the specific list of services that credit unions may render and the conditions on
meeting requirements to receive an additional license in compliance with
requirement of bank legislation .
A description of the goals of regulation of credit unions is contained in the
concept “O n regulation of the activity of credit unions ,” approved by the order of
directorate of the National bank as of June 5, 2000 , # 22/8, as follows : “Considering
that credit unions in the future will become the financial infrast ructure of the village,
regu lation of their activity carries strategically important character .” The intention to
concentrate credit unions only in village s is disputable. I f one consider s credit unions
as a part of the institutional infrastructure o f the state, credit unions should assist with
development of financial support for overcoming poverty and formation of small and
medium sized business es. I n the future , credit unions may be convert ed to a more
traditional financial institution . And it does not matter where credit unions will
develop: in the city or the village.

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Germany and Holland may be cited as examples – places in which credits for
agriculture do not exceed 5% of all loans, and where there has been a focus on
“stimulation of development of s mall entrepreneurship for the welfare of the district ,”
and not only for agricultural production . The other example that relates to the activity
of loan -savings community is the Dzelzselniek Credit Union in Riga, Latvia. This
institution demonstrates that a credit union may help workers of the local rail way to
save and increase their own funds, as well as to receive access to cheap credits for
different consumer needs. The experience of charities directed to education and
health support on the local level organized by the credit unions of Arizona and
Oregon in the USA is also very interesting.

Credit U nion s and Nonfinancial S ervices

Irrespective of future development scenarios of credit unions , credit union s
may and must render services of nonfinancial ch aracter. In Part 3 of Article 5 of the
Law “O n credit union s,” the following rule appears: “A c redit union has the right to
purchase, give for rent, use, negotiate, mortgage, and sell property it owns , to render
consultation and information services, to or ganize and conduct learning seminars and
practical lessons relating to the activity of the credit union, as well as carry out other
powers related to the credit union as necessary for the efficient achievement of goals
of its creation . There is a current n eed to i ntroduc e a clear list of nonfinancial
services that are permitted for credit unions in the Law “O n credit unions. ”

Capital Requirements

In the Law “O n credit unions ,” capital is de fined as the “total sum of all paid
savings shares, all reserves o f the credit union and surplus earnings .” Another
requirement defines capital in the following way: “ the capital of a credit union shall
be formed at the expense of the monetary funds of members. Fixed assets, securities
and nonmaterial assets are not cons idered to be capital.”
Article 29 of the Law “O n credit unions ” defines the obligation to create
reserves for covering possible losses on assets. The se reserves may not be distributed
among members, except in the case of liquidation .

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Chapter 14. Trade U nions

§ 1. Notion of Trade U nions

The first trade unions emerged in the European countries and in the USA in the
XIX th century. Working 14 -15 hours a day without humane conditions and labor
safety, being subject to fines and punishments for each offens e, hired workers united
into an organization for protection of their violated rights. Trade unions were created
by workers of the most advanced professions of that time : ironworkers, print
workers, and rail employees. Hired workers in such trade unions found a collective
strength that, to some degree , could help solve labor relationship problems and
protect their rights and interests. For m ore than two hundred years , trade unions
exist ed as a public phenomenon, changing the content of their activities and stru cture
depending on the tasks of a specific time period. In the process of further
development of society , workers became voluntar ily united into trade unions along
the lines of their professional affiliation and commonality of economic and social
interests .
At the present time , trade unions operate in more than 180 countries of the
world and are united into more than 215 national professional groups with a total
number of around a half -million members . Each of these trade unions has its own
place in the so cial -political structure of the society, as a forum for expression,
representation and protection of rights and interests of united citizens.
What is the phenomenon of trade unions? It is essentially a public association .
Trade unions are part of the poli tical system of society as a specific public
organization with their tasks and functions defined by their charter. As a public
organization , trade unions are based on membership, and are created based on joint
activity for protection of common interests an d achievement of charter goals.
Trade unions, first of all, are democratic by their essence, and international by
their nature. Trade unions by their content are organization s of a humanistic type.
“Humanism ” refers to love of people and care about their material, spiritual and
physical development, as the basis of trade union activity. Humanism attracts
workers and facilitates the aspiration to unite and collective ly protect their rights.
Trade unions , as other organizations , have the right to unite into different unions,
associat ions and federations.
During the time of the USSR , based on a directive of higher party
organizations, there was a practice of association into trade unions according to
professional and regional features. At the present time , the same structure of trade
unions has abeen preserved. The activity of trade unions is regulated by the Law of
the Kyrgyz Republic “On trade unions” as of October 16, 1998 , # 130. According to
Article 1 of the Law “O n trade unions, ” a trade union is a volunt ary public
association of citizens based on commonality of interests by types of activity in the
industrial as well as the non -industrial sphere, created for the protection of labor and
social -economic rights and interests of its members.

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§ 2. Creation o f Trade U nions

A t rade union may be created in an enterprise, institution or organization ,
irrespective of the form of ownership or economic management. The purpose of a
trade union is to be a voluntary association of citizens for the protection of labor,
professional, economic, social rights and other legit imate interests of its members. If
at least three workers come together in an enterprise , they have the right to create a
trade union. There are requirements for the name of the group , as it must relate to the
name of the enterprise and sound like a trade union.
Trade union organizations must operate in compliance with their charters and
are not subject to state registration. However , trade unions preserve the right to
register with the Ministry of Just ice as a legal entity. The registration procedure
serves a notification purpose , after which the giv en organization is included in the
particular registry.
The activity of a trad e union is limited by framework of the enterprise where
the workers are emplo yed. Trade unions, as the protector s of the labor rights of
workers, are involved in the interaction with employer s in the given enterprise. The
organizational and legal form of the trade union takes the form of its initial trade
union organization in the enterprise , the trade union unit .
M embership in the trade union is based upon the personal application of an
applicant -worker. A d ecision is adopted at the meeting of trade union or , if permitted
by the charter, by its structural unit (department or unit) . If there are 15 persons or
more in a trade union , a trade union committee will be elected, and in case there are
less than 15 persons , a trade union organizer may be appointed . At the same time ,
there are representative s of the trade union in the enterp rise. The l egal status of the
trade union organizer is the same as the legal status of a trade union committee. In
the structure of the trade union organization , it is not prohibited to create particular
sections such as departments, districts, units , etc.
Working (studying) citizens and pensioners who have accept ed the charter of
the trade union may be members of a trade union. Membership in a trade union is
maintained for workers dismissed from the enterprise due either to staff cut s or
closing structura l sections, so long as they have not accepted an other job, as well as
workers who temporarily suspended from work due to child -rearing and care for ill
and disabled persons.

§ 3. Property of Trade U nions

Once registered as legal entities, trade unions must comply with the
requirements set by the legislation for legal entities. Although trade union ’s area of
activity is specific and, as a rule, is limited to the interaction with the administration
of the enterprise, it is a full member of civil turnover . First of all, trade unions need to
have property, which they may own directly. The p roperty base of a trade uni on is
the property transferred to it by its founders or other persons. T rade union may own
clubs, libraries, building, separate premises, trans port and other property. Further

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property generally includes membership fees, although the legislation do es not
prohibit other sources. The p rocedure for payment of member ship fees is determined
by the c harter of the sectoral trade union and the f ederation of trade unions of
Kyrgyzstan.
The a mount of membership fees , or exemption from them for non -workers and
pensioners (including those who terminated work due to upbringing of young
children, students and school -children, who are receiving stipend ) is decid ed by the
initial trade union organization. In order to improve relations between the initial trade
union organization and its members, the charter provides for penalties on violators . In
many trade union organizations , members who are three months late pa ying their fees
without a reasonable excuse may l ose their right to protection from the trade union
until their fees are paid. Trade unions also have the right to open accounts in bank ing
institutions.
In order to strengthen the property status of trade union s in some countries,
particularly according to the law on trade union of Poland of 1991, they may carry
out economic activity. Income received from such activity should be directed toward
implementation of charter goals. 83

§ 4. Governance of Trade U ni ons
As set out in regulations of the Federation of Trade U nions of Kyrgyzstan , the
following may are trade union g overning bodies:
 trade union meeting;
 trade union committee;
 department committee;
 revision commission.
The highest body of the trade union or ganization is the general meeting of
members or the conference. A c onference is called not less than once a year. The
conference may be called by the trade u nion committee; one third of the members of
the trade union; the revision commission ; or a higher b ody of the trade union.
Delegates to the conference are elected in a procedure set by the trade union
committee. The selection of delegates must reflect the principle of equal
representation of members by substructures , depending on their number.
The gen eral meeting or conference, as the highest body , has the right to decide
any issue related to the activity of trade union organization. Its exclusive competence
includes:
 selection of members of the trade union committee (or trade union organizer)
and revi sion commission of trade union;
 decisionmaking on entrance and withdrawal from sectoral, regional or other
association s of trade unions;
 determination of priorities ;
83 Kiselev I. Ya., Pravovoe regulirovanie truda v gosudarstvah Vostochnoi Evropy [Legal regulation of labor
in Central European states: Poland and Hungary experience], p. 114 (1999) .

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 determination of the general of the trade union, including in the framework of
organizatio n of associations, sections etc.;
 decisionmaking on conduct of collective negotiations with employers on the
issues of labor and social -economic status of workers;
 hearings of employer (representative) on implementation of conditions of
collective agreemen t;
 decisionmaking on conduct of strike or other actions;
 decision on appeal to corresponding trade union body with proposals on
formation of trade union policy, issues for conduct of colle ctive negotiations at
republic , sectoral and regional levels;
 hearin gs on report s and information from the trade union committee on the
work on social protection of working people;
 hiring and firing of trade union staff;
 approval of trade union budget , hearings of reports made by the trade union
committee and revision comm ission;
 delegation of representatives;
 adoption of acts regulating activity of trade union organizations.
Trade union committees are the basic operational unit of the trade union
movement . A trade union committee (or trade union organizer) is elected by t he
meeting to a term of not more than 5 year s. It has the right to organize the work of
the trade union between meetings , and to execut e the decisions of the trade union
bodies.
Trade union committees may be members of the Federation of Trade U nions in
Ky rgyzstan preserving independence in its activity.
A plenary assembly decides on a cceptance into the m embership of the
Federation of Trade U nions of Kyrgyzstan , based on the written application of the
trade union. A t rade union committee is accepted into the Federation of Trade Unions
of Kyrgyzstan by a majority vote of those present at the meeting.

§ 5. Lega l Status of Trade U nions

Trade union s are regulated by normative and legal acts, as well as by acts
developed during the annual meeting of the Federa tion of Trade U nions of
Kyrgyzstan. The rights of trade unions in the sphere of labor comprise the major part
of their legal status, i.e. , the set of rights and obligations in the areas of public
relations. Along with rights in the sphere of labor , trade u nions have a wide range of
rights in the sphere of other branches of law : the rights of a legal entity, ownership
right, participation in administration of s tate social foundations, in the sphere of
ecology, privatization , etc. Trade unions have quite broa d powers granted by the
Labor Code and a wide range of other legislative acts, including the Law “O n trade
unions. ”
In general , the rights of trade unions may be divided in to several groups:
 representative;
 protective (in the sphere of social relations);

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 controlling (on implementation of labor legislation);
 informational;
 procedural.
These rights of trade unions have one main feature : they are exercised exclusively by
these organizations; therefore they are regulated by a special procedure. The s et of
issue s within the competence of trade unions is determined by law . Trade unions
protect the rights of their members in connection with their labor relations ,
participate in the development of state employment policy, carry out public control
over the employment of citizens and compliance with the legislation of the Kyrgyz
Republic on labor and employment, and propose measures on social p rotection of
persons dismissed by enterprises.
Representative . Trade unions have general as well as specific rights to protect
workers’ rights. In order to achieve certain goals that are set in compliance with
international and national legislation , organizations representing workers’ interests
are created. In the legislation of the Kyrgyz Republic , trade unions are given
represen tative powers (Article 9 of the Law “O n trade unions ”). All trade unions
have the right to represent working people’ s rights. They are empowered to express
opinions and advocate for workers in relations with the state, local bodies,
employers, their a ssoci ations and representatives; to influence the identification of
workers’ interests; and to pursue social justice.
Trade unions place a priority on the search for resolution of difficult situations
with in the framework of a social partnership with the govern ment and employers.
And genuine partnership and consent mean th at proposed claims are rational and
feasible, considering specific conditions and opportunitie s, especially in solving
issues related to problems of employment, social protection, proliferation of
fundamental rights and principles in the sphere of labor, and identification of
economic and financial policy. Trade unions have the exclusive right to enter into
relationships with public authorities, local self -administration bodies and associations
of employers, and employers themselves (through their representatives) as the social
partner in labor and social -economic relations. The most efficient mean s for
protection of workers’ rights is conclusion of collective bargaining agreem ents and
contracts at the republic , sectoral and territorial levels. As of November 1, 2005 ,
7, 043 collective agreements have been concluded, content and quality of these
collective agreement was also improved. Oblast (area) , sectoral, regional and
tripartite commission s and councils on regulation of social -economic and labor issues
have been created and are now function ing .
Protective functions in social relationships . In social relationships , trade
unions possess the right to ensure a range of protections, including: prope r conditions
and labor remuneration, labour protection , safety in production, housing conditions,
social insurance, protection of health and cultural interests of working people, and
ensuring pension . All of these rights are regulated by legislation of th e Kyrgyz
Republic. In the framework of competences defined by charters, territorial and
sectoral associations of trade unions possess the right to participate in the
development of measures on social and economic protection of working people,

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identificatio n of major criteria for the standard of living, levels of compensation
(depending on change of price index ), etc.
Trade unions posses s rights to manage funds intended for the social insurance
of working people and their family members. The Federation of T rade U nions
(pursuant to the r egulation o n the s upervisory council on administration of state
social insurance as of April 5, 2001) is the body exercising particular control over the
use of funds of the Social F oundation of the Kyrgyz Republic . Trade unio ns, within
their competences, carry out functions relating to the social insurance of working
people; they may send workers and the ir family members to sanatorium and spa
treatment , trade union recreation facilitie s, organized medical servic e of trade unio n
members; they control the legality of awarding pension s, carry out direct control over
award and payment of temporary unemployment and maternity leave benefits , etc.
An important power in the area of protection of workers’ rights is permitting
trade uni ons to have control functions in certain area s.
First of all, their control relates to the execution of obligations that have been
undertaken in collective agreements and contracts with public authorities, local self –
administration bodies and employers. T rade unions have the right to control the
procedure for compliance with legislation on labor and employment and to require
elimination of identified violations . The p owers of trade union s are facilitated by the
obligation of employers to consider the propo sals for elimination of violations of the
legislation or to annul the illegal decision and , with in one month , to notify the trade
union body on results of its re consideration and any measures taken (Art. 14 of the
Law “O n trade unions ”). For these purposes , trade unions may create legal and
technical inspections of labor conditions, and these inspections carry the same rights
as state inspection s undertaken according to regulations approved by the Federation
of Trade U nions of Kyrgyzstan. ILO Convention # 8 1, “On inspection on labor in
industry and trade ,” requires that each ILO member is obliged to maintain a system
of labor inspection in industrial enterprises.
The system of labor inspection includes:
 ensuring compliance with legislative provisions conce rning labor and
security conditions ; for example, provisions on working hours , salary, labor
security, health protection and welfare, use of children’s and teenagers’
labor an d on other issues, to the extent a labor inspector is obliged to ensure
applicati on of indicated provisions ;
 providing technical information and advice to entrepreneurs and workers in
order to develop the most efficient mean s of compliance with legislation
and regulations;
 informing the responsible public agency about any inacti on or a buse which
are not covered by existing legislative provisions .
The p rocedure for implementation of collective agreements and contracts is
ensured by the creation of commission on regulation of social -labor relations (Art. 21
of the Law “O n social partne rship in the area of labor relations ”).
Trade unions have a right not to admit dismissal of worker without their
preliminary consent in case of an initiative of employer. Similarly, the consent of a

