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Realities of Nonprofit Fundamental Change

Nonprofit organizations are particularly “people centric”. Their volunteers, members and directors carry with them intense emotional involvement and passion for the organization’s mission.  In fact, they frequently experience extreme sensitivity and even trauma when facing a fundamental change.  These changes often arise during key moments in a nonprofit’s life cycle, whether the organization is growing, restructuring, merging, acquiring or even dissolving.  Pennsylvania law is explicit about the statutory procedures to be followed during a fundamental change.  It lays out the signposts: corporate action; development of a plan; notice to stakeholders; and regulatory approvals.  But these roadmaps do not tell the whole story.

Articles of Amendment: This change can be utilized for a variety of reasons from simply a name change, to a membership change or to enlargement of a purpose.  Besides those rather simple acts, there are also opportunities for restructuring in terms of relationships and overall identity.  This is often evident when a local chapter seeks independence from its national parent. In such cases, the emotional toll can include a sense of disloyalty or even sadness at leaving its nest.

Merger: In today’s world, there are many nonprofit organizations serving similar causes.  The competition can be difficult for organizations without a strong core of support.  Although the prospect of merging with another compatible organization appears initially to be attractive, it often leads to mixed feelings when the reality hits that one partner to the merger will survive while the other will be extinguished.

Division: This change initially seems like a win-win – but ultimately, there comes an inevitable concern of additional administrative burdens, i.e. another board; another set of books; additional paperwork/meetings and even more filings.

Sale of Assets: This change can be rigorous, depending on the size of the sale and the nature of the assets being sold.   If it is a health care entity, there are special rules regarding fair market value and appraisals and approval by the attorney general; if it is a sale of real property, there are requirements for detailed due diligence in every aspect of the transaction. And if it is a charitable entity, the statute specifically provides that assets given for a charitable purpose may not be diverted from that object for which it was given. A resulting foundation may be created to hold those special assets and keep them sacrosanct for their intended purposes.

Dissolution:  It is generally a sad time, whether caused by financial worries, diminution of members or lost funding. There are often wrenching decisions to be made regarding potential liability, remaining property and adequate notice to creditors.

Although the statute is clearly written with how-to processes, anyone contemplating fundamental change must factor in the human element that is sure to pose last minute complications.