Liquidation of a Charitable Foundation

Liquidation of a charitable foundation is an official procedure for terminating a charitable organization without succession. Once the procedure is completed, the foundation ceases to exist as a legal entity, and a termination record is entered in the Unified State Register.

In practice, the decision to liquidate a charitable foundation may be related to the completion of a charitable project, lack of further funding, a change in the organizational model, termination of activity by founders or participants, loss of relevance of programmes, inability to properly administer the foundation, or the intention to close the organization without reorganization.

It is important to understand that liquidation of a charitable foundation has more nuances than termination of an ordinary company. It is necessary to consider non-profit status, targeted use of charitable contributions, donor obligations, remaining funds and assets, reporting, archives, tax registration and the special procedure for transferring assets after creditor claims are settled.

A charitable foundation is a charitable organization that operates on the basis of a charter, has participants and is managed by those participants. Therefore, before liquidation begins, the charter, governing bodies, decision-making procedure, quorum, competence of the relevant body and requirements for minutes or resolutions must be reviewed.

The liquidation decision is adopted by the governing body authorized by the foundation’s constituent documents. Such a decision should determine the liquidator or liquidation commission, the period for creditors to submit claims, the liquidation procedure, the person responsible for filing documents with the state registrar, and the basic model for dealing with remaining assets.

After the relevant entry is made in the Unified State Register, the foundation obtains the status of being in the process of termination. From that moment, the liquidation procedure begins and ends only after completion of tax, registration, archive and final organizational actions.

Voluntary liquidation may be the best solution if the foundation no longer operates, has no active charitable programmes, does not collect donations, has no need for further administration, or was created for a specific project that has already been completed.

Liquidation may also be appropriate if the founders or participants do not plan to develop the foundation, wish to avoid accumulating reporting, banking and tax obligations, or plan to create a new organization with a different management structure or areas of activity.

If the foundation has significant debts, unfulfilled donor agreements, balances of targeted funds, humanitarian aid, property received for specific charitable purposes or questionable transactions, a legal and financial audit before liquidation is recommended.

• Consultation and analysis of the current condition of the charitable foundation.
• Review of the charter, participants, governing bodies and procedure for adopting a liquidation decision.
• Analysis of non-profit status, submitted reports, accounts, charitable programmes, donor agreements and remaining assets.
• Preparation of the liquidation decision and appointment of the liquidator or liquidation commission.
• Notarization of documents where required by law, the charter or registration practice.
• Filing documents with the state registrar and entering the foundation into termination status.
• Identification and notification of creditors.
• Acceptance, review and settlement of creditor claims.
• Inventory of funds, assets, receivables and payables.
• Settlement of issues relating to charitable programmes, donations, grants, humanitarian aid and donor reporting.
• Support with tax procedures, inspections and deregistration.
• Closing bank accounts, payment instruments, electronic cabinets, keys and access rights.
• Transfer of documents to an archival institution.
• Filing the final document package with the state registrar.
• Entering the final termination record in the Unified State Register.

The decision on termination of a charitable foundation must specify the period during which creditors may submit their claims. This period must be set correctly, as it affects the subsequent progress of the liquidation procedure.

As a general rule, the creditors’ claims period may not be less than two months or more than six months from the date of publication of the notice on the decision to terminate the legal entity.

After receiving a creditor’s claim, the liquidator or liquidation commission must review it, make a decision and notify the creditor. Unresolved creditor claims may delay liquidation or create litigation risks.

For a charitable foundation, it is especially important to review its non-profit status, inclusion in the Register of Non-Profit Institutions and Organizations, submission of reports on the use of income, targeted use of charitable contributions and the existence of transactions that may create tax risks.

If the foundation received charitable donations, grants, humanitarian aid or other targeted funding, the conditions of their use, balances, donor reports, documents confirming transfer of aid to beneficiaries and the possibility of closing the relevant programmes must be reviewed before liquidation.

Special attention should be paid to public fundraising, payments through payment systems, banks, charitable platforms, corporate cards and other channels of income. All balances and documents should be reconciled before the final termination of the foundation.

After creditor claims are satisfied, assets remaining during liquidation of a charitable foundation may not be distributed to founders, participants, the director or related persons as profit.

Such assets must be transferred to one or more charitable organizations in accordance with the foundation’s constituent documents or by court decision. In cases determined by law and in the absence of relevant charitable organizations, the assets may be directed to the State Budget of Ukraine.

Therefore, before liquidation is completed, it is necessary to review the foundation’s charter, the procedure for distributing assets, the existence of remaining funds or property, and prepare documents confirming the lawful transfer of such assets.

If the foundation has employees, the dismissal procedure in connection with liquidation must be carried out correctly, including orders, final payments, compensation and HR documents.

If the foundation worked with volunteers, partners, contractors, donors or beneficiaries, existing agreements, acts, reports, outstanding obligations and documents confirming the use of funds or assets for charitable purposes should be reviewed.

It is also necessary to close bank accounts, payment instruments, electronic signatures, cabinets, seals, access to fundraising platforms and transfer documents subject to long-term storage to an archival institution.

Self-managed liquidation of a charitable foundation may seem simple only at the first stage. In fact, the procedure requires simultaneous compliance with corporate, registration, tax, non-profit, employment, archival and donor requirements.

The most common risks include an incorrectly identified body adopting the liquidation decision, lack of quorum, mistakes in minutes, incorrect creditors’ claim period, unfiled reports, remaining balances on accounts, unresolved grants or donations, lack of confirmation of aid transfer, attempted transfer of assets to persons who cannot receive remaining assets, absence of archive confirmation, and open accounts or access rights.

As a result, liquidation may be suspended, delayed or create tax, reputational and management risks for participants, the director, the liquidator and the foundation itself until termination is completed.

The following documents and information are usually required:

• current version of the charitable foundation’s charter;
• extract or information from the Unified State Register;
• details of participants, director, members of governing bodies, liquidator or members of the liquidation commission;
• previous minutes, resolutions, orders and other corporate documents;
• information on non-profit status and submitted reporting;
• information on charitable programmes, grants, donations, humanitarian aid and donor obligations;
• information about assets, cash balances, property, creditors and debtors;
• information about open bank accounts, payment services, corporate cards and electronic cabinets;
• information about employees, volunteers, contractors and partners;
• accounting, HR and primary documents upon request;
• information about court cases, enforcement proceedings, inspections or claims from donors and counterparties.

VINCO’S Legal Company supports liquidation of charitable foundations at all stages — from the initial consultation to the final termination entry in the Unified State Register.

We help review the charter and powers of governing bodies, prepare the liquidation decision, appoint a liquidator or liquidation commission, organize notarized signing, file documents with the state registrar and support further liquidation actions.

If necessary, the VINCO’S team may also conduct a legal and financial audit of the foundation, review its non-profit status, donor obligations, charitable programmes and remaining assets, and help build a safe model for closing the foundation’s activity.