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VIDEO Q&A for Subscribers: August 2024 [SUBSCRIPTION PREVIEW]
Ben and Mike answer questions from subscribers about whether fixed assets and restricted funds can count toward a nonprofit organization's operating reserves, the pros and cons of taking over an existing 501(c)(3) organization rather than starting a new one, how abstentions are counted in a Board vote, and whether an organization should use a credit card or debit card.
Navigating the Nonprofit Dissolution Process
It is relatively common knowledge that dissolving a nonprofit organization is one of the most difficult decisions a Board of Directors may have to make. However, many people underestimate the careful planning, attention to detail, and commitment that is required to properly shut down and dissolve an organization. This process should start well before the filing of “Articles of Dissolution” and often continues in a post-dissolution “wind-up” period that can last for months or years.
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Seven Key Steps for Managing Nonprofit Corporate Governance Disputes [SUBSCRIBERS-ONLY]
For most nonprofit organizations, it is a rare occurrence for internal corporate governance disputes to escalate to the point of litigation. However, court cases are sometimes unavoidable. A notable D.C. Court of Appeals decision addressed several important issues related to corporate governance challenges and illustrated some key steps nonprofits can take to better manage these disputes.
Drafting Dissolution Language for the Articles of Incorporation
The “dissolution” clause in a nonprofit organization’s Articles of Incorporation is one of the key provisions required to qualify for 501(c)(3) status. This language must require that the organization’s assets remain dedicated to 501(c)(3) exempt purposes in the event it dissolves. While this basic principle is easy to understand, many overlook the significance of subtle differences in how to approach drafting this language.
Q&A #120 – Can a program be transferred from a 501(c)(3) organization to a 501(c)(6) organization?
Internal Revenue Service rulings suggest that it is possible to transfer a program from a 501(c)(3) organization to a 501(c)(6) organization so long as the transfer is subject to certain restrictions that ensure the assets remain dedicated to proper 501(c)(3) purposes. However, the specific circumstances are likely to impact the analysis of this issue so retaining legal counsel to advise the organization on the transaction is highly recommended.
Q&A #117 – How does a nonprofit transfer a program to another nonprofit?
Transferring a program from one nonprofit to another can be unexpectedly complicated, and the details will vary depending on the specific circumstances. In effect, the process is similar to a merger or acquisition, and requires extensive due diligence, identifying the assets associated with the program, executing a written agreement with the appropriate terms and conditions, and obtaining the necessary approvals by the respective Boards of Directors (and sometimes voting members, if applicable).
Q&A #25 – What’s the difference between a merger and a transfer of assets?
The key difference is that a merger generally means that the “surviving” organization takes on all of the assets and liabilities of the organization that it is absorbing, while a transfer of assets can be structured so that the surviving organization receives only the assets that it wants, without the transferor organization’s other liabilities (except for liabilities that are attached to the specific assets that are transferred, such as a transfer of real estate that is subject to a mortgage).
A Window of Opportunity for Collaboration Between Nonprofits is Opening
Numerous changes have been thrust upon nonprofits in quick succession this year. While these changes have brought on stark challenges, they have also opened up new possibilities for collaboration between organizations. This window of opportunity may not be open for long, so nonprofits should act now to take a serious look.