Non-entepreneural (non-commercial) legal entity
Most social enterprises in Georgia exist in the legal form of a non-profit (non-commercial) legal entity. Unlike commercial organizations, the primary goal of this organizational form is not to generate profit, but to achieve objectives that bring social benefits to society.
According to Georgian legislation, a non-profit (non-commercial) legal entity is established to carry out non-entrepreneurial activities. However, it may engage in entrepreneurial activity of an auxiliary nature, provided that any profit generated is used exclusively for achieving the objectives of the non-commercial legal entity. It is important to note that a non-profit legal entity should not change its fundamental purpose and transition to entrepreneurial activities, as this may result in the suspension of its operations.
A non-profit (non-commercial) legal entity has the right to carry out any activity not prohibited by law, regardless of whether that activity is explicitly provided for in its registration documents. Nevertheless, clearly defining the purpose of the activity in the registration documents remains important, particularly for determining the object of profit taxation.
While non-profit legal entities enjoy considerable freedom in their activities, certain types of activities require the prior obtaining of specific rights or permits under applicable law. When engaging in auxiliary entrepreneurial activities, the following key principles must be observed: entities with entrepreneurial goals should not be established in the non-commercial legal entity form; entrepreneurial activities must remain an auxiliary means of achieving the founding objectives rather than the primary purpose; and the distribution of profits among founders or members is legally prohibited.
The legal basis for this organizational form is provided by the Law of Georgia on Entrepreneurs (28/10/1994, N577), the Tax Code of Georgia (26/06/1997, N786), the Instruction on Registration of Entrepreneurs and Non-Entrepreneurial (Non-Commercial) Legal Entities (Order N241 of the Minister of Justice, December 31, 2009), the Law of Georgia on Creative Workers and Creative Unions (08/06/1999, N2059), the Organic Law of Georgia on Trade Unions (30/11/2018, N3825-I), the Organic Law of Georgia on Suspension of Activities of Public Associations and Their Prohibition (14/11/1997, N1103), and the Government Resolution on Service Fees and Terms of Services provided by the National Agency of Public Registry (Resolution N509, December 29, 2011).
Financial Support
Non-profit legal entities engaged in social entrepreneurship have the opportunity to receive grants and donations from donor organizations. The most common support programs are funded by the European Union, Bread for the World (BFtW), the Swedish International Development Cooperation Agency (Sida), and the Danish International Development Agency (DANIDA). These programs are implemented by organizations including CSRDG, CENN, and the European Foundation. Additionally, the Bank of Georgia Fund “Tree of Life” and the flexible “Social Credit” product offered by the company Crystal represent noteworthy financing options for this sector.
Tax Relief
In the context of social entrepreneurship, a non-profit legal entity is taxed in accordance with the current legislation of Georgia. Under the Tax Code, entrepreneurial activity is considered an economic activity, even when carried out in an auxiliary capacity. If a non-profit legal entity does not carry out economic activities, it benefits from certain tax exemptions, including relief from VAT, property tax on grants, and profit tax. No specific discounts on social security contributions or advantages in public procurement are available beyond the general statutory regulations.
Educational and Informational Support
Technical support in the form of training, consulting, and acceleration programs is provided to social entrepreneurs mainly by the following organizations: the Civil Society Resource Development and Grant-making organization (CSRDG), the European Foundation, the Civil Society Institute (CSI), the Social Enterprise Alliance (SEA), Impact Hub, Arbeiter-Samariter-Bund, and the Caucasus Environmental Non-Governmental Network (CENN).
