ASSOCIATION OR FOUNDATION: WHICH ONE TO CHOOSE? 	You wish to start a charity, cultural, educational project or one in the interest of a community? Well, the choice of the legal structure is important for your project too. If you already decided that the creation of a company is not suitable for your project, then you can choose between the creation of an association or a foundation.

We are presenting you a non-exhaustive comparison of the legal aspects that governs the creation and the functioning of association and foundations. The legal basis is found in the Government Ordinance no. 26/30.01.2000.

PURPOSE AND LEGAL STATUS

As a nonprofit legal entities, associations and foundations purposes are not fundamentally different form one to another: to accomplish activities of general interest or, if such be the case, of their personal, non-patrimonial interest. The realization of other profit and direct activities is possible, only if they are closely connected to the main purpose of the legal entity and if they are accessory to the purpose.

The difference concerns the founding members and the way these entities are created.

Hence, in the case of associations, the membership number is of minimum 3, whereas the foundations can be created by only one person, even through a will.

In the case of an association, the founding members must produce a statute and constitutive act. The creation of the association seems more cumbersome than that of the foundation.

Concerning the managing body, the entity’s management is assured by:

- In the case of an association, The General Assembly (formed by the total number of the associates) and the Governing Council (the executive body, who is meant to apply the strategy and decisions made by the General Assembly);
- The Governing Council, composed by at least 3 members chosen by the founder/founders of the foundation.

INITIAL INVESTMENT

The initial investment of an association cannot be less than 200 lei (around 43 Euros) and can include a contribution in kind (such as a real property) and/or cash contribution of the associates.

The initial investment in the case of a foundation must include cash or in kind contribution in value of at least 100 times the minimum gross salary in Romania on the date of its formation.

Please note that the minimum gross salary in Romania is of RON 2,080 (around 452 Euros), respectively RON 2,350(510 Euros).

In an exceptional way, in the case of foundations, if their purpose is to collect funds meant to be at the disposal of other associations or foundations for the accomplishment of their programs, the social capital (patrimony) can be at least 20 times the minimum gross salary in Romania.

TAX REGIME

One of the important aspects that a future associate or founder must consider before venturing into the creation of an association or a foundation is the tax incentive that these legal structures can bring with.

First and foremost, we must take note the associations and the foundations can be financed by sponsorship, also by member’s contributions in case of associations. Another financial source for the associations or foundations can be the income obtained from specific non profit, tax free activities.

According to law no. 32/1994 regarding sponsorships, the legal non profit entities (having activities in areas detailed in the article 4 of the law, such as: culture, art, philanthropy, science, protection of the environment, etc.) can benefit from sponsorships. The sums and assets obtained by a sponsorship or by patronage are exempted from income tax.

However, an association and a foundation may have economic activity that have an “accessory character” and are closely connected to the main purpose of the organization where permitted by the Statute. Income for these related economic activities is exempt from corporate tax if the income falls below 15,000 Euros or 10% of the entity's total not-for-profit income, whichever is less. For income exceeding those thresholds, and for all income from unrelated economic activities, these entities may pay taxes at the same rate as commercial firms.

The law provides also tax incentives for sponsors and patrons: deduction of the sponsorship amount from the corporate income tax due within the limits provided by Fiscal Code (not more than 5% of the taxable base).

REGISTRATION AND DISSOLUTION / LIQUIDATION

An association or a foundation acquires the status of a legal entity upon registering into the Association and Foundation Register kept by the Court where the organization has its headquarters.

The law also provides certain obligations regarding the Statute and Constitutive act such as:

- In the case of an association: the documents must be concluded under an authentic form or certified by a lawyer. The authentic form of Statute and Constitutive act are mandatory if a contribution in kind is made (real property, for example).
- In the case of a foundation: the authentic form is mandatory; otherwise the documents are void by an absolute manner.

Take note that foreign associations or foundations follow the same registration procedure in Romania as national entities, after a prior agreement delivered by the Government.

In the case of dissolution, the association and the foundation can be dissolved as of right or by judicial decision. The association can also be dissolved by a General Assembly decision, which must be filed at the Association and Foundation Registry within 15 days after the dissolution decision.

The remaining assets of an association or foundation must be transferred to legal persons that pursue purposes identical or similar to those of the dissolving entity. The assets may not be distributed to natural persons. The transfer must be carried out in accordance with the organization’s governing documents.