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September 24, 2020
Notify AG of Drastic Changes to Your Nonprofit
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As strapped nonprofits think about selling property, drastically revamping their activities, or even closing down, they might not realize that the Massachusetts attorney general’s Non-Profit Charities Division must first be notified through a series of filings #147; and court approval may be required, too.

New Section 8A guidelines issued late last year by the state attorney general clear up confusion about the process for transferring substantial assets (75% or more), making material changes in activities, and dissolving a nonprofit corporation, but they also tighten up the Non-Profit Charities (NPO) Division’s oversight and enforcement of laws governing such actions.

According to the guidelines, "material changes" significantly alter the nature of activities or the communities served.

For example, if a charity dedicated to providing affordable housing is selling its apartment building and intends to use the proceeds to make grants to assist other nonprofits, a material change would result because the entity is fundamentally altering its operation from service provider to grant-maker.

In contrast, a school that is selling its property but using the funds to continue providing educational programs at another location and continuing to serve substantially the same community is not making a material change.

Other examples of changes in activities that are not considered “material” include a long-term lease, merger or consolidation, amendment in purpose, joint venture, affiliation with another charitable organization through overlapping boards and/or contractual agreements, or the termination of such an affiliation. These changes do not require “adequate notice” to the attorney general.

"Adequate notice” may take some time to prepare, the guidelines caution. At least 30 days before the transaction, such as transfer of assets, the organization must submit five components:
  • A description of the charity’s documented decision-making process, including a vote by two-thirds of “the members eligible to vote”
  • Details relating to the assets involved, including their history and any restrictions on their use
  • Demonstration of the fair market value of consideration being paid for the assets
  • Identification of the purchaser or transferee, its relationship to the charity, and evaluation of the arm’s length nature of the proposed transaction
  • The charity’s plan for the use of the resulting proceeds
Other circumstances that require the attorney general’s assent include:
  • A material change in the asset use or modification of donor restrictions

  • A sale of assets for less than fair market value, which may necessitate filing a petition with the Supreme Judicial Court
Steps for Dissolution

For charitable organizations ceasing their activities altogether, the attorney general has outlined significant changes to the dissolution process, which used to require only an order of the Supreme Judicial Court.

Any organization with assets now must follow ten steps for dissolution, which include filing a Form PC-F, taking specific board actions, preparing and filing of a dissolution complaint package, and preparing affidavits.

After the NPO Division has received all necessary documention, the public charity must receive approval from the Supreme Judicial Court before transferring assets and dissolving.

Step-by-step instructions, model documents, and forms for charities (both for those with and without remaining assets) are located on the NPO division website under “Dissolving a Charitable Entity.”

Massachusetts charitable corporations with no remaining net assets (zero balance) can dissolve through an administrative dissolution petition filed with the NPO Division; court approval is not required.

An administrative dissolution through the attorney general does not, in and of itself, relieve or waive the organization’s debts, however.

Even organizations that neither raised money nor operated must formally dissolve, the guidelines warn.

Submitting Missing Reports

Long-dormant organizations that would like to officially dissolve need to first catch up on overdue filings, such as annual reports. They must submit outstanding filings for the last four years or for as long as the organization was active—whichever is shorter—before the NPO Division will approve the dissolution.

Organizations that owe filing fees but cannot pay them can contact the division to work out a solution, according to the attorney general.

Some public charities that are noncompliant with their registration and/or annual filing requirements are posted on the NPO Division’s website under “AG’s Oversight & Enforcement Role”.

The website also notes that the longer an organization waits to file outstanding reports, the more the officers and directors run the risk of “potential enforcement action.”

May 2011
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