Nonprofit Law/Non profit merger

Advertisement


Question
Non profit organization "A" and non profit organization "B" have voted and decided to merge without any due diligence, planning, or structuring discussions. The boards of both organizations have members that are employees of a local bank that handles their banking as well as holding a lien on organization "B" building. Is it illegal or unethical for those members to be involved with the merger? Also, if organization "B" is placed under organization "A" 501(c), wouldn't organization "A" be the governing board?

Answer
I have in my profile that this free forum is only for general questions relating to IRS federal exemption issues of 501(c)(3) organizations. You did not specify what types of nonprofits, but, I am assuming that you are referring to 501(c)(3) organizations. The IRS has no problem with two 501(c)(3) organizations merging. Your issue is controlled by state law and states may differ somewhat with how they would treat such issues. Even though this forum is not for such state law issues, I will direct you to  http://law.justia.com/codes/indiana/2010/title23/ar17/
which is the Indiana Nonprofit Code as revised, 2010 and specifically read the parts about mergers at
http://law.justia.com/codes/indiana/2010/title23/ar17/ch19.html

Also, as to "Contracts and transactions in which member, director, officer, or member of designated body has interest" see
IC 23-17-13-2.5 which is available at http://bquot.com/fic

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

Nonprofit Law

All Answers


Answers by Expert:


Ask Experts

Volunteer


Harvey Mechanic

Expertise

I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at Harvey108@hotmail.com I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.

Education/Credentials

B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.


©2016 About.com. All rights reserved.