You are here

Hostile takeovers and nonprofits

Your Legal Questions Answered

Hostile takeovers and nonprofits

About a year ago, a group of people did a hostile takeover of our local nonprofit organization, and I, along with some other board members, was removed from the board. The major disagreement was that some board members wanted to use the group's money to defeat the mayor who was running for reelection. Those who disagreed were removed. This new board picks who they want to attend meetings and who is on the board. They also have had the local media print information that they know is not correct and was meant to discredit and humiliate the former members. They claim to speak for everyone in the community but they don’t. They are continuing to work to remove the mayor from office. What can be done about this group?

You don’t indicate whether the nonprofit is a 501(c)(3) charity or some other type of exempt organization. (See Ready Reference Page: “What Do We Mean When We Say Nonprofit?”) If it is a 501(c)(3) charity, it can lose its exemption if it supports or opposes a candidate for public office and the IRS would probably investigate a complaint. (See Ready Reference Page: “IRS Guidance Has Not Changed on Electioneering.”) If it is a (c)(4) civic organization, it is permitted to endorse or oppose candidates so long as that is not a primary activity of the organization. In either case, if the group is a corporation and actually spent money in the campaign, it may have been a violation of state or local campaign finance laws, which often prohibit use of corporate funds in political campaigns. The Attorney General or local prosecuting attorney might be interested in this.
You also don’t indicate whether the organization is a membership organization in which the members (and I assume that you are one of them) have the power to elect or remove directors. If so, you might be able to organize the members for a hostile ouster. If it is a self-perpetuating board organization, you probably can’t do much about this group without support from a majority of the directors. You and your friends could, however, start a competing organization to speak for the community.
Knowingly making false statements to discredit individuals might be considered defamatory. If you have been damaged, you might want to consult an attorney about suing, although litigation may not be worth the time and effort.
Friday, September 10, 2010

Add new comment

Sign-up for our weekly Q&A; get a free report on electioneering