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trade union body is necessary prior to soliciting worker s to w ork overtime on
weekends and holidays.
Trade unions, as a necessary element of civil society, are eligible to participate
in the administration of state and production affairs on social -labor issues as equal
partners in the three -way system of “trip atrism ” that involves the state, business and
labor . The given right is expressed by:
 introducing proposals to public authorities on adoption, amendments or
annulment of legislative and other acts on labor and social -economic issues;
 nomination of candidat es for election to other representative bodies;
 delegation of representatives to governing bodies of enterprises;
 participation in intergovernmental treaties on migration, employment, labor,
price -setting and social welfare.
In contrast to labor legislatio n of the Soviet period , when trade unions had the right to
participate in drafting laws , they do not have such a right at the present time .
The informational right of trade unions impos es an obligation on employers,
stat e bodies, and local self -administra tion bodies to provide information to trade
unions on issues related to labor relations and social -economic development. This
right should not be hampered and should be free of charge . Trade unions have the
right to access mass media in order to public ize their activity. Dissemination of
information concerning labor legislation rules concerning protection of workers’
right s is one of the responsibilities of trade unions. The other side of this right is the
opportunity to create different centers for conduct of research concerning labor
activity.
Procedural. An important mean s to the protection of workers’ rights is the
opportunity for representat ion by trade unions in courts. This procedural power is
broadly considered to encompass the right of representati on at any stage of the
judicial procedure, which gives the opportunity more efficiently to protect violated
rights of workers (Art. 20 of the L aw of the Kyrgyz Republic “O n trade unions ”).

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Chapter 15. Political P arties

§ 1. History of Political P artie s

Political parties are associations of individuals pursuing active participation in
political life . They are an indispensable dimension of contemporary democratic
society. Their emergence and dev elopment is related to the evolution of civil society
in gene ral, and the particular political system in which they operate. D ifferent studies
have attributed different reasons for the emergence of political parties, among which
are :
 class antagonism,
 the emergence a nd evolution of parliamentary systems of gove rnance and
universal suffrage,
 the necessity to adapt political elites to changing public relations.
In the nineteen twenties in Western Europe , large political parties emerged as a
mean of campaign ing, in order to gain the votes of the new electorate s. In communist
and fascist countries , leading parties monopolized power, trying to re -structure
society and people. In developing countries , nationalistic parties became the mean s to
expel colonial rulers. In all these cases , political parties were able to mob ilize
millions of people into the political process . “Mass parties ” became a mobilizing
force of mass policy in our times.
The t erm “party” is from the Latin root “pars, ” which means party or part of a
whole . This term was used in the Roman Empire for coll ective identification of the
aristocracy and their followers, competing for honors, salar y and promotion,
controlled by the S enate. Since that time and until the 17 th century , this word has
been used along with the word “f action” ( an interest group) .
In 1 850 , none of the countries of the world (except for the USA) knew political
parties , in the contemporary understanding of this word. At the beginning , they were
not parties, but rather groups of parliamentarians, united by regional origin to protect
their own mutual interests . L ater – on a wider basis – groups came together based on
a similarity of political and ideological views on an important range of issues of
national policy. Out of the parliament ary parties were formed other organizations,
such as tr ade unions, religious organizations, unions of industrialists , etc. The
organizational structures of the bourgeoisie in the period of early bourgeois
revolutions are considered the p rototypes of contemporary political parties: religious
and p olitical group ings, for example; Presbyterians and Independents during the
English bourgeois revolution of the 17 th century; early parties, formed on a class –
political basis during the French Revolution – Constitutionalists, girondists, the
Jacobins; federalists and ant i-federalists in the USA after independence at the end of
the 18 th century and beginning of 19 th century. However , during that period , parties
were very weak and did not have a clear political -organizational structure. In many
countries that, at the presen t time , are considered model s of legal regulation and
degree of participation of political parties in public and state life, political parties had
quite a difficult path; they were persecuted as saboteurs of national unity and

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sovereignty. By 1950 , parties functioned in the majority of developed nations, and
other countries tried to imitate them.

§ 2. Notion and Features of Political P arties

There is a variety of definitions of parties (according to some data , more than
200) which is explained by the com plexity of this phenomenon and the diversity of
goals of the study. An o verview of contemporary achievem ents in the area of
comparative or cross -national analysis of political parties leads to different
definitions of parties, which include the following f eatures :84
 an ability to win during elections (Schlesinger);
 an aspiration to control the state apparatus by acquiring elected positions
during a properly organized elections (A. Downs);
 an aspiration to seize p ower or to participate in its diminution with the support
of the general population (Duverger);
 the presence of an official name and ability of candidates to occupy state
positions by p articipation in elections (free or unfree) (Sartori);
 the presence of the goal to occupy representative positions in government by
those who are openly associated with the party or with its symbol s (K. Janda).
For example, a party may be defined through the prism of its formation, “which
recruit s and socialize s new members, elect s leaders through an internal process of
representation and elections, permit s internal disputes and decides on policy in
relation to the external world .”85 As such, a party is a special mechanism for
development of a particular social wo rld -view of an individual.
Parties are different from any o ther organizations :86
 by their major goal, directed to ward obtaining power by participation in elections ,
and by obtaining as many state positions as possible;
 in that the political goals of a party and its right to “fight ” for power is legal ;
 by their mi ssion – to accumulate political interests of citizens and resources for
the achievement of political goals;
 by proposal s for alternative s to the official political and economic pr ograms on
community development and identification of daily issues on the po litical agenda;
 by a special , public -oriented strategy for receiving the support of as many voters
as possible;
 by their competitive attitude to ward other parties, including the party in the
power;
 by their openness to followers and voters, as the progr ams and goals o f the party
are openly declared and they strive to inform all about their activity;
84 Djanda K., Sravnenie politiche skih partii: issledovanie i teoria // Sovremennaya sravnitelnaya politologia:
khrestomatia [Comparison of political parties: research and theory// Contemporary comparative politics: resource
book], pp. 90 -92, Moscow (1997). 85 Merkl P.H. Modern Comparative Politics. – N.Y.: Oxford University Press, 1970. P . 265 – 266 86 Ibragimov T. R., Ponyatie i opredelenie politicheskih partii // Nekotorie voprosy prava [Notion and
definition of political parties // Some legal issues], pp. 24 – 37, Bishkek (2000) .

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 by the presence of a popular label in the name of the group , for example, “liberal
party ,” “communists ,” etc.;
 by the existence of individual membership, a hierarchy, an organize d internal
structure that interacts consciously and openly for the achievement of the party’s
goals.
Sometimes , a political party may be created by a clan, regional, tribal or even
family group , such that the social , ideological and financial basis of such
organization has clan, region of residence, kinship links or a similar foundation .
However, the nature of parties is that , in order to win in elections and survive , they
have to expand beyond their initial , narrow group, broadening the number of t heir
supporters and conducting de liberative and responsible policy discussions that are
open to many members of society.
Legally , p arties may be in government or out of it. Parties are a mechanism of
representative democracy that assumes p articipation of the party in legitimate
elections. Therefore , where parties are formally prohibited , no one may compete
openly with the official government nor propose to voters alternative pro grams of
society development. The groups that do this may be c alled “junta s” or “political
clique s.” The se regime s are not considered democratic.
By e lecting their representatives, different groups of people determine who
will come to power , reflect their views and protect their interests in decisionmaking
on state affairs. At the same time , electing a party (or a candidate from a party),
voters show a preference for a part icular party program and determine the future
course of development and policy of the state. Therefore, if voters do not choose one
of the compet ing party programs and candidates, it is impossible to have real parties.
And when people choose independent candidates, people do not know and may not
foresee how elected representative will shape policy in the future. In contrast to
individual representa tives, parties tend to follow a declared party program and are
bound by party discipline; they are subject to greater control by voters and their
political actions are more predictable.
Parties play an important role in ensuring the efficiency of the stat e as a whole.
The e fficiency of the state depends on cooperation of its different branches of power
(legislative and executive) and on who (which specific personalities) and how they
come to power. Parties allow the parliament to create a majority for deci sionmaking,
and to ensure its work is coordinated. In this way, political parties and electoral laws,
through which politicians come to power, impact and in the future determine
behavior of elected politicians, thus add a degree of efficiency to the functi oning of
the state.
Therefore, parties ensure vertical and horizontal integration of the society and
the state, as well as a link between their main components. Vertical integration means
that parties through their national and regional structures and thr ough their members
in state bodies ensure a link between nation -wide bodies and electorate in places;
they develop, propose and implement their national political programs, which
correspond to the aspirations and needs of ordinary citizens. Horizontal inte gration is
ensured by the possibility for the parties to set clear positions for negotiations in the

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parli ament , the formation of f actions in the parliament, as well as in ensuring a link
between the legislative and executive branches of power through supp orting or not
supporting the president and/or prime minister ’s majority in the parliament. Parties
reflect the existence in society of secessions and conflicts, but , at the same time ,
serve as channels and means to solve them . Parties create predictability and thus
stability of the policy conducted by the legislative body.
Parties are political orga nizations that reach their goals by legitimate means, as
reflected in the legislation of the country. In Kyrgyzstan , the right to create and
operate parties as political organizations is regulated by a range of normative legal
acts, including the Constitution and the Law of the Kyrgyz Republic “On political
parties” as of June 12, 1999 , # 50.
The Law “O n political parties ” defines “party” as a “ voluntary associa tion of
citizens of the Kyrgyz Republic who have common political goals and tasks, which
party facilitates the realization of the political will of a particular part of the
population, and which participate s through its representatives in the governance of
state affairs” (Art. 1) . Thus, an indispensable goal of the creation and activity of
political parties is “ the realization of political will of a particular part of the
population” and “participation in the governance of state affairs” (Art. 3).

§ 3. Co nstitutional and Legal Regulation of I nteraction s between the State
and P ol itical P arties

Interaction between the state and society, as well as between its institution s,
including its political parties, is impossible without state -legal regulation. In
Kyr gyzstan , the principle of political pluralism was articulated in the declaration on
state sovereignty. And the freedom of foundation and activity of parties, public
associations and mass movements was codified in the Law “On public associations”
as of Febr uary 1, 1991.
The Constitution exhaustively identified all possible forms of participation of
political parties in state affairs, clearly defining general legal frameworks for the
existence a nd functioning of this institution . Article 8 of the Constitutio n confirmed
that “political parties may be created in the Kyrgyz Republic ,” along with other
public associations based on free expressi on and commonality of interests.
“[P] olitical parties may participate in state affairs only in the following forms:
 nomi nation of candidates for election in the Parli ament (“Jogorku Kenesh”) to
state positions and local self -administration bodies;
 formation of factions in representative bodies .”
Thus the right of parties to use the mechanism of representative government ,
including nomination of candidates and appeal to voters for the support of their
candidates and programs, as part of their strategy, is explicitly set out in the
Constitution of the Kyrgyz Republic. Parties should also play a significant role in the

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highes t legisl ative body of the country, as voter s, having voted for a particular party,
thus confirm its party program as well.
The Constitution sets a range of limitations that, on the one hand, prevent a
return to a totalitarian past, when there was a monopo ly by the Communist party of
Soviet Union (CPSU), and, on the other hand, protect from the po ssible strengthening
of religious impact on policy in our country. Thus , in the Kyrgyz R epublic , the
following are not permitted (Part 4 of the Article 8):
 mer ger of state and party institution s;
 activity of party bodies in state institutions and organizations. State officials
have the right to carry out party activity not related to their official activity;
 membership in parties and speeches in support of particu lar political party by
military personnel, employees of the Ministry of Internal Affairs, National
Security bodies, Ministry of Justice, public procurator’s office and courts;
 creation of pol itical parties on a religious basis .
As parties deal with politi cs and may compete with government official s in
elections, the approach of the legislator to the regulation of interactions between
parties and the state is very important. According to the Law “O n political parties, ”
the state must guarantee compliance of rights and legitimate interests of political
parties and provide equal legal conditions for achievement of their goals. Intervention
of state bodies and officials into the activity of political parties is permitted only in
cases provided by the law. But i nteractions of the state and party are not equal in
terms of their level of responsibility.
The Ministry of Justice is empowered by the legislator with broad powers in
relation to political parties. It has the right s:
 to demand from ruling bodies of the p arty explanations on is sues related to
violation s of its charter (Art. 12);
 in case the party carries out “actions beyond the limits of charter goals and
tasks or not corresponding to current legislation ,” to send to the ruling body of
the party a written warning. And the party ’s ruling body must with in a month
report on measures taken for elimination of the violations (Art. 13);
 to postpone for a period of two months activities of the part y that exceed the
goals and tasks set by its charter or violate the law. In this case , the party is
prohibited from using mass media to communicate or to organize any mass
events or participate in elections. Also , with some exceptions , the party’s right
to use bank deposits is suspended. If , in the period of suspension , th e party
eliminates the violations, then its activity may be resumed (Art. 14);
 to appeal to the court on dissolution of the party (Art. 15).

§ 4. Procedure for Foundation and T ermination of Political P arties

The foundation and activity of political part ies are set out in the Law “O n
political parties, ” adopted in June of 1999 ( referred to in this chapter as the “Law”).
In this Law , “party ” is defined, its goals, principles, procedure for foundation and

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activity are determined, a list of prohibitions for parties are set, interaction s with the
state are regulated , the liability of political parties for violation of the legislation are
set , and the basis for their financial and material status are determined.
The law sets out the m ajor principles of the fou ndation and activity of political
parties : freedom of action ; voluntary participation; equality of members; self –
administration; legality; publicity and humanism (Art. 4).
In order to establish a political party , an initial meeting of 10 citizens of the
Ky rgyz Republic is required, either by a founding meeting (conference) or general
meeting, at which charter is adopted and governing bodies are formed (Art. 5). The
political party must take a name and symbol that differentiate it from other parties
register ed in Kyrgyzstan. The governing bodies of the party must be located on the
territory of Kyrgyzstan (Art. 11). The p arty must register , particularly with a view to
the Law “On state registration of leg al entities and branches (representative offices)”
as of February 20, 2009 , # 57.
The c harter of the party must reflect the name of the party and its locations; the
party structure, the procedure for formation, competence and terms of powers of its
governing bodies, the intervals for calling conferences and me etings (which usually
are the highest bodies of the party); the conditions and procedure for membership in
the party and withdrawal from it; the rights and obligations of party members; the
procedure for decisionmaking and implementation of decisions ; the sources of funds
and other property of the party; the procedure for amendments to the charter of the
party; the procedure for termination of the party and divestiture of its property. The
charter may contain other provisions that relate to the activity of the party and do not
contradict the law (Art.8).
The law grants freedom to parties in determination of its membership : either to
have fixed membership or unfixed membership . Party members must be citizens with
full legal capacity of 18 years of age . The o nly requirement of the Law in relat ion to
membership of any party is voluntary participation and acceptance of the party
charter and program (Art. 6).
With this requirement, the legislatu re one more time emphasizes the
importance of the party as an organi zation that is striving for power, in which its
members follow its charter and program, and which must be open to the public,
including voters. A state official may be a member of the party; however, his or her
membership must “not [be] in relation to his or her service activity” (Art. 6).
In order to carry out its goa l, according to the Law, a party ha s the right: freely
to disseminate information about is goals and activity, to establish mass media, to
conduct in established procedure rallies, demonstrati ons, meeting and other mass
events; to unite into political blocs, unions and associations; to participate in
elections of all elected bodies of the state by nomination of its candidates, including
president; to conduct pre -election activities and impact d ecisions of state bodies (Art.
11).
The legislatu re provides an exhaustive list of rights and obligations of political
parties, having stipulated that they have the right “to carry out other functions,
provided by the present Law and other legislative act s of the Kyrgyz Republic .”

