Economic Associations – legal or loophole?
Many well-known associations such as the FIFA, the TCS or the umbrella corporations of the big auditing companies are organized as associations. There are a lot of economic associations in Switzerland even though the Swiss Civil Code states that associations need a non-commercial purpose. How do reality and law fit together?
«Economic» explained
When one thinks about associations the local sports or dancing clubs are usually the first thing that comes to mind. But in Switzerland a lot of associations make millions of revenues every year and have thousands of members. Contrary to the original idea of a non-commercial purpose, these clubs pursue at least secondary monetary objectives. Said institutions are commonly referred to as economic associations. A club is considered economic if it either pursues an economic purpose or if it operates a commercial business. An economic purpose is given if the members of the associations gain specific monetary benefits from the associations work. This is especially the case if the association has a large infrastructure that allows it to play an active role in economic life. The operation of a commercial business requires an independent and permanent activity which is focused on economic goals. An association operating a commercial business is obliged to have it registered in the commercial register (Art. 934 par. 1 CO).
Compatibility with the law
Economic associations must pursue an ideational – not an economical – purpose according to Art. 60 par. 1 CC. Furthermore, an association that operates a commercial business must be registered in the commercial register (Art. 61 par 2 CC). Additionally, associations are prohibited from pursuing an economic purpose and operating a commercial business at the same time according to Art. 91 HRegV. The Federal Supreme Court ruled in 1964 in the case “Alex Martin” that the pursuit of an economic purpose is permissible if the association does not simultaneously operate a commercial business. With this decision the FSC intended to adjust the judicial practice to the legal reality.
There are four possible constellations:
- Ideational purpuse without a commercial business: Corresponds to the basic type of association. This non-profit organization is legal and mustn’t be registered in the commercial register.
- Ideational purpuse and commercial business: Economic association that must be registered in the commercial register.
- Economic purpose without a commercial business: The FSC has ruled that this form of an economic association is permitted contrary to the wording of the law. The association mustn’t be registered in the commercial register.
- Economic purpose and commercial business: According to the ruling of the FCS this combination is illegal.
In real life practice, the distinction is often difficult, and one must decide for each club individually.
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