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Should Our Nonprofit Dissolve, Merge or Restructure in these Difficult Times?

The COVID- 19 Pandemic and its economic fallout have affected some Pennsylvania nonprofits to the extent that they may wonder about survival. There are a number of corporate restructure possibilities to consider before an organization reaches a point of no return. Here is a quick overview of some options.
A joint venture, in which two or more organizations come together to do something that each cannot accomplish alone, is a potential option that may lead to cost savings and enhanced impact. A formal agreement is recommended and the partners in such an endeavor should seek advice on potential legal and tax issues, especially if one of the partners to the transaction is a for-profit entity.

A formal merger of nonprofit entities can enable cost savings