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Thus , the law prescribes that all functions of the party must be exhaustively defined
by legislative acts, and parties may not carry out any activity that is not specifically
permitted by the law. As parties are close to the stat e and frequently their members
are represented in state bodies, their activity, certainly, should be addressed in the
law . On the other hand, parties are public associations, i.e. associations of citizens
based on common interests in order to meet spiritua l and other nonmaterial needs.
For this reason, the state may not anticipate all forms of activity of political parties,
having set basic limitations and having permitted a rivalry of political organizations
to form a political market place .
By decision o f its meeting or conference , a party may be reorganized (by
merger, accession or splitting of f) or liquidated. A p arty may be also dissolved by
decision of a court in the case of undertaking certain prohibited actions that are set
out in Part 2 of Article 3 of the Law “O n political parties. ”
Certain activities are prohibited outright: The foundation an d activity of
political parties that have the goal and method of actions to overthrow or forcib ly
change the Constitutional system; to undermine sovereignty or violate the territorial
integrity of the Kyrgyz Republic; to propag ate war, violence and brutality; to foment
social, racial, national or religious strife; or to take other actions that contradict the
Constitutional system of the Kyrgyz Republic and do n ot correspond to universal
norms of international law are not admitted (Art. 3). Parties are also prohibited from
own ing or keep ing arm s, explosives or other materials that pose a threat to the
security of the society and ecology, as well as the life and h ealth of citizens (Art. 18).
A ppeal s of a decision to dissolve a political party are issued by the Ministry of
Justice of the Kyrgyz Republic. In case of dissolution of a political party by decision
of its meeting (conference), the material and financial funds of the party may only be
used for the goals provided by its charter. And if the party is dissolved by a decision
of the court, then its property is transferred free of charge for the benefit of the state ,
after payment of labor contracts, reparation of any damages caused by the party and
payment of fines.

§ 5. Financing of Political P arties

Financing of political parties in the Kyrgyz Republic is regulated by the Law
“O n political parties, ” as well as by the Civil Code, Tax Code, Code on elections and
other normative acts.
In contrast to some countries, in Kyrgyzstan , there is no state financing of
political parties, except for election campaigns, which may be provided by electoral
legislation. As parties by their nature compete for power within th e limits of the law,
the Law “O n political parties, ” the Civil Code and the Code on elections directly
prohibit financing of election campaigns of the parties by foreign states, foreign
parties, as well as by any foreign legal entities or individuals .
Acc ording to the Law, parties may be funded by 1) membership fees, 2)
voluntary donations, 3) loans, 4) income from the property, activities, dissemination
of press publicat ions, as well as other revenues that are not prohibited by law. At the

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same time , part ies may own movable and immovable property, equipment, inventory,
publishing house s, printing house s, as well as other prop erty necessary for carrying
out charter goals. Parties have the right to rent buildings and property and to receive
loan s.
According to a procedure established by the legislation , p arties may create
enterprises and organizations with the rights o f legal entities , but only for car rying
out charter goals. Income from the activity of these e nterprises and organizations
may not be distribu ted among members of the party and may only be used for
achievement of charter goals. Party members hav e no right over income and property
of these enterprises and organizations, and are not liabl e for their debts. Party income
may be used for charitable g oals and for acts of charity irrespective of the
requirements of the charter.
Parties must prepare financial report s, just as other legal entities , in compliance
with the legislation of the Kyrgyz Republic. There are no tax benefits for political
parties. Review of the sources of income , donated funds and payment of taxes is
carried out by tax authorities.
During elections , the financing of election campaigns is not carried out through
parties, but through individual election foundations , which are create d by citizens
who have been nominated as candidates. It is related to the existence of single
member constituencies , where majority of candidates are nominated independently
from parties. These foundations may be created at the expense of the following
fun ds:
 personal funds of the candidate;
 funds allocated to the candidate by his or her nominating political party or
electoral bloc ;87
 voluntary donations of citizens and domestic legal entities.
Financing from foreign and international sources, stat e agenci es , institutions
and organizations, court and local administrati ve agencies ; military structures;
charitable organization s; religious organizations; as well as from anonymous
donations is not permitted .
The Code on elections sets maximum limits on the amou nts of all types of
financing allocated to electoral foundations of the candidates, as well as maximum
amounts on spending of funds of electoral foundations. Funds received above and
beyond the set amount may not be inclu ded in electoral foundation.

87 Elector al bloc – a voluntary association of political parties for joint participation in elections to unite efforts
and their electorate .

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Chap ter 16. Religious O rganizations
§ 1. Notion of R eligious O rganizations ; their Emergence and R ole

Religious communities and churches representing at the present time the
biggest world religions as Christianity, Islam, Buddhism, and those less widespread
such as Judaism, Shinto , etc. during last centuries of history have had a significant
impact on political processes, on the formation of political and legal culture,
functioning of the state, status of human being s in society and the state. Their
significan t impact is continuing in different countries through the present time , in the
XXI st century.
The e mergence and evolution of religion and religious associations has its
roots in the millennial history. The first unit of a religio us institut ion is a religi ous
group. It appears and functions based on collective performances of religious rites,
through which particular religious perceptions of this group are formed . Initially ,
cultic and ritual actions were not an independent type of activity of one person or
group of people. Historians think that , at the beginning , a group of participants of
cultic actions coincided with group of participants of labor and other social actions.
As a result , religious group s and tribe s formed a community. The d ifferentiation of
functions in administering religious rites was done only by age -related or sexual
character.
In the process of development of public life and social -hierarchical structures,
certain people gradually emerge who are special or possess other character istics , and
who start to play a leading role in performance of cultic and religious rites : shamans
or magicians. Gradually , these people begin to form a special social section of people
who was form part of a tribal elite. However, frequently , the head of clans, tribes, or
communities who are distinguished from others by their leading role in society
played a leading role in the religious life of the community as well. In Ancient
Greece, for example, the military leader was at the same time the High Priest.
Alon g with the process of emergence of the societ al elite, the public structure
significantly became complex. The need for significant regulation of behavior and
thoughts of people emerged. Such regulation was carried out in the interests of the
ruling group o f people , and serv ed as evidence of their non -ordinary, supernatural
origin. At this stage , it is possible to talk about the emergence of relatively
independent group s of people who carried out a role in connection with the
performance of cultic rites. In different parts of the world , this process occurred in
different time frames and forms. In one countr y, a priestly social estate is formed
based on separating a group of people from aristocracy and transfer of their
knowledge and social status by in heritan ce. In other countries , there are quite closed
castes that played a significant role in public life, as for example, Brahmans in India.
Priests at this stage started to play a role in the development of the state -legal
system on regulation of societ al lif e. It is explained by that priests were the most
educated people of their time ; in addition, the state -legal system was the most

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important part of the cultic system. The i mpact on the minds and behavior of people
resulted from the blending of religious, mo ral and state -legal impact s.
The f urther development of public relations leads to complication s of religious
consciousness and cultic actions, which , in its turn, makes necessary the gradual
institutionalization of religious relations. In the historical ar ena , religious
organizations (associations) beg an to emerge. As a consequence , the all -embracing,
systemic qualities of religion began to strengthen . Priests led religious groups,
involving major mass es of believers , and controlled activity on formation,
interpretation and orientation of religious consciousness and the behavior of people.
Today world religions are not characteristic as between different countries and
nations, because within these religions , there are different movements and sects. A
majorit y of countries of the world is polyconfessional, i.e. their population professes
different beliefs. For example, in the USA, a majority of the population is Christian
(88%), composed of Protestants (57%) and Catholics (28%). In Germany ,
Protestantism is em braced in two forms , Lutheranism and reformism (47 .3%), as well
as Catholicism (44 .4%). In multinational, polyconfessional countries , religious
problems frequently coincide with national, racial, and ethnic issues .
Churches and mosques are first of all de positories of moral , cultural and
historical traditions of the nation. Religious organizations have an ideological impact
on their members by encouraging a particular system of values and goals. These
organizations are formed to meet the religious needs of the citizens on beliefs and
dissemination of faith. This goal is achieved through the performance of a range of
important functions that are carried out by all religious organizations:
 development of systemized religious doctrine;
 development of protectio n system;
 guidance on performance of cultic activity;
 control, and if necessary, sanctions on nonperformance or incorrect
performance of religious norms;
 development of norms and links with the state and secular organizations.
Developed religious organizat ions are a complex social institut ion . The
internal structure of such organizations is divided into ruling and ruled sub -systems.
The first , the ruling system , includes a group of people who develop and process
religious information, coordinate religious a ctivity, control behavior of followers, and
develop and appl y sanctions. The second one , the ruled sub -system , includes a mass
of believers. The i nteraction between these sub -systems is carried out through
normatively designed, hierarchically stable relati ons, which ensure the manageability
of religious activity as a whole. Relations between two subsystems are ensured based
on organizational and institutional norms. These norms may be in charters or
regulations of religious organizations.

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§ 2. Interaction of Religious O rganizations and the State

After the collapse of the Soviet Union and adoption of its own Constitution ,
the Kyrgyz Republic declared itself a secular state. Article 1 of the Constitution says:
“The Kyrgyz Republic (Kyrgyzstan) : a sovereign, unitary, democratic republic, built
on the principles of a legal, social and secular state .” Secular statehood assumes the
absence of official, state religion and the refusal to prefer any religion. In a secular
state , religion and its dogmas, as well as the religious organizations (associations)
professing them, have no right to impact the activity of state bodies and their
officials. State formation and other spheres of state activity may not be under the
influence of any religious doctrine. Secularity is the important theoretical and
methodological category, creating the particular orientation of state policy on the
religious issue.
In the contemporary world , the dominant majority of states are secular.
However, there are countries in which one religion is officially accepted, whether it
is called state, dominant or national religion . For example, in England , Anglican is
such a religion, and in Israel , Judai sm, etc. There are states in which the equality of
all religions is declared (Israel, Germany, and Japan, for example). However, even in
such countries , the most traditional religions enjoy privileges and render particular
impact on the state life. Sometimes , the state provides financial assistance to religious
organizations.
Countries in which state p ower belongs to a religious association or church are
called theocratic . The V atican until today is considered such a state. One more type
of state, differentiated in relation to religion, is the clerical state. Such a state is not
related to a church ; how ever, through institutions and legislative acts , a church is
render ed significant, and may have an impact on state policy. Education in such state
has an intentional religious character . An example of such a state may be Iran.
The i mpact of religious orga nizations on political life depends, first of all, on
the level of democra tic development in the country, which in its turn, in many aspects
is determined by the degree of social and economic development. Usually , state
character is given to religion and c hurch by Constitutions of countries with
authoritarian and totalitarian regimes. Islam, for example, is accepted as the state
religion in more than 30 states (Jordan, United Arab Emirates, Qatar, Morocco). In
some Muslim countries (Algeria, Iraq) , a declar ation of Islam as the state religion
means only that the state respects the beliefs held by a majority of the population and ,
in general , declares its commitment to particular Islam ic traditions, which are the
cultural heritage of the nation. In other coun tries (Saudi Arabia, Iran, and Pakistan) ,
Muslim law , Sharia , has more legal force than law and even the c onstitution. There is
a difference of state -legal concept of Sunni and Shiite interpretation of Islam.
In the Kyrgyz Republic , there is a clear diff erentiation between:
I. religion and the state;
II. religion and political activity;

143

III. religion and education .
I. The Constitution (Part 2 of Article 7) provides that : “religion and all cults
are separate from the state .” The c ontent of this norm is art iculated by provisions of
the Law “On freedom of religion and religious organizations” as of December 31 ,
2008 (referred to in this Chapter as “Law”). The Law indicates: “The state does no t
interfere in the activity of religious organizations, if they do n ot contradict the law ;
setting any privileges or limitations to one religion or religious faith is not permitted ;
the activity of religious organization s and activity on dissemination of information
about atheism is not [state -]financed .” In other words , the state occupies a neutral
position in relation to religious faith, as well as to lack of faith , and these issues must
be decided by individuals themselves. The a ctivity of religious organizations, carried
out in the framework of national legislation, is guaranteed by the state.
An agency on re ligious affairs, the State Agency on Religious Affairs, was
formed by order of the Government of the Kyrgyz Republic State in order to conduct
state policy in the religious sphere. This agency deals with the develop ment and
realization of state policy in the religious area, ensuring legal guarantees of freedom
of religion and development of measures on non -admission of religious extremism on
the territory of the republic. The State A gency on Religious A ffairs:
 regis ters religious organizations, objects of religious purposes (mosques,
churches, praying houses), missions of foreign religious organizations and
religious education al institutions in the republic;
 controls the compliance of religious organizations with the legislation of
the Kyrgyz Republic;
 decide s on suspension of activity of religious organizations, foreign
missionaries and religious education al institutions , in compliance with the
legislation;
 organizes and coordinates the work of the interagency counci l on religious
affairs;
 oversees withdrawal of propaganda on religious superiority, fomenting of
religious strife and religious conflicts.
The i nteragency council on religious affairs is a consultative body on the
development and realization of state polic y in the religious sphere , which also
coordinates the efforts of state bodies and religious organizations directed at the
preservation of stability in society, strengthening spirituality and faith and the
harmonization of inter -confessional relations.
II. In many countries , the church is not limited to interaction s with the state,
but also strives to integrate other elements of the political system as well. For
example, in several countries , an important role is played by Christian D emocratic
parties, comb ining in their political platforms the principles of democracy with the
main beliefs of Christianity (Germany, Italy, Poland, Hungary , etc.). The c hurch
frequently strives to provide active assistance to other public associations as well.

