Legal Question in Business Law in California
Affiliate, Susidiary or other
We are a small nonprofit corp. in CA, but do not yet have 501(c)3 tax status. Another nonprofit has asked us to, essentially, ''work for us''. They would pay our salaries and health benefits, so we would in fact work for them. We are concerned, however, of losing our autonomy, of losing control of our current project. Specifically, we would like to make the program decisions, use our people, etc., and, if things didn't work out with our new employer, we would want to pick up our program and leave, if need be.
The question is what type of agreement, or relationship could we establish with this other nonprofit so as to protect us as described above. What are the options; i.e., affliliate, subisidiary, others? Thanks.
1 Answer from Attorneys
Re: Affiliate, Susidiary or other
First, I think any nonprofit organization seeking 501(c)(3) recognition should have an attorney involved in that process. That attorney would then be the best source of advice on the question of accepting assignments from other organizations.
It looks to me as though the most suitable way to take on these assignments would be by contract, rather than by some formal combination of your entities such as becoming a subsidiary, which would destroy your autonomy.
Before you take on projects unconnected with the purposes for which you were founded and which were stated to the IRS as your objectives in your 501(c)(3) application, you must give careful consideration to the effect such assignments would have on your application process and your eligibility.
While it is true that 501(c)(3) companies can do unrelated business activities under some circumstances, it complicates your accounting and reporting, some activities are impermissible, and prior to obtaining 501(c)(3) status these activities can muddy the water concerning your eligibility. Do not proceed without advice from a nonprofit specialist attorney who has reviewed the actual language of your Articles of Incorporation, bylaws and your IRS application.
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