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If nonprofit disbands what happens to invested funds?

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If nonprofit disbands what happens to invested funds?

I worked for a nonprofit with the mission of restoring a theatre, the current board has decided they are tired and wish to possibly dissolve the corporation and abandon the project. There are over $2.5 million in private and public funds invested in this project. Also the property is privately owned with a 95 year lease with the nonprofit. If the nonprofit should disband what happens to those funds that were invested? Can the capital improvements be turned over to a for profit corporation?

Assuming that the nonprofit is recognized as a charitable organization, if it dissolves, its remaining net assets must be distributed for charitable purposes, usually to another charitable organization or a governmental entity. They cannot be given outright to a for-profit organization or distributed to members or directors. The assets might be sold for fair value, but the proceeds would have to be used for charitable purposes, as has been the case in so many "conversion foundations" resulting from the sale of charitable hospitals to for-profit businesses. (See Ready Reference Page: "Conversion Foundations Face Key Issues Early.") The proceeds might be used to set up a theater fund at the local community foundation. The state Attorney General usually has an interest in that type of situation.
With as much public and private investment as you cite, it would be wise to talk with the most significant investors and other stakeholders before making any final decisions. There might be another group willing to take over the project.
Friday, August 26, 2011

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