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According to pro visions of the Constitution (Part 3 of Article 4) and the Law
“On freedom of religion and religious organizations” (Part 1 of Article 5) , in the
Kyrgyz Republic:
 it is prohibited to create political parties, branches or units on a religious
basis;
 religio us organizations have no right to pursue political goals and tasks;
 the intervention of priests of religious organizations and cults in the activity
of state bodies is prohibited.
Religious organizations have no right to nominate candidates to elective
off ices, to participate in electoral campaigns through financing, pre -election activities
or other support of particular candidates or parties. Religious organizations have no
right to participate in the activity of political parties.
Religious organizations are not prohibited from participat ing in public and
political life. The abovementioned law says the following: “Religious organizations
have the right to participate in public life, as well as to use , equally with public
associations , mass media , in compl iance with the legislation of Kyrgyzstan on public
associations” (Part 6 of Article 5). Moreover, representatives of the priesthood , as
other citizens , have the right to participate in the public and political life of the
country on general grounds or even to be elected to elective office, but not as
representatives of religious organizations.
In order to provide protection from possible imposition of religion and from
religious extremism, the Constitution (Article 4) also prohibits the formation and
activ ity of religious organizations that damag e the Constitutional system, state and
nationwide security, activity of foreign organizations, their representative offices and
branches pursuing political goals.
III. Part I and 2 of Article 6 of the Law says tha t the “State system of education
in Kyrgyzstan is separate from religious organizations. Access to different types and
levels of education is granted to citizens irrespective of their attitude to the religion .”
Thus , the state guarantees an absence of reli gious impact in state schools, but at the
same time , it does not impose a secular education on private schools.

§ 3. Religious O rganizations and Freedom of C onscience
Active formation and development of civil society, efforts to build a law -based
state, democratic institutes : these are characteristic features of the contemporary
stage of development of Kyrgyzstan. In these conditions , relations between society
and the state, between people, development of political and the world -view of
pluralism, includi ng religious pluralism , have an extremely important meaning.
Society in Kyrgyzstan is composed of groups differentiated by ethnic,
language, property, cultural and religious features. More than 80 percent of the
population traditionally identifies itself a s Islam, while 17 percent selects Eastern

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Orthodoxy .88 D ifferences in faiths and treatment of people of religions do not carry a
confrontational character, as in society there is tolerance on this issue. At the same
time , in the public life of the country, especially the last years , there are alarming
moments when some religious organizations try to preach their extremist view s on
the public -state setup of the country and how it might change.
Some problems also occur between religious organizations and nonb elievers,
when “bellicose atheism ,” which was prevalent during the time of the USSR, was
replaced by “bellicose clericalism ,” which trie d to impose particular religious rites
and norms of behavior. Such processes, burdened with the problems of economic
de velopment, low living standards of the population and regional and clan division ,
may negatively impact the democratic development of society and the state. The
sovereignty and competence of the state also may be infringed by religious
associations and the ir leaders.
Civilized decisionmaking on emerging problems in this area is possible only in
the framework of law. The bas is for conflict resolution is the principle of freedom of
conscience, codified in the Constitution of the Kyrgyz Republic. The Constit ution
(Article 32 ) states that: “Everybody is guaranteed the freedom of conscience,
religion, religious or atheistic activity. Everybody has the right to freely confess any
religion or not to confess any, to choose, and to disseminate religious or atheisti c
beliefs .” The p rinciple of freedom of conscience means that each person has a n
independent right to determine and choose his or her beliefs and to act in compliance
with them without damaging other members of the society.
The Constitutional norms on the secular character of the state and freedom of
conscience are guaranteed by the Law “On freedom of religion and religious
organizations .” In the Law (Art. 1) , individuals of the Kyrgyz Republic are
guaranteed the right to determine and express their treatm ent of religions, freely to
observe their religion and to perform religious rite s are guaranteed .
Every citizen has a right freely and independently to determine his or her
observance of religion. Parents have the right to educate their children in compli ance
with their own beliefs (Art. 4 of the Law). In the Law , a principle of equality of
citizens, irrespective to their treatments of religions (Articles 4, 5, 6) , is declared.
Any direct or indirect limitation of rights or privileges of individuals , depen ding on
their treatment of religions, is subject to liability as set out in the law. In the law , the
secular character of the state is clearly formulated : the state system of education is
separated from religious organizations, and access to different leve ls and types of
education is granted to citizens irrespective to their religio us beliefs . In compliance
with their choice , individuals may receive religious education as well.
88 See Order of the Government of the Kyrgyz Republic as of April 5, 2001 # 155 .

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§ 4. Procedure for Foundation and Termination of R eligious
O rganizations and their Legal S tatus
According to the Law “On freedom of religion and religious organizations ,”
religious organizations in the Kyrgyz Republic are Islamic, Christian and other
religious communities, departments and centers and religious educational institut ions.
Religious organizations are formed to meet the religious needs of citizens and
dissemination of faith , and , in compliance with their chosen structure, to choose,
appoint and replace their personnel according to their charters (regulations) (Art. 7).
Charters (regulations) or other documents determining religious side of the activity,
solving internal issues of religious organization , are not subject to registration in state
bodies. The state notes and respects the internal nature of religious organiza tions, if
they are submitted to corresponding state bodies and do not contradict the existing
legislation (Art.8).
In order to obtain legal entity status , a religious organization or group of
founding citizens (not less than 200 persons) must submit an ap plication , with the
charter and other necessary documents, to the Ministry of Justice. The Ministry of
Justice must decide on the application within a month. As of 2001 in Kyrgyzstan ,
there are 1338 mosques (885 are registered), 260 Christian organizations (248
registered), including 208 praying houses and 40 temples and parishes. In the
Republic , there are 39 religious educational institutions, including 26 mosques, 5
Islamic institutes, 7 Christian educational institutions and 1 Jewish school .89
A r eligiou s organization charter must contain the following data:
 determination , type, location and area of religious organization’s activity,
its religious affiliation ;
 procedure for formation, structure and administration;
 property status, sources of funds and pro perty relations inside the
organization and with interacting organizations;
 rights to establish enterprises and mass media, to create education al
institutions;
 procedure for liquidation of the given organization and its bodies;
 other provisions related to specifics of the given organization’s activity.
Religious organizations , as legal entities, enjoy rights and carry responsibility
consistent the civil legislation of the Kyrgyz Republic and with their charters.
A r egistering body may refuse the registrati on of a religious organization as a
legal entity only if the charter fails to comply with applicable law . Refusal to regist er
or other actions may be appealed in court according to the procedure established by
law.
89 See Id.

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Termination of the activity of a religio us organization may occur in the
following cases: 1) in compliance with the organization’s own decision; 2) because
of a violation of provisions of legislative acts of the Kyrgyz Republic. The State
Agency on Religious Affairs has the right:
 to suspend the activity of organizations dealing with dissemination of
religious extremism and terrorism, aggressive religious groups, damaging
or threatening health, morality, rights and legitimate interests of citizens,
bases of Constitutional system, the country’s de fense and security;
 to appeal to a court regarding possible prohibition of activit ies of religious
organizations that have violat ed the law .
The a ctivity of a religious organization as a legal entity is terminated by
reorganization or liquidation. In case of termination of the activity of a religious
organization , the disposal of its property is carried out in compliance with its charter
and applicable law .
The law regulates the property status of religious organizations. Religious
organizations may own p roperty necessary for its activity, such as b uildings,
construction, cultural buildings , industrial, social and charitable buildings , monetary
funds and other property (Part 1 of Article 15 ). O wnership right s may extend also to
property located abroad. Fin ancial and property donations to religio us organizations
are not taxed . At the same time , profit from the business activity of enterprises of
religious organizations is taxed. Religious organizations , as other participants of
civil -legal relations , have th e right to use for their needs property and buildings
granted to them on a contract bas is by the state, public organizations or citizens.
The law guarantees citizens and religious organizations the right to perform
religious rites and ceremonies. They may establish and maintain freely a place for
worship or religious meetings, as well as places h eld sacred by particular religion s
(such as pilgrimage s) (Part 1 of Art. 21 ).
Religious organizations , equally with other NCOs , have the right to hire
employees . L abor conditions are set in an agreement between the religious
organization and the employee, and indicated in a labor contract concluded in
writ ing. A r eligious organization is obliged to register its labor contract s, including
for officiating priests. For those working on the basis of a labor contract in a religious
organization, the legislation on labor, social insurance and social welfare of citizens
(Ar t. 24, 25 ) are all applicable.
The a bovementioned norms and principles o f regulation of religion and the
activity of religious organizations help ensure a democratic bas is for development of
public life in Kyrgyzstan as a whole. The s ecular character of the Kyrgyz Republic
has a crucial meaning for establishing pluralism and freedom of conscience in the
country. Only by separation of religious organizations from the state it is possible to
achieve the practical equality of all religions, religious organizations and their
followers, as well as to ensure pluralism of opinion and ideolog y in the society.

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Lega l regulation of N on -M embership NCOs
Chapter 17. Foundations

§ 1. Introduction

Many people have different understand ings of the notion of a “foundation .”
For many , a foundation is associate d with money ; for others , state institutions
(pension, social prot ection), and , for lawyers , it is, first of all, the organizational and
legal form of an NCO established in the Civil Code. Th is chapter is dedicated
exclusively to foundations , as the organizational and legal form of an NCO in
Kyrgyzstan.
Unfortunately , th e study of the legislation of Kyrgyzstan relating to
foundations does not give a clear picture of non -membership NCOs, what they are
needed for and how they should be regulated. In the former USSR , such
organizations did not exist, and the post -Soviet expe rience is still too early and
controversial to understand the problems with the policy and practical regulation of
foundations. International practice shows that the number of foundations in countries
with a developed economy is usually 50 -100 times less t han the number of
associations (unions). For a better understanding of the legal status and regulation of
foundations , it is necessary to refer to international experience, as foundations have
exist ed for more than 500 years.

§ 2. Foundations in Internat ional P ractice
Foundations are non -membership organizations that are associations of
property ( universitas rerum ), in contrast to public associations and associations of
legal entities , which are based on membership and are associations of persons
(univers itas personarum ). Traditionally , foundations require d the presence of
particular property intended for a specific goal. In some countries , foundations may
serve private goals, but in a majority of countries (including in Kyrgyzstan) ,
foundations may only b e created for achievement of public benefit goals. As with a
majority of other NCOs , foundations are limited “on distribution ,” i.e. , they are
prohibited from distribut ing or transfer ing profit or net income to any persons.

What are foundations needed fo r, and what role do they play in society?
In a majority of democratic countries of the world , foundations play an
important role in financing thousands and thousands of civil society organizations –
public associations and unions — as well as financ ing di fferent, important social
problems and research implemented by noncommercial , non -state organizations.
One of the most important tasks of foundations is ensuring charitable activity.
Without such institut ions that can accumulate significant financial reso urces intended
for the support of activity of civil society organization s, it is unlikely that there will
be expanded development of charity in the country.

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Why do foundations assist with solv ing the problem of financing public
organizations and how do th ey differ from membership organizations, for example,
public associations?
One idea behind the creation of foundation s is quite simple and clear : A person
or group of people who are interested in solving what is , in their view, an important
problem, are r eady to give money or other liquid property for solving this problem.
Prior to doing so, i t is necessary to know who deals with such problem s, what sums
are required, how the use of these sums needs to be controlled , etc. In order to
address these needs, an administrative staff may be needed, which requires additional
expense . Moreover , the situation may change and the donor or group of donors may
for example, lose the ability to financ e program, having just begun the initiative. So
in order to minimize th e impact of such unfavorable circumstances , the foundation
was invented.
A foundation is financed from property transferred to it by founders during its
creation . The organization under takes an obligation to use this property for the
achievement of goals determined by founders. In order to avoid spending funds
inefficiently or too quick ly , an independent governing body is created . The
organization itself receives the right to invest in the equity market s and undertake
other investment activity to earn prof it, which may then be used toward the goals of
the foundation and for management costs , as well as for increasing its assets.
A special goal of the legislation on foundation s is to ensure that when a person
donates funds for charity, his or her funds are spent for goals determined by him but
without having to play a role in management and control over the use of funds. The
legislation on registration of foundations, powers of state bodies and members of the
foundation management body is, first of all, dire cted to this end . If this mechanism is
ensured , then a foundation may operate for a quite long time . I f the management is
good , the foundation’s assets may become significant, allow ing it to increase its
financing of civil society organizations and differe nt social projects. Such powerful
foundations as the Nobel Foundation, Mott Foundation, Ford Foundation and many
other s have been operated this way. On the other hand, there are small , local
foundations that do not have significant financial resources . S uch foundations may
be founded on a great number of small donations that are used for the assistance of
their specific clientele or programs .
As these examples demonstrate , in developed countries , foundations perform
the role of a “public Ministry of Fin ance” that creates the possibility for a system of
public financing of civil initiative s that is independent from the government. Th is
brief overview of the nature of foundation as an instrument of savings and increase of
resources in the interest of achie vement of particular goal s allows for an
understanding of theh particular difference s between the legal status of foundation s
and other legal entities. What is the major difference between an association of
persons and a foundation? An answer to this quest ion may be found in the given
table:

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Criteria Association Public benefit foundation
(PBF)
Protection of
international right
There is a protection of the
right to freedom of association
It is not clear (there are no
precedents in the framework of
Eur opean Court on Human
Rights)
Establishment Individual and legal entities The same, plus it may be created
by will
Number of
founders
As a rule, more than one As a rule , may be more than one
Registration
procedure
More simple More difficult
Requirem ents for
registration
Application, statutory
agreement, charter, certificate
on payment of registration fee ,
etc.
The same, plus may be a
requirement on the presence of
authorized capital (in 3 countries
of EU out of 15)
Governing bodies Meeting (forum) of members,
may be Board of Directors
(directorate )
Board of Directors ( directorate ),
may be supervisory council
Role of founders May becom e members and
participate in general meeting

Frequently do not participate in
management. May be members of
an y governing body, but on equal
footing with other members, but
may not be the only member of
governing body
Exemption status
from taxes and
benefits for public
benefit
organizations
Usually is granted to registered
legal entity
Frequently coincides wit h
registration of legal entity (in 8
EU countries out of 15 may be
created only as PBF)
Right to carry out
economic activity
Has the right Has the right (except for Great
Britain and Spain, where they can,
but not directly)
Who may initiate
liquidatio n?
Members’ meeting in
compliance with charter,
creditors by a court decision,
authorized state bodies through
the court
Directorate (as a rule, decision
shall be approved by authorized
body ), authorized state bodies a
court.

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§ 3. Foundations in Kyr gyzstan

In Kyrgyzstan , foundations are regulated by the Civil Code of the Kyrgyz
Republic (Civil Code), as well as by Chapter s 1 and 3 of the Law of the Kyrgyz
Republic “On noncommercial organizations .”

