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Our articles of incorporation state that our nonprofit cannot own stock. Can we can change the articles?

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Our articles of incorporation state that our nonprofit cannot own stock. Can we can change the articles?

Our articles of incorporation state that our 501(c)(3) religious nonprofit cannot own stock. Is there any way we can change the articles or adopt a new policy on investing?

It would be very unusual for the articles of incorporation of a nonprofit corporation to provide that the organization cannot own stock. After the Great Depression of the 1930s, a few founders may have wanted to protect the organization against the dangers of cratering stock prices, but most of those limitations have been eliminated by now. A significant part of most charitable endowments consists of stock in business corporations.
 
The articles may say that the corporation is a “non-stock corporation,” which means that it cannot issue stock in the corporation itself. In many states, a nonprofit can issue shares of stock, which effectively serve as membership certificates. The corporation may not pay dividends, but may have members who hold “shares.” 
 
In social clubs and other non-charitable situations, it may be possible to divide the net assets among the shareholders if the corporation dissolves. Assets would not be distributable to members or shareholders upon the dissolution of a charitable corporation, however.
 
If your articles of incorporation actually do prohibit the ownership of stock, I would assume that you could amend your articles to change this provision in the same way you would amend them to change other provisions. Check with a lawyer in your state. It is ultimately a question of state law.
Friday, March 27, 2009

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