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How do we change beneficiary of thrift store?

Your Legal Questions Answered

How do we change beneficiary of thrift store?

We run a thrift store where the proceeds pay to run the store, including a manager’s salary, and the surplus supports a homeless shelter. (Every other worker volunteers their time). Our community raised the money for the nonprofit to purchase the building. We want to change the type of shelter we support because new needs have risen in our community. Can the building be transferred from the current nonprofit to the new one or must it be purchased again? 

Your statement of the situation confuses me.  I assume that the “nonprofit” that bought the building originally is a public charity (See Ready Reference Page: “What Do We Mean When We Say ‘Nonprofit’?”) that doesn’t pay tax on the sales activity because substantially all of the work is performed by volunteers (See Ready Reference Page: “Nonprofit Often Worry About UBIT”).  I am not sure who the “we” are who run the organization, and whether it is a separate independent organization with no other activity or one that does other things or is somehow controlled by or responsible to the “community” that raised the funds to buy the building.  I also don’t know whether the current beneficiary has governance power in the current operating organization, in which case it will be more difficult to change the beneficiary as a practical matter, but not necessarily impossible.

In any case, the answers to those questions may ultimately not make a difference in possible techniques available to you.  I think you have at least three potential ways to change the beneficiary of the work.

If you want to continue to operate the store under your control, the transfer may be as simple as designating a new shelter to benefit from all (or perhaps only some) of the proceeds.  If the beneficiary is named in the articles of incorporation or controls the selection of the board, you will probably need to change your governing documents, a process that would be controlled by state law provisions for such changes.

If you want to get out of the thrift store business altogether, you could transfer control over the current store organization (assuming it is a separate charitable entity) to the new shelter (assuming it is also a charitable entity), by substituting that organization as a new sole member or by having some or all of your board resign and be replaced by the new shelter’s nominees.  (See Ready Reference Page: “Mergers and Acquisitions Can Take Many Forms”)

If you want to get out of the business but retain some of the value of your work, you could sell the assets of your current corporation to a new operator and use the cash for making grants for charitable purposes through your existing corporation (which would probably become a private foundation if there is no future income other than investment income) or through a donor advised fund established with the proceeds.  Ordinarily, control of a charity by substituting members or directors is not “sold” to another person for cash, although that may be possible in some states.  If assets or control are sold, especially if to someone other than another charity, the state Attorney General is likely to have an interest in the transaction.

You need to decide whether you want to stay involved in the operation of the store and retain the right to reallocate the benefits again if needs change again, or whether you are willing to transfer complete responsibility to someone else.  You also have to decide whether you are willing to give away your valuable assets or whether you want some compensation for doing so.  Depending on what you decide, I think you have avenues available for doing what you wish.

Monday, November 28, 2022

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