Terminology

In the Civil Code and in the Regulatio n on the procedure for registration of
legal entities, branches and representative offices , the Ministry of Justice uses the
term “public foundation .” The definition, codified in Article 162 of the Civil Code , is
as follows : A “public foundation is a non -m embership , noncommercial
organization, established by citizens and /or legal entities based on voluntary non –
state fees that pursu es social, charitable, cultural, educational and other public benefit
goals .” The Law of the Kyrgyz Republic “On noncommercial organizations” (further
“NCO Law”) uses the term “foundation .” Its definition, codified in Article 2 of the
NCO Law , is as follows : A “foundation [is a] non -membership organization
established by individuals and /or legal entities based on voluntary non -sta te fees, that
pursu es social, charitable, cultural, educational and other public benefit goals .”
Despite the fact that the notion “foundation” in the NCO Law significantly
coincides with definition of the notion “public foundation” in the Civil Code, the
question remains whether we need to consider “foundation” and “public foundation”
as the same or different organizational and legal forms . The most rational and
consistent answer is that they are the same form. However, in order to exclude
dispute s in relat ion to the indicated ambiguity, it is necessary to bring the
terminology of these two normative and legal acts into conformity.
In international practice , some foundations are called “public ,” as they are
created for public benefit goals. There are also foundations created not for public
benefit, but for the benefit of a group of people. The use of the notion “public
foundation” permts distinctions from other organizations that also are called
foundations (pension foundations, investment foundations, insur ance foundations,
off -budget foundations , etc.) . I n the text of the present Chapter , we will understand
“foundation” and “public foundation” as the same organizational and legal form of
noncommercial organization.
The legislation of the Kyrgyz Republic id entif ies the following dominant
features of a foundation, which as a whole allow it to be distinguish ed from other
forms of legal entities in Kyrgyzstan :
1) noncommercial organization;
2) founders: one or more legally capable individuals and /or legal entities;
3) absence of membership;
4) funding base : voluntary , non -state donations ;
5) goal of the activity: social, charitable, cultural, educational or other public
benefit goals;
6) property transferred to the foundation from founder(s) becomes foundation

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property ;
7) founders are not liable for foundation obligation s, and the foundation is not
liable for founders’ obligations;
8) use of property and carrying out economic activity only possible in pursuit
of charter goals ;
9) foundation’s charter is approved by its founder(s);
10) decisi on on liquidation may be adopted only by the court upon application
of self -interested persons.

Economic A ctivity of Foundations

Foundations, as many other NCOs, are allowed to carry out economic activity
directly , without the necessity to create subsi diary companies or affiliated structures
(Part 2 of Article 162 of the Civil Code, Article 12 of NCO Law). However, the
legislat ure set a limitation on foundations in relation to the choice of specific types of
economic activit ies . A ny such activit ies must be necessary for the achievement of
public benefit goals for which the foundation was created and they must correspond
to these goals . At the same time , there are no criteria in relation to how to assess the
conformity of the type of activity to foundatio n goals.
In international practice , such limitations are applied, first of all, because of
tax benefits on income that foundation s receive from such economic activity. The
legislation of the Kyrgyz Republic does not provide benefits in relation to econom ic
income received from foundations.
In international practice , the serious consequence of recognizing the economic
activity of foundation s as not corresponding to goals is the non -application to such
income of the income taxation benefit; i.e. , the lack of applicability of tax -exemption
on th is income. At the same time , it is not clear what the legal consequences apply if
the economic activity does not correspond to foundation goals, and, moreover, no
authorized body is assigned to regulate this matter. D ue to the absence of a special
authorized state body in the legislation, it is possible to assume a court would act as
such a body. However , it is not clear for what purpose a court would adopt such a
decision. Therefore, it seems that this norm is declara tive and , in practice , does not
limit the opportunities of foundation s to carry out economic activity that is not
prohibited by law.

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Liability

In foundations, as well as in public associations, founders are not liable for
obligations of the fou ndation, and the foundation is not liable for obligations of the
founders (Part 1 of Article 162 of the Civil Code).

Reorganization of a Foundation

Reorganization of f oundation s is not specifically regulated. The importance of
such regulation is conditio ned by the fact that such types of reorganization as
transformation, as well as splitting up and separation , open the door to use of
foundation property for un intended purposes. In international practice , such types of
reorganization are usually prohibited by law, and mergers and accessions are possible
only in the case of significant similarity of goals for which merging foundations are
created. This failure to legislate needs to be eliminated, and a corresponding
prohibition should be included in the pro visions of the legislation that regulat e the
legal capacity of foundations.

Changing of Foundation G oals

Kyrgyz legislation takes the traditional approach to the issue of changing
foundation goal s. They may be changed only by the founders themselves. Foundation
governing bodies may change foundation goal s only if they are authorized to
introduce changes to foundation charter (Article 163 of the Civil Code).
In compliance with Article 162 of the Civil Code , among the compulsory data
required in the char ter is the foundation’s place of business . If its place of business
changes, then it is necessary to introduce changes to the charter ; and if changes are
not introduced, then there is a danger of sanction for non -execution of legal
requirements. Therefore , foundation governing bodies need to have the right to
introduce necessary changes into the foundation charter. However, this power does
not extend to chang ing arbitrarily the goal of the foundation. Therefore , it is
important to set out properly the amend ment powers of a foundation’s governing
bodies, so as to guarantee that property endowed for particular goals will not be used
for other purposes. The risk is that donors will lose confidence in foundations and
will not donate significant assets to them .
At the same time , it is necessary to note that Article 163 of the Civil Code
contains a provision that authorizes the court to introduce necessary changes to a
foundation charter upon application of foundation’s bodies, supervisory council or
other body th at is authorized to control the foundation’s activity. This power may
only be exercised if preserving the charter unchanged would lead to consequences
that were un foreseeable during the establishment of the foundation, and the charter
does not contain an a mendment right.

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§ 4. Creation of Foundation

Founders
A f oundation may be created by one or more individual and /or legal entities
(Part 1 of Article 162 of the Civil Code, Article 23 of the NCO Law). Article 25 of
the NCO Law sets requirements for the decision on creation of foundation. It should
include the following information:
 name, legal address of foundation;
 list of founders – individuals with last name, first name, patronymic, date of
birth, address, home and work telephone number, as well as li st of founders
with name, legal address, place, date and number of state registration and
contact telephone numbers;
 total value of property in monetary and /or other form, which founders transfer
to the foundation, and procedure for its transfer;
 approval of foundation’s charter;
 names and addresses of members of foundation’s directorate and foundation’s
supervisory council.
The decision must be signed by all founders and their signatures must be notarized.
The p rocedure and deadlines for state registration of a foundation are the same as
with other NCOs.

Creation of Foundation by Will

The law permits creation of a foundation by will (Article 24 of the NCO Law).
In this case , the executor of the will is authorized to assume the powers of the
founder. The se powers terminate from the moment of registration of foundation or if
the impossibility of such registration is established.

Initial Capital

One of the necessary components of a decision to creat e a foundation is the
total value of property transferre d to the foundation by its founders Kyrgyz
legislation does not set any requirements in relation to the minim um amount of
property, nor in relation to the procedures and terms for its transfer. In practice , it is
possible to create a foundation with 1 som of capital , or to set an unlimited term for
transfer of a contribution, meaning that a foundation could be created without capital.
In this case , the foundation would not differ from a public association
Practically, t his circumstance is not a big problem , as foundations are not
granted special tax benefits. And as conditions emerg e for the development of the
culture and infrastructure of charity, the opportunity to start from point zero and
gradually to accumulate capital is a benefit to foundation’s found ers as well as for
society. O ver time this problem will likely be solved. For example, in France , the
founding capital of a charitable (public benefit) foundation shall not be less than
EUR 762 ,000.

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§ 5. Foundation Governance

G overning Bodies of Foundat ion s

A f oundation has quite a complex structure of governance. The major
governing bodies are the d irectorate and the s upervisory council. Management
decision s may be adopted by founders, the s upervisory council and the d irectorate.
The supervisory counc il is the highest governing body of a foundation. In
compliance with Article 28 of the NCO Law , a foundation’s supervisory council
supervises the foundation’s activity, the decisionmaking of its governing bodies and
the execution of such decisions , the use of foundation funds, the foundation’s
compliance with law and the charter, and it exercises the role of internal supervision
over the foundation. The law requires that the supervisory council carr y out its
activity voluntarily. At the same time , the law d oes not clarify what “voluntarily”
means. In common parlance , “voluntarily” means voluntary and gratuitous execution
of a particular activity; however , the Kyrgyz legislation does not specify these
conditions. In the absence of a legal definition “voluntar ily” leads to another
declarative norm.
Article 29 of the NCO Law requires that the “[s]upervisory council of a
foundation shall be composed of three members, if the charter does not stipulate a
greater number of members. Only individuals with legal capac ity may be members of
the [s]upervisory council.” The p rocedure for appointment and withdrawal of
supervisory council members should be articulated in the foundation’s charter. The
competence of the foundation supervisory council includes:
 supervision over activity and area of activities and policy determination ;
 introduction of amendments to the charter;
 decisionmaking on reorganization;
 appointment and withdrawal of directorate members;
 approval of decision by f oundation’s directorate on concluding trans actions
with particular types of property determined by the charter;
 approval of transactions involving conflict s of interest;
 approval of annual report on foundation activity, prepared by directorate ;
 approval of decision by directorate on participation o r termination of
participation in commercial enterprises;
 decision of many other issues in compliance with the charter.
The directorate is the foundation’s executive body and it manages the
foundation and represents it in its relation s with third parties ( Part 1 of Article 26 of
the NCO Law). The directorate may be composed of one or more members , who
must be individuals with legal capacity. Directorate members are appointed by a
decision of the foundation’s supervisory council . In the process of managing t he
foundation , the directorate must execute legal orders of the foundation’s supervisory
council . Directorate members may not delegate their obligation to third parties,
unless otherwise permitted by the charter or a decision of the supervisory council .

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Fo unders are not identified by law as a separate governing body. However,
Article 28 of the NCO Law provides that a “[d] ecision on any issues related to
foundation activity, including that listed in the present article concerning
competencies of a foundation ’s supervisory council , may be transferred to the
competence of the foundation’s founders by the charter .” The given provision
permits making founders the highest governing body in the foundation and
converting it to a membership organization. M oreover, th e NCO Law , in the same
Article 28 , grants a veto right to founder s on any decision of the supervisory council ,
if not otherwise provided in the charter . I n case of several founders , the veto right
may only be exercised if there is unanim ous agreement of th e founders .

Quorum

Even though there is much freedom is given on organization of activity of
foundation’s governing bodies, to be set by the charter, the legislator nevertheless
strictly determined requirements on quorum of directorate and supervisory c ouncil ’s
sessions. supervisory council ’s session has a quorum , if half of its members are
present in the session, and directorate has a quorum , if not less than half of its
members are present in the session.
Such imperative regulation of such issues is an example of deviation from the
dispositive principle. Usually such norms ends traditional for dispositive regulation
phrase – “if otherwise is not provided by the charter .” It means that foundation may
not set a requirement on higher quorum or on 100% part icipation of members of
foundation’s governing bodies with the help of charter in decisionmaking on very
crucial for foundation issues, for example, such as changing charter or changing
foundation’s goals.

Judicial Replacement of D ecisions of Governing B odies

Despite the fact that Article 163 of the Civil Code permits the court to decide
upon chang es to a foundation charter, the need for judicial decision s relating to
decisions of a foundation’s governing bodies is not limited only to the indicated
situa tion. The most widespread case for the need for a court decision is the situation
in which the members of a governing body do not carry out their obligations, and all
the founders died or the foundation was created according to will . Due to the
impossibili ty to exercise the founders’ rights , it would not be possible to appoint new
members to foundation’s highest governing body , in this case , the supervisory
council . The a bsence of the court’s power in relation to the composition of the
supervisory council m ay lead to the impossibility of further activity of the
foundation.
Due to this lack , it is desirable to adopt appropriate provisions , according to
which a court would have the power to decide upon the formation of the supervisory
council if there is no t other way to do so.

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§ 6. Termination of Foundation

Judicial Procedure for Liquidation

Article 163 of the Civil Code and Article 28 of the NCO Law only permit a
court to decide on liquidation of a foundation . This results in the impossibility of
found ation’s voluntary liquidation upon a decision of its founders or governance
bodies, as , at the present time in the Civil Procedural Code of the Kyrgyz Republic ,
there is no procedure for decisionmaking on liquidation of a legal entity. An
application by a foundation on voluntary liquidation is impossible as there would be
a coincidence of applicant and respondent . Article 163 of the Civil Code permits a
foundation to be liquidated upon application of self -interested parties in the following
cases:
 if the foundation’s property is insufficient for implementation of its goals and
there is a low probability of receiving the necessary property;
 if the foundation’s goals are not likely to be reached, and it is not possible to make
the necessary changes to the fou ndation’s goals;
 if the foundation is deviating from the goals set by the charter;
 in other cases provided by the law.
The third of the indicated grounds for liquidation , the “foundation’s deviation
from the goals set by the charter ” is a punitive sanction and does not correspond to
the main method of civil law (dispositive) nor to the goals of legislation on
foundations, which were considered in § 2 of the present Chapter. Th is ground for
liquidation directly violates the rights of the founders, as , in the indicated case , a
violation by specific officials of the foundation is considered a violation by the
organization itself and leads to termination of use of founders’ property. In case of
liquidation, the property left after settlement of creditors’ claims should be directed
to the goals indicated in its charter (Article 163 of the Civil Code and Article 16 of
the NCO Law).

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Chapter 18. Institutions

§ 1. The M eaning of the so -called “Institution ”

An institution is a noncommercial organization founded t o carry out
managerial, social -cultural or other noncommercial functions. Institutions are funded
fully or partially by the founder. They typically support purposes unrelated to
production , such as the provision of health care or education. They are volunt ary,
self -administered, and noncommercial , created on the initiative of citizens who have
united to promote common interests which they articulate in the institution’s charter.
A public institution is non -membership public association with the goal to pro vide
specific types of services.
§ 2. Legal Status of the Institution

Foundation and R egistration of Institution s

Institutions are regulated by the Civil Code of the Kyrgyz Republic, the Law of
the Kyrgyz Republic, “On noncommercial organizations ,” and other laws. An
institution may be created by one or more legally capable individuals or legal entities
for an indefinite or a definite term. An institution is created on the initiative of a
founder or group of founders. An institution may be created with a founding
document containing the following information:
 Name and legal address of the institution;
 List of owners , including first and last names, patronymics, dates of birth,
addresses, home and work telephone numbers, as well as list of legal entities, if
one of the founders is legal entity, including their names, legal addresses,
places, dates and numbers of state registration and contact telephone numbers;
 Total value of property in monetary and other forms that the owner or owners
are transferring to the institution, and the procedure for its transfer;
 Notice of approval of the institution’s charter;
 Names and addresses of members of institution’s directorate and supervisory
council .
All the founders must sign the founding documents and notarize their
signatures.
The law provides that NCOs, including institutions, have the right to acquire
status as a legal entity. To acquire legal entity status, the organization must meet
certain statutory requirements for registration. The Ministry of Justice of t he Kyrgyz
Republic and its territorial bodies handle registration. Registration with the
appropriate registering body requires filling out an application for creating an
institution and providing the registering body with the institution’s governing
docume nts, prepared in triplicate and in the official languages, and a document
certifying the location of the legal entity. An institution’s statutory documents

