Association of legal entities

What it means

An association of legal entities is a separate legal person that, under the Civil Code, legal entities such as commercial companies, municipalities or universities set up to protect their interests or achieve another purpose. Typical examples are professional and trade associations, clusters, regional development associations and joint research centres.

The association comes into being on entry in the register of associations of legal entities kept by the district office in the regional capital, based on a founding agreement and statutes. The statutes set out the name, seat, activities, bodies, members' rights and duties and financial management. The association receives an IČO and its details appear in the register of legal entities.

Unlike a commercial company, the association's profit is not distributed to members but used for the purpose for which it was founded. It differs from a civic association in that its members are legal entities, and from a joint venture company in that its primary aim is not business and profit.

How it works in practice

Companies form such associations to promote the interests of their sector jointly, share research, organise training, obtain EU funds for joint projects or build a regional brand. Members pay contributions under the statutes, and the association may also carry on business activity if it serves its main purpose.

The association keeps accounts as a non-profit entity. Membership fees and grants may, under certain conditions, be exempt from tax, while income from business and selling services is taxed normally. If the association exceeds the turnover threshold for mandatory VAT registration or supplies taxable services, it must register. The details need assessing for the specific activities.

When founding one, we recommend setting out clearly in the statutes the voting rules, especially if members differ greatly in size, how contributions are set, how members leave or are excluded, and what happens to assets on dissolution. Members are liable for the association's obligations as the statutes provide, so this point needs careful thought.

What to watch out for

Beware of competition law. When competitors meet in an association, they must not exchange sensitive information on prices, customers or plans or coordinate their market behaviour. Even an informal understanding at an association meeting can be a prohibited cartel. Meeting agendas and minutes should be prepared carefully.

A common mistake is blurring the association's activities with those of its members. If the association invoices services actually provided by members, or vice versa, tax problems and liability disputes can arise. Money flows and contracts between the association and its members should be clear and documented.