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May nonprofit use restricted funds for operational costs

May nonprofit use restricted funds for operational costs

Your Legal Questions Answered

For a number of years our 501(c)(3) nonprofit corporation put the money that was left over at the end of the year into CDs at a local credit union. Some past officers/board members insist on calling it a building fund. Because of current low grant income, can our organization now use this money for operational costs if it is approved by the board and the membership?

It sounds as though you can.  The key issue for so-called “restricted” funds is who imposed the restrictions.  If they were imposed by a donor, you need to get the donor’s permission to waive them, or perhaps a court’s approval if the donor is no longer living.  But if the restrictions were merely placed on the funds by the board of directors (and no additional funds were given by donors thinking they were being placed in a restricted fund), the directors can change their collective mind and remove those restrictions.  Since this seems to be surplus income that was not given with any restrictions, the fund would not be donor-restricted and would be available to be spent for general operations.

Unless there is something unusual in your bylaws, the board could normally make this decision itself, without requiring the approval of the members.  Assuming that the members are voting members with full rights similar to those of shareholders of a business, they could vote the board members out of office if they don’t like the decision, but that seems unlikely.  If you get the approval of the members, so much the better.

Tuesday, May 15, 2012

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