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include a charter and the founders’ original founding document.
The charter must include the princ iples of the organization and its activities,
goals and tasks , as well as regulations governing the organization’s:
 Operations;
 Legal status;
 Procedures for formation, reorganization and liquidation;
 Duration, if it has a limit;
 Procedures for decisionma king;
 Procedures for acquisition, use, disposal of property and financial funds of the
institution.
For some types of institutions , the legislation establishes special requirements
for the institution’s charter. For example, charters of educational instit utions must
include the following compulsory chapters: name, location, status, founders,
organizational and legal form, goals of educational processes, types and kinds of
educational programs, language of education, procedures for accepting students, the
duration of education at each stage, procedures and grounds for expulsion of
students, the assessment system, its forms and procedure, students’ course list , the
presence of paid educational services and procedures for rendering them, procedures
regulating relationships between the educational organization, students, and their
parents, a description of the institution’s financial and economic activities,
procedures for staffing and conditions of labor remuneration, procedures for
changing the charter, proced ures for reorganization and liquidation, rights and
obligations of participants of educational process, a list of types of local acts
regulating activity of educational institution and other requirements.
The registration body is obligated to register an organization no later than ten
days after the organization has submitted a completed application. The day of
submission of the application is the day when the whole package of documents was
received. The registration body may reject an organization’s appli cation only if the
required documents are incomplete or otherwise not in compliance with the law. If
the registration body rejects an organization, it must explain its decision in writing.
It is necessary to note that while an institution in a noncomme rcial
organization, it has the right to carry out economic activities to the extent those
activities serve its goals.
An Institution’s R ights and O bligations
In order to implement its charter goals, an institution has the right:
 To freely distribute inf ormation about its activities;
 To participate in decisionmaking by state bodies and bodies of self –
administration;
 To establish mass media outlets and carry out publishing activities;
 To present and protect its rights and legal interests in public authorit ies,
bodies of self -administration and public associations;
 To put forward initiatives on different issues of public life;

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 To make proposals to public authorities;
 To plan its activities and determine development perspectives;
 To determine and set forms of labor remuneration systems and the
employment structure and staff list , in coordination with the institution’s
governing bodies;
 To purchase or rent fixed and working assets using its own financial
resources, credits, loans and other sources of financing.
The law imposes obligations on institutions in addition to providing them with
rights. Institutions must comply with the law and their charters as well as monitor
and report the results of their programs to the appropriate authorities. They must
publis h an annual report on the use of their property, inform the appropriate
authorities of their continued operation s, respond to requests of information from
authorities, and pay damages due to irrational land use, pollution, and violations of
safety or emplo yment rules.
Institution Property

In compliance with the legislation of the Kyrgyz Republic, an institution’s
property belongs to it based on a right of “day -to -day management. ” Th is right is a
special variation on property rights. If the property belon gs to the institution based on
day -to -day management right s, it may own, use and dispose of it. However, the se
rights can be enjoyed by the institution as long as it complies with the institution’s
stated goals and assignments of the ultimate owner and pro perty’s target use .
When an institution is exercising day -to -day management right s over property,
the ultimate owner of the property has the right to use the excess part of the property ,
according to his or her own discretion.
An institution has a rig ht to expropriate or otherwise dispose of the property
only by consent of the property’s ultimate owner. The ultimate owner determine s the
procedure for distributing any revenue earned from the sale of the property .
An institution has no right to expropri ate or otherwise dispose of property over
which it only exercises day -to -day management rights and the property which was
purchased out at the expense of state budget if the ultimate owner is a state . An
institution may be granted the right to carry out i ncome -generating activities. Income
received from such activities and property purchased with the income these activities
generate is under the independent disposal of the institution and must be accounted
for on a separate balance sheet.

Institution Lia bility

Institutions, including those not registered in the Ministry of Justice, are liable
for violations of the law. They are potentially liabil e from the moment of
establishment. From the moment of registration with the state as a legal entity, an
ins titution has the right to enter into legal relationships (to conclude contracts,

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transactions, etc.). If the resources of an institution are insufficient to satisfy its
liabilities, the owner of the institution is held to subsidiary liability for the
inst itution’s liabilities.

The G overnment and Institution s

The principle of mutual non -intervention guides the relationship between
government and institutions. Public authorities and officials are not permitted to
interfere in an institution’s activitie s. Public relationships between an institution and
the government are regulated by law , and institutions are not subordinate to the
government.
The law defines particular interactions between the government and
noncommericial organizations like instituti ons. An institution, for example, has the
right to participate in the decisionmaking processes of public authorities and self –
administration bodies; to conduct trainings, protests, demonstrations and picketing; to
represent and protect its rights, and thos e of its members; to introduce proposals to
public authorities etc. However, institutions may not independently perform lobbying
activity, but may participate in this process subject to certain exceptions,. Despite this
restriction, the influence of instit utions may be significant.

§ 3. G overning Bodies of Institution s

The owners identified in an institution’s charter determine the structure,
procedures, activities, and powers of the institution’s governing bodies. The bodies
controlling an institution a re those through which the institution acquires its civil
rights and carries its civil obligations , according to the Article 88 of the Civil Code.
As a rule, the highest body of the institution is the founder , if the institution was
created by one person , or the assembly of founders , if the institution was created by
several persons. The competences of the institution’s highest body include:
 Introducing amendments to the charter;
 Determining the institution ’s priorities for its programs and the procedures f or
using its property;
 Accepting new members (if the charter does not state otherwise);
 Procedures for forming governing bodies;
 Approving the annual report on activities and assets;
 Deciding to create branches;
 Participating in the activities of other leg al branches;
 Reorganization and liquidation;
 Other issues, except for those that the charter places under the competence of
the institution’s other bodies.
An institution may create new governing bodies. The powers and procedures
of the new governing bodie s are defined in the institution’s charter. For example, an
institution may create a permanent collegial or sole executive body such as a
directorate , a director, or a president. An institution’s executive bodies may have

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authority over all issues not excl usively reserved to the highest body. The founders
may also establish a supervisory body (supervisory council, council etc.).
NCOs with Special Legal Status
Chapter 19. Charitable O rganizations
§ 1. The H istory of C haritable O rganizations

Every develope d culture legalized and encouraged philanthropic activities.
Ancient Chinese, Indian, Greek, Roman, and Egyptian cultures all had their own
types of charitable foundations. In Islamic cultures, charitable foundations were
known as “vakuf,” which translates in English as “property taken from civil turnover
and passed from the government to use for religious or charitable goals.” In the
Middle Ages in the W est the Catholic Church, as well as municipalities and guilds ,
employed the funds of charitable organiza tions for the maintenance of monasteries,
hospices, orphanages, schools, and hospitals, as well as for repairing bridges, beacons
and preserving roads.
Wealthy industrialists and bank magnates in the United States, such as E.
Carnegie, G. Rockefeller and H. Ford, established some of the largest charitable
foundations, but charitable activities were already well established in the United
States before the 20 th century. In the 18 th century, Benjamin Franklin encouraged
wealthy families to transfer their char itable giving from religious organizations to
organizations working on behalf of the public benefit. Due to efforts like these, the
American government adopted legislation establishing foundations modeled on the
English law, “Status of Charitable Practice. ”
The first large American foundation was established in 1905 by Andrew
Carnegie. Margaret Olivia Sage established the Russell Sage Foundation in 1907 ,
and , in 1913 , John D. Rockefeller established the Rockefeller Foundation. In Great
Britain , charitable t raditions are also deeply engrained. There are currently around
400,000 charitable organizations in Great Britain, and the income of registered
charitable organizations in 1990 amounted to around GBP £19 billion.
Early Islamic traditions supported philant hropic practices. Islam demands that
wealthy individuals aid the poor , and teaches that unequal distribution of the means
of production should be remedied by voluntary donations from the wealthy for the
benefit of society as a whole. “Zakaat” is a unique Islamic taxation system that
redistributes wealth to serve the needs of society and , in particular , the poor. Islamic
doctrine explains that the poor receive “zakaat” not as alms, but as resources that
belong to them by law. Islam highly values voluntary donations and often exhorts
the wealthy to remember the needs of the poor, infirm, orphaned and disabled.
Voluntary efforts to help the needy overcome life’s hardships are considered a
prominent virtue that is essential for a person’s spiritual well -being . At the present
time in Iran , there are around 20,000 charitable organizations, and some of them have
existed for several centuries. In Tehran alone , there are over 2,000 charitable
organizations.

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Following established international practice, in the Kyrgy z legislature decided
to create a legal framework for charitable organizations with the law, “On
Philanthropy and Charitable Activity” of October 6, 1999 , #119. Th is law may be
considered as the first step toward legal regulation of charitable activity i n
Kyrgyzstan.

§ 2. Notion of C haritable O rganization

In compliance with Article 5 of the Law of the Kyrgyz Republic “On
Philanthropy and Charitable Activity” of October 6, 1999 , # 119 (the Charity Law), a
charitable organization is a nongovernmental and noncommercial organization
created to implement goals stated in the harity Law by conducting charitable
activities for the benefit of society as a whole or for particular classes of persons.
Charitable organizations have several important characteristics:
1. Nongovernmental .
First of all, a charitable organization is a nongovernmental organization . The
government cannot be a founder or member of a charitable organization. However,
this does not mean that the government is not involved in the activities of charitable
organizations. According to Article 11 of the Charity Law, the government
guarantees compliance with the law and protects the rights and interests of
participants of a charity’s activities. Moreover , officials hindering the enjoyment of
these r ights are held liable in compliance with the legislation of the Kyrgyz Republic.
The Charity Law permits public authorities and other self -administering legal
entities to support charitable organizations in many ways:
 Grants of tax benefits and relief fr om customs and other fees;
 Logistical support and subsidies for charitable organizations (including full
or partial exemption from payment for services rendered by governmental
organizations and from payment for use of state property);
 Financing charitable programs on a competitive basis, based on
competitions developed by charitable organizations;
 Passing ownership of state property to charitable organizations through the
process of decentralization and privatization.
However, to prevent the misuse of the se rights, the government is prohibited from
grant ing tax benefits to particular charitable organizations, their members and other
participants in a charitable activity. A charitable organization recieves its tax and
other benefits from the moment it is re gistered.
A very important form of interaction between charitable organizations and
state bodies is the ability of charitable organizations to create councils to support
charit es . These committees allow charitable organizations to carry out their activiti es
more efficiently. It has been proposed that these committees should include
representatives of legislative bodies, executive bodies, charitable organizations,
public organizations, and public figures. These councils have no administrative

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authority ove r charitable organizations and their statements are only
recommendations.
2. Noncommercial
Charitable organizations are NCOs. For these organizations , “profit making is
not a major goal ,” and any profit an organization receives is not distributed to its
members. 90 Therefore , commercial organizations cannot be charitable organizations.
However, a question rises: is a charitable organization an independent organizational
and legal form of a noncommercial organization , or does it have the status of a
noncomme rcial organization? The Charity Law says that a charitable organization is
not an independent organizational and legal form of noncommercial organization,
since Article 6 of the Charity Law allows the possibility of creating a charitable
organization in th e form of a public association, foundation or other form. Therefore
the term “charitable organization” is a status that nongovernmental and NCOs may
receive as long as they are carrying out charitable activities.
Consequently, charitable organizations are created in the forms of NCOs.
Therefore all provisions of the Civil Code of the Kyrgyz Republic, the Law of the
Kyrgyz Republic “On noncommercial organizations” and other special laws apply to
them. These laws determine not only the legal status of the o rganization, but also
determine the procedure for creation, reorganization and liquidation of such
organizations.
However, it is important to note that not all NCOs may have the status of
charitable organization. For example, noncommercial cooperatives cannot have th is
status because they are not pursuing public goals. Likewise , institutions created by
state enterprises or bodies cannot receive the status of a charitable organization.

3.Carrying out a charitable activity
All charitable organizations must achieve their goals by carrying out charitable
activities. Charitable activity means the voluntary activity of individuals and legal
entities gratuitously or on preferential conditions. Such activities might include
transfering property, including mon ey, to citizens and legal entities, rendering
services or providing other kinds of support. (Art. 1 of the Charity Law) . Charitable
activities include:
 Promoting social welfare and the protection of citizens, including the
improvement of economic conditio ns of indigent persons, social
rehabilitation of unemployed, disabled and other persons, who due to their
physical or intellectual peculiarities are not independently able to enjoy
their rights and other lawful interests;
 Providing assistance to victims o f natural disasters, or political, ecological,
economic or other catastrophes;
 Strengthening peace, friendship and harmony among nations, and
preventing social, national, religious conflicts;
 Assisting education, science, culture, arts, enlightenment, spir itual
90 Chernega, K.A., Pravovoe poloje nie blagotvoritelnyh organizasii [Legal status of charitable organizations],
Journal “Noncommercial law”, # 5 (2003), http :/finpress .ru/nko /arhiv /2003/5/1. html

165

development of personality;
 Assisting in protection of maternity, childhood;
 Promoting and improving health;
 Promoting physical activity and sports;
 Protecting the environment and animal welfare;
 Protecting and maintaining buildings, objects or land with historical,
religious or environmental significance.
This list is exhaustive and may only be specified in implementation and local
normative legal acts.
The Charity Law also describes activities that are not charitable activities,
including:
 Transfer ing cash and other material means, or providing assistance in other
forms to commercial organizations;
 Supporting political parties, movements, groups and campaigns.
As Russian legal scholars note , charitable activities have three classical
features : they are voluntary, benevolent, and selective character of a benefactor. All
these features were identified by prerevolutionary researchers by of the end of 19th
century and beginning of the 20th century. Today the y share a range of specific
feature s.91 First, t he definition of charitable activity permits “benevolence” to include
services that are preferential ly priced, in addition to services that are completely free.
Second, rendering charitable assistance need not be further narrowed to specific
organizational goals . For example , the Charity Law permits motivations or moral and
ethical standards to be the goals of charitable organizations .92 The participants in
charitable activities fall into two categories:
 Benefactors or volunteers – individuals and legal enti ties carrying out a
charitable activity voluntarily, and
 Beneficiaries – individuals or legal entities in the interests of whom the
charitable activity is carried out. 93

§ 3. Legal Status of C haritable O rganization

The l egal status of charitable organiz ations is defined by the following
normative legal acts:
1. Constitution of the Kyrgyz Republic as of May 5, 1993.
2. Civil Code of the Kyrgyz Republic , Part I , as of May 8, 1996 , #15
3. Law of the Kyrgyz Republic “On noncommercial organizations” as of October 15,
1999 , # 111
91 Chernega K.A., Osobennosti pravovogo regulirovania blagotvoritelnoi deyatelnosti v Rossisskoi Federasii
[Specifics of legal regulation of charitable organizations], Journal “Noncommercial organizations in the Russian
Federation’, # 6 (2003), http :/finpress .ru/nko /arhiv /2003/6/2. html 92 See id. 93 Shtaba R.S., Blagotvoritelnaya deyatelnost [Charitabl e activity], Journal “Rossiskii nalogovyi kur’er”, # 23
(2002), http :/rnk .ru/rnk /article _print .phtml ?code =979

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4. Law of the Kyrgyz Republic “On Philanthropy and Charitable Activity” as of
November 6, 1999 , # 119
5. Law of the Kyrgyz Republic “On state registration of legal entities, branches
(representative offices)” as of February 20, 2009 , #57
6. Tax Code of the Kyrgyz Republic as of October 17, 2008 , # 230.
The n orms of the Constitution of the Kyrgyz Republic comp rise the basis of
legal regulation of charitable organizations. Part 3 of Article 27 of the Constitution of
the Kyrgyz Republic provides that the development of charity in the Kyrgyz
Republic is encouraged. The given norm laid a basis for charity development and
appropriate legislation.
The n orms of civil legislation further articulate the above -mentioned
Constitutional provisions. First of all, the Civil Code defines which legal entities are
considered NCOs and codifies their rights and obligations and sets out the main
organizational and legal forms. Although Part 3 of Article 85 and Article 162 of the
Civil Code describe the possibility for creati on of a so -called charitable foundation , it
does not mean that charitable organizations may be created only in the form of
foundations. As it was mentioned earlier , Article 6 of the Law of the Kyrgyz
Republic “On Philanthropy and Charitable Activity” stipu lates that charitable
organizations may be created in any forms of noncommercial , nongovernmental
organizations.
The Law of the Kyrgyz Republic “On noncommercial organizations”
significantly broadens provisions of the Civil Code. In addition to the Civil Code , the
above -mentioned law regulate s the activity of such organizational and legal forms as
public association s, foundation s and institution s.
The Law of the Kyrgyz Republic “On state registration of legal entities,
branches (representative offices)” a s of February 20, 2009 , #57 , determines the
procedure for registration of legal entities, including charitable organizations. The
Law of the Kyrgyz Republic “On Philanthropy and Charitable Activity” ( “Charity
Law ”) articulates the special legal status of c haritable organizations. Articles 7 and 9
of the Charity Law stipulate the rights of charitable organizations, which are as
follows :
 The r ight to carry out charitable activity;
 The r ight to attract resources and to carry out nonoperational activity;
 The r ight to carry out economic activity;
 The r ight to establish economic communities;
 The r ight to own or obtain proprietary rights over buildings, constructions,
equipment, monetary funds, securities, information resources and other
property;
 The r ight to car ry out international charitable activity.
From the first insight it seems that legal regulation of charitable organizations
has no specifics. However, there are some limitations in relation to rights set by theh
legislat ure. For example, the right to carry out charitable activity is restricted to the
goals of the organization, or the goals of the Charity Law. The right to carry out
economic activity , as for all NCOs , is limited. Such activity may be carried out only

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for the achievement of the goals of the charitable organization or must correspond to
these goals. The right to create economic entities is also restricted by making
inadmissible to participate in these economic entities jointly with other entities.
Despite the fact that the two rights just menti oned are directed to ward the formation
of sources of funds for charitable activity and charitable organization property, these
limitations do not prevent a charitable organization from seeking other sources of
funds . Article 8 of the Charity Law provides a closed list of sources from which
charitable organization’s property may be formed. They are:
 Founders’ contributions ;
 Membership fees (for charitable organizations, based on membership);
 Charitable endowments, including targeted charitable grants, grante d to
citizens and legal entities in monetary or in kind;
 Income from nonoperational activity, including income from securities;
 Revenues from solicitation of funding (conduct of campaigns on attracting
benefactors and volunteers, including organization of entertainment,
cultural, sports and other mass events, conduct of campaigns on collection
of charitable endowments, conduct of lotteries and auctions, wills and
endowments received from benefactors in compliance with their wishes);
 Income from economic act ivity allowed by the law;
 Income from activity of economic communities, established by charitable
organization;
 Volunteer labor.
The r ight to carry out international charitable activity , in contrast to the above –
considered rights , has a declarative charact er and includes participation in
international charitable activity (Art. 14 of the Charity Law). Such activity assumes
participation in international projects, in the activity of international charitable
organizations, interaction with foreign partners , et c., conditioned upon non –
contradiction to the legislation of the Kyrgyz Republic, norms and principles of
international law. Moreover, the given right includes a right to open an account in
banks of other countries, to receive charitable endowments from fo reign citizens,
stateless persons, foreign and international organizations, as well as to create
international charitable organizations.
Charitable organizations have the following obligations:
 Ensuring open access to annual reports, including mass media (Art. 12 of
the Charity Law);
 In conducting public campaigns on collection of endowments, a charitable
organization is obliged to publish annual ly a report on amounts of received
endowments and on their use in official printing media (Art. 13 of the
Chari ty Law) ;
 Data on amounts and structure of income of the charitable organization, on
property, on expenditures and on attraction of volunteers are not
commercial secret (Art. 12 of the Charity Law).
It is necessary to note certain direct prohibitions on th e activity of charitable
organizations, which are stipulated by the legislat ure, including:

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 Charitable organization has no right to spend its funds and use its property
for support of political parties, movements, groups and campaigns (Art. 7
of the Charit y Law);
 It is prohibited to finance charitable organizations from republic and local
budgets or off -budget foundations of state bodies (Art. 8 of the Charity
Law);
 Property of charitable organization may not be transferred (through sale,
payment of goods, works, and services and in other forms) to founders
(members) of this organization on more favorable conditions than for other
persons (Art. 8 of the Charity Law).
If the first two prohibitions are directly linked to the nongovernmental character of
chari table organizations, the last is directed to regulation of conflict s of interest, in
continuation of provisions of Art. 13 and 14 of the Law of the Kyrgyz Republic “On
noncommercial organizations .”
There are many questions in relation to Article 9 of the Charity Law on
distribution of financial funds. In the given article , there are limitations on
remuneration of administrative and managerial personnel, which cannot exceed 2%
of financial funds spent by th e organization during one financial year. In many
countries ’ laws on charitable activity , the limitations are 10%, 15%, 20%, or 25%. It
is important to note that all these restrictive rules are unsuccessful. The reason for
setting a limit is to avoid abuse in using property. However expenditures may
signif icantly vary and often exceed the 2% limit. The legislator, however, stipulated
that the given provision does not apply to payment of persons participating in
realization of charitable programs as charitable program s include a separate cost
estimation of a ssumed revenues and planned expenditures, including labor
remuneration of participating persons in realization of charitable programs .
There are disputes regarding Articles 9 and 10 of the Charity Law, which set
limitations, including temporal as well as financial , on distribution of financial funds
of charitable organization s. For example :
1. If a benefactor or charitable program does not specify otherwise, not less than
98% of a charitable donation in the form of money shall be spent for charitable
purpose s in the period of a year from the moment of receipt of the donation.
2. Charitable donations in natural for m are directed for char itable purposes in the
period of a year from the moment of their receipt , if not otherwise provide d by the
benefactor or charit able program.
3. For financing of charitable programs (including expenses on their material and
technical support, organizational and any other support, for labor remuneration of
persons, participating in the realization of charitable programs, and other expe nses
related to realization of charitable programs) , not less than 98 % of income flows
received in a financial year from non -operational economic activities shall be
spent . Such funds shall be spent according to the terms provided by the charitable
organiz ation’s programs.
All above -mentioned provisions are facultative , as benefactor or charitable
program has an opportunity to chang e conditions of these provisions at their will .

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Practice shows that the given provisions have no practical application, as with
provisions on limitation of financial funds on labor remuneration. As a rule, the
benefactor (donor, grant -giver) him or herself sets limits and procedure for spending
financial funds, which significantly differ from the minimums set by the legislation.
The Charity Law in Article 13 also prescribes the liability of charitable
organizations. Liability attaches in case of actions of charitable organizations that
contradict their goals and the Charity Law, so long as an authorized body has warn ed
such organi zation in written form. In case of repeated violations, the charitable
organization may be liquidated in the procedure provided by the legislation.
The n orms of the Tax Code of the Kyrgyz Republic as of October 17, 2008 , #
230 , stipulate the possibility t o grant benefits to charitable organizations, as discussed
in detail in Chapter 6 of the present textbook “Taxation of N oncommercial
O rganizations .”

Chapter 20. Territorial and Public Self -A dministration Bodies (TPS)

§1. Notion and H istory of TPS Bodies

History of Territorial and Public Self -Administration Bodies

Territorial and public self -administration bodies are part of the whole local
self -administration system. Due to this , the emergence and development of the given
institut ion is related to th e origin and evolution of local self -administration as a
whole. Local self -administration developed from the earliest forms of communal
self -administration. United by harsh life conditions, people had to survive and at the
same time to carry out a range of other obligations jointly. Therefore particular rules
on organization of joint life, limiting interests of each human being in the name of
common, group interests , emerged . Such organization of people is the first inception
of public self -administration. With the development of human life forms of self –
organization and hierarchy of interests became complicated. In contemporary
meaning , self -organization of people started to form at the beginning of XVIII -XIX th
centuries. At that time in European countries , a concept of the limitation of central
authorities’ intervention into daily life of territorial self -administered organizations,
the inadmissibility of intervention into administration of their property and activity
by state officials was formed. The firs t theories of self -administration and the first
state legislation regulating activity of territorial and public self -administration
appeared at the same time (England, France, and Prussia). For example, in the city
charter of Prussia (1808) , the citizens’ right to form self -administration bodies
emerged , i.e. directly to participate in administration of local affairs. The legislative
codification of rights of local self -administration, local communities found reflection
in the Belgium Constitution of 1831, which played the most important role in
spreading an idea of local self -administration in European countries. In a majority of
European countries, as well as in some states of America and Asia until the
beginning of XX th century , different forms of self -ad ministration have been already

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established. In the period of last decades , major changes in the legislation on
territorial self -administration were related to democratization of some forms of
popula r participation in local self -administration affairs. It i s about citizens’ electoral
right on the local level, about preserving and development of the principle of
independence in decisionmaking on the local level, about more social orientation of
their activity and other forms of direct participation of residen ts in decisionmaking on
economically and socially important issues.
For example, the c ouncil of participation on the budget issues of Port Allegro,
Brazil , is a body of direct participation of the public in the issues of planning of
financing, incomes and expenditures of city budget. The council assesses and
expresses its opinion on work plan of the government in the budget and investment
issues, has a right partially or fully to introduce changes into financial policy of local
government, to request from any local self -administration bodies information,
necessary for effective carrying out council powers. Bolivian law on public
participation as of April 20, 1994 accepts, facilitates and consolidates the process of
public participation, including indigenous and rural communities, city neighborhoods
into legal, political and economic life of the country. For implementation of above –
mentioned provisions of the law a new type of legal entity is created: the territorial
organizations of citizens, representing po pulation of the given territorial entity. These
organizations are created by the local population so that to manage and control state
services, rendered in the sphere of public health education, sports, sanitary, micro –
irrigation, local roads, urban and ru ral development. All services rendered by
municipal and executive bodies should be included in priorities determined by
territorial organizations of citizens .94

Notion of Territorial and Public Self -Administration

It is necessary to note that one of th e forms of popula r participation in local
self -administration affairs is territorial and public self -administration. Territorial and
public self -administration means self -organization of citizens at the place of their
residence on the part of the territory of municipal formation carried out either
directly by the population or through territorial and public self -administration bodies
independently and under their own responsibility .
Territorial and public self -administration combines direct individuals ’ wi ll and
self -administration through territorial and public self -administration bodies. The
main specifics of territorial and public self -administration is self -organization of
citizens at the place of their residence on the part of the territory of municipa l
formation (territories of settlements, micro -regions, blocks, streets, yards and other
territories) .In contrast to other local self -administration bodies (representative and
executive -administrative) , territorial and public self -administration :
1) Has no authoritative powers (public self -administration), although is delegated
by some administrative powers by decision of municipal bodies;
94 Caroline Newman, Sravnitelnye issledovania i zakony po voprosam socialnogo partnerstva [Comparative
research and laws on the issues of social pa rtnership], Almaty, p. 30 -31 ( 2001 ).

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2) Is not compulsory (on particular part of the territory it may exist, and on other
part not);
3) Has a special procedure for organization;
4) Can carry out an economic activity, and may have a legal entity status or not.
A t erritorial and public self -administration body has the right to demand the status of
legal entity. However, the scope of activity of such formation is territo rially limited.
Therefore , in contrast to other public associations , territorial and public self –
administration bodies operate exclusively within the limits of part of the territory of
municipal formation, human settlement.
Thus , the role of territorial and public self -administration varies. It may be a
public, noncommercial organization, which means an independent economic subject,
and a local self -administration body, which in its turn means a particular status with
specific powers in local affairs, as well as an intermediary between residents and
local authority. As a public organization, a territorial and public self -administration
body may render assistance to socially vulnerable citizens, organized charitable
events etc. As an economic subject , a ter ritorial and public self -administration body
may participate in maintenance and repair of housing facilities, improvement and
development of territories, deal with trade and construction activity, give for rent
land spots, nonresidential premises, advertis ing areas, which belong to territorial and
public self -administration bodies . As an intermediary between residents and local
authority , a territorial and public self -administration body represents and protects
citizens’ interests, residing on the given ter ritory.
The f unctions of territorial and public self -administration bodies also may be
various :
 information (awareness -raising of the population, survey conduct,
collection of suggestions etc.);
 representative (coordination of development plans, formati on of collegial
governing bodies on behalf of the population);
 executive (organization of direct accomplishment of works on
improvement, protection of public order, housing maintenance etc.);
 administrative (determination of orientations over funds spendin g, provided
for social -economic development of the territory);
 control (control over movement of funds, directed for accomplishment of
works on improvement etc.) 95.
Such diversified picture of roles and functions of territorial and public self –
administrat ion bodies assumes regulation of status of such bodies by different
normative and legal acts. They are: the Law of the Kyrgyz Republic “On local self –
administration and local state administration” as of January 12, 2002, the Law of the
Kyrgyz Republic “On noncommercial organizations” as of October 15, 1999, the
Civil Code of the Kyrgyz Republic as of May 8, 1996, the Regulation “On territorial
and public self -administration bodies” as of October 10, 2001 and other acts.

95 Babun R. V., Organizasia mestnogo samoupravlenia [Organization of local self -administration : Textbook],
Saint -Petersburg, p. 100 ( 2005 ).

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§ 2. Legal Status of TPS Bodies

A s territorial and public self -administration is the self -organization of
individuals into associations and communities, which are of a public character, it is
possible to fairly state that such organizations are self -administered, noncommercial
formations, created based on common interests and for realization of common goals.
The legislat ure also determined that the system of local self -administration includes
local representative bodies (local councils or “kenesh”), their executive –
administrative bodies (a yil okmotu, or rural and urban departments and mayors ’
office s), territorial and public self -administration bodies , other bodies formed by the
population, as well as meetings and gatherings of individuals .
Thus territorial and public self -administration bodies are part of a system of
local self -administration bodies. In contrast to representative and executive –
administrative bodies of local self -administration, the organization of territorial and
public self -administration bodies is not compulsory. Howeve r, the legislat ure gave a
special meaning to such kind of participation of individuals in administration of local
affairs and places these bodies on the same footing with local self -administration
bodies by including these bodies in to single system of loca l self -administration.

Creation of Territorial and Public Self -Administration Bodies

Territorial and public self -administration bodies are created by the initiative of
residents of a particular territory voluntar ily. Elections may be conducted during
general meetings or conferences of residents at the place of their residence or based
on universal equal and direct electoral right by secret voting. Preparation and conduct
of elections of territorial and public self -administration bodies are carried out openly
and transparently. Expenses related to preparation and conduct of elections are paid
by local budget funds with the consent of the appropriate local self -administration
bodies. Individuals who receive simple majority of votes are considered as elec ted to
the public self -administration body .
An i nitiati al group identified during the creation of territorial and public self –
administration body should inform residents of a particular territory on the terms,
place for the general meeting of the local co mmunity, the minimum number of
required participants for general meetings and conferences, as set by the
representative body of local self -administration, considering the size of the territory
and other local conditions.

Registration of Territorial and Public Self -Administration Bodies

The s tatus of a territorial and public self -administration body is acquired from
the moment of registration with the representative body of local self -administration.
For this purpose, it is necessary to submit the deci sions of the general meeting and
conferences of members of local community to representative bodies of local self –
administration of the corresponding territorial level. The r epresentative body of local

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self -administration is obliged to set territorial limi ts on the activity of the public self –
administration body. The legislation requires that territorial and public self –
administration bodies have the right to obtain the status of a legal entity. Registration
of the given legal entity is conducted with the M inistry of Justice. This right requires
fulfill ment of some requirements.
First of all, it is necessary to develop a charter of future organization. The
charter is a document that contains the principles of organization and activity of a
public associatio n, goals and tasks, as well as major directions of activity of the given
legal entity; legal status and procedure for formation, reorganization and liquidation
of its bodies; duration of powers, procedure for decisionmaking ; as well as procedure
for purcha se, use, disposal of the property and financial funds etc. As a rule, the
charter of a territorial and public self -administration body is discussed and adopted at
a general meetings or conference of the local community. The c harter should
correspond to the requirements set for statutory documents of NCOs. In the charter
may be codified the following : obligations and functions on maintenance of housing
facilities; housekeeping on the given territory; protection of plantation and water
reservoirs; creation o f playgrounds, recreational facilities, health -improving
complexes, construction; maintenance of roads and sidewalks, wells, other objects of
communal facilities and improvement; organization of clubs according to interests,
societies and clubs of technica l and artistic creativity, sports clubs; conduct of tutorial
work among children and teenagers; rendering assistance to the disabled, people of
advanced age, families of military personnel and perished soldiers , low -income and
large families, children left without parents; strengthening public order; protection of
consumer rights; rendering assistance to schools, kindergartens, hospitals and health
clinics, charitable foundations and organizations; protection of historical and cultural
monuments; and other activities .96
Secondly, the charter will be registered if the following documents are
submi tted to the Ministry of Justice:
 an application signed by the manager of the territorial and public self –
administration body or a person authorized by the general meeting or the
conferences;
 the charter in three copies;
 a copy of the decision of the meeting or conference on adoption of the
charter, signed by the manager of the territorial and public self –
administration body or person authorized by the meeting or conference;
 a copy of decisions of the local representative body on establishment of
limits to the activity of the territorial and public self -administration body .
Thirdly, the whole package of documents should be submitted to the body that
registers leg al entities. The Ministry of Justice has such powers. State registration of
the legal entity must be completed no later than 10 days from the receipt of an
application with all the necessary documents. The day of submission of an
application is considered the day of receipt of the whole package of documents. The
registration of the territorial and public self -administration body as a legal entity may
96 Vydrin I. V., Kokotov A. V., Munisipalnoe pravo Rossii [Municipal law of Rus sia], Moscow, p. 314 ( 2003 ).

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only be rejected if the charter contradict s current legislation. And the registering
body has the legal obli gation to issue a rejection within 10 days in written form,
containing a reference to the violation of specific law. O nce a territorial and public
self -administration body is registered as a legal entity , it has no right to change its
organizational and le gal form , as it has the status of a self -administration body.

Rights and Powers of Territorial and Public Self -Administration Bodies

Territorial and public self -administration bodies have the right to :
 represent and protect public interests, their ow n rights, the legal interests of
citizens residing on the given territory, in relation to public authorities and local
self -administration bodies, the courts and other governmental and
nongovernmental organizations;
 participate with advisory capacity in th e work of representative bodies of local
self -administration during discussion of issues concerning the interests of
residents of the given territory.
 develop plans and development programs of a particular territory, and present
them for consideration by local self -administration bodies and their officials;
 create cooperatives, enterprises and organizations to meet the needs of the
population for goods and services;
 participate in the receipt of social facilities , accomplishment of works on
improvement, re pair, sanitary cleaning of the territory;
 facilitate the implementation of decision s of local self -administration bodies and
local state administration;
 organize implementation of decision s of meetings or conferences of members of
local community;
 prepare recommendations and make request s of corresponding representative
bodies of local self -administration bodies, their executive -administrative bodies
and local state administration, as well as government bodies, enterprises,
organizations, institutions on th e issues related to the competence of territorial
and public self -administration bodies;
 facilitate local self -administration bodies on the issues of granting land of the
territory of the given territorial and public self -administration body for
constructi on and expansion of enterprises and other projects of production and
social -cultural purposes on the given territory; allocation of sales enterprises,
catering, domestic services, and other social -cultural institutions, their work
regime;
 exercise public c ontrol over compliance with rules on development, use of
residential premises, maintenance of residential houses and adjacent territories,
fire safety and sanitary norms, over rational use of land, water and other natural
resources, protection of historica l and cultural monuments, submit proposals to
the corresponding bodies on elimination of identified shortcomings;

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 facilitate corresponding governmental organizations and organizations on the
territory of local community in carrying out measures on sanitary ,
epidemiological, ecological and fire control and safety;
 facilitate law -enforcement bodies in maintenance of public order;
 initiat e different issues of public life, introduce proposals to the public
authorities and local self -administration bodies;
 infor m population on decisions of local self -administration bodies adopted by
proposal or with the participation of territorial and public self -administration.
As an economic subject , a territorial and public self -administration body has
the right to : create e nterprises and organizations, meeting the needs of the population
in goods and services; be customers on the accomplishment of works on
improvement of the territory and communal service of the population, construction,
exploitation and repair of housing fa cilities, objects of social infrastructure with the
use of local budget’s funds provided for these purposes and their own financial
resources; cooperate on voluntary basis funds of the population, enterprises,
institutions and organizations for financing t arget social programs; participate by
their own resources in creation and activity of financial and credit institutions on
joint -stock or share basis; organize other economic activity, not prohibited by the
legislation, with the goal to meet the social -eco nomic needs of the population;
determine in compliance with its regulation (charter) its staff and procedure for labor
remuneration of workers.
It is necessary to note that the authority and competence of territorial and
public self -administration bodies are determined by the current legislation, their
charters, as well as delegated powers by representative bodies and local
administration .

Liability of Territorial and Public Self -Administration Bodies

Along with particular rights and powers, there is also a potential for liability of
territorial and public self -administration bodies set by the legislation. Liability means
occurrence of unfavorable legal consequences for these bodies and persons for their
illegal decisions, non -execution or improper exe cution of their own obligations and
functions . There are three liabilities of territorial and public self -administration
bodies :
 responsibility to the population;
 responsibility to the government (state -legal);
 responsibility to individuals and legal entit ies (civil).
Responsibility to the population occurs as the result of actions or inactions of
territorial and public self -administration bodies and persons that hold governing
positions in these bodies, which led to loss of population’s trust. The result may be
reorganization or liquidation of territorial and public self -administration bodies by
representative bodies of local self -administration or by bodies of local public
authority.

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State -legal responsibility occurs in case of violation of the current l egislation
(Constitution of the Kyrgyz Republic, laws of the Kyrgyz Republic, regulations on
TPS, TPS charter) .
Civil responsibility occurs in cases of violation of somebody’s legal rights and
interests, causing property or moral damage, non -execution of c onditions of
economic agreements and contracts by territorial and public self -administration
bodies .

Interaction of Territorial and Public Self -Administration Bodies and Local Self –
Administration Bodies

Representative bodies of local self -administration and local state
administration may determine spheres of joint competence with territorial and public
self -administration bodies, as well as list of issues which may be decided only after
coordination with territorial and public self -administration bodies. Local self –
administration bodies and deputies of public authority and local self -administration in
their electoral districts may facilitate territorial and public self -administration bodies
in carrying out their powers. Territorial and public self -administ ration bodies have
the right to participate in the work session s of local representative self -administration
bodies in consideration of the issues concerning their interests.
In compliance with the charter of municipal formation , local self –
administration bodies may facilitate territorial and public self -administration bodies
carrying out their powers. This does not imply supervision by territorial and public
self -administration bodies over local self -administration bodies ; instead, it refers to
their coop eration and interaction.
At the same time , many charters of municipal formations provide the
possibility for local self -administration bodies to transfer some issues for resolution
to territorial and public self -administration bodies . Also , it is possible to set spheres
of joint activity of local self -administration with territorial and public self –
administration bodies of the population with the consent of the former, as well as to
establish a list of decisions which may be possible only after coordination with
territorial and public self -administration bodies.
Local self -administration bodies may delegate some of their powers to
territorial and public self -administration bodies with their consent. Such action,
certainly, assumes transfer of financial res ources necessary for ensuring realization of
transferred powers. Territorial and public self -administration bodies through their
bodies have the right to carry out legislative initiative s in representative bodies of
local self -administration. Drafts of nor mative and legal acts, introduced by territorial
and public self -administration bodies , are subject to compulsory consideration by
representative bodies of local self -administration, and the results of consideration are
notified to territorial and public s elf -administration bodies.

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Financial Resources and Property of Territorial and Public Self -Administration
Bodies

The financial and economic resources of a t erritorial and public self –
administration body allow it to realize the major principle of the o rganization and
activity of such bodies : independence. The f inancial and economic resources of
citizens who have united into a local territorial organization ensure the desired
independence. It is the necessary instrument for development of local communiti es.
Territorial and public self -administration bodies’ financial resources consist of funds,
loan proceeds, as well as funds transferred to them by representative bodies and local
administration. Financial resources are sourced from the economic activity o f
territorial and public self -administration bodies, voluntary fees, donations of
enterprises, institutions, organizations and citizens, as well as other proceeds.
The r egulation “On territorial and public self -administration bodies” as of
October 10, 20 01 , lists the sources for property and financial resources of territorial
and public self -administration bod ies: the economic initiative s of the territorial and
public self -administration body or the labor participation of citizens; acquired funds
or funds transferred by local self -administration or other legal entities; financial
funds, received at the expense of economic activity of territorial and public self –
administration body; funds received as voluntary fees and endowments from citizens,
legal entiti es, public associations; proceeds from land tax.
It is necessary to note that local self -administration bodies, in the name of their
representative and executive -administrative bodies and based on contract, may
delegate to territorial and public self -admi nistration bodies the execution of some
functions on implementation of social -economic development of territories, as well
as the right to transfer to territorial and public self -administration bodies:
 economic objects, residential and nonresidential prem ises;
 part of its financial, material and other resources , together with a request for
a report on their use.
The p rocedure for owning, use and disposal of property owned by territorial
and public self -administration bodies is determined directly by the general meeting
(gathering) or conference of citizens.
§ 3. TPS G overning Bodies
Territorial and public self -administration bodies are councils or committees of
micro -regions, residential complexes, as well as settlements, rural human settlements,
counci ls or committees of streets, blocks of houses, houses , etc. T he t erritory on
which public self -administration bodies operate is determined by the corresponding
administration and by proposal of residents and approved by representative bodies of
local self -administration. The s ystem of governing bodies of territorial and public
self -administration includes: general meetings, conferences of residents and other
forms of citizens’ direct participation in public self -administration.
The highest governing bodie s of territorial and public self -administration
bodies are the general meeting or gathering or the conference of members of local

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community. General meetings or conferences of residents are considered as forms of
joint public discussion and decisionmaking of residents of particular territory on
publicly important issues.
Meetings and gatherings are identical by their legal forms. These terms in fact
mean the same thing. Therefore the legislat ure unites these two expressions of the
will of citizens into on e institut ion of local self -administration. However, a possible
difference in meaning is that a meeting is a form of people’s gathering, organized by
somebody, while a gathering is a spontaneous gathering of residents who have a
common problem. Conferences are meetings of representatives of residents. They are
conducted when the conduct of ordinary meetings or gatherings is difficult .97
General meetings or gatherings and conferences of members of local
community may be called by territorial and public self -administration bodies, by
initiative groups of residents or by a proposal of the representative body of local self –
administration as needed, but not less than once a year. In case of necessity ,
territorial and public self -administration bodies have the rig ht to inform the
representative body of local self -administration and deputies of public authority
elected by corresponding district and executive bodes on conducted events and
adopted decisions.
Members of local community who are 16 years old and older and permanently
residing on the particular territory, and representatives o f particular representative
bodies of local self -administration with advisory capacity may participate i n the work
of general meetings , gatherings and conferences. Individuals who a re not residing on
the particular territory, but who own real estate there, and the public self –
administration body connected to the ownership right and paying taxes to the local
budget may participate in the work of general meetings , gatherings and confer ences
with advisory capacity.
During meetings , gatherings or conferences of residents , any issues may be
considered concerning residents’ interests, as well as those which are within the
competence of this group by charter. General meetings , gatherings and conferences
of members of local community of particular territory have a right to decide upon the
following issues:
 adoption and change of charters of territorial and public self -administration
bodies;
 election of executive bodies of territorial and pu blic self -administration
bodies ;
 pre -term termination of territorial and public self -administration bodies’
powers;
 approval of territorial and public self -administration bodies’ activity
programs;
 approval of financial plan and changes into it;
 assessment of territorial and public self -administration bodies’ activity
according to their reports;
97 Kokotov A. N., Salomatkin A.S., Munisipalnoe pravo Rossii [Municipal law of Russia], Moscow, p. 384
(200 5).

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 approval of annual balance sheet;
 approval of property formation and use principles;
 election of territorial and public self -administration bodies’ revision or
audi t commission;
 liquidation and reorganization of territorial and public self -administration
bodies.
Decisions of general meetings , gatherings and conferences of citizens are
general ly adopted by open vot ing and by a majority vote of citizens who are present
and recorded in the minutes. The m inutes must include the date and place, the total
number of members of local community present who have the right to participate in
decision s, the number of members of local community or their representatives who
particip ated in the work of general meetings , gatherings or conferences, and
decisions adopted by them. The minutes should be signed by Chief and Secretary of
the meeting , gathering or conference. Decisions of meetings , gatherings and
conferences may be provided to local self -administration bod ies , its executive –
administrative body, as well as to public authorities.
Such decisions, if adopted within the limits of authority, must be implement ed
by bodies and officials of local self -administration, institutions and citizens on the
territory of activity of territorial and public self -administration bodies. Adopted
decisions may be annulled or changed only by general meeting , gathering or
conference of citizens. I f a n adopted decision does not comply with current
legis lation, it may be adjudged as void.
Therefore , it may be said that the legal bas is for activity of territorial and
public self -administration bodies create s the possibility for the population of cities
and villages to act and provide benefits . The right to acquire the status of legal entity
opens the opportunity to improve the local situation.
In practice , territorial and public self -administration bodies are created only in
cities and villages . They are almost absent from rural localit ies . In addition ,
territorial and public self -administration bodies elected by the population have not
become empowered to deal with local affairs , as intended by the law . There have
been few cases in which local self -administration bodies were delegated powers.
The p rox imity of territorial and public self -administration bodies to the
population, the simplicity of the procedure for their formation, and the close link of
their activity with daily life of citizens ensures the prevalence of these bodies , and
determines the necessity for an increase of their role in the system of local self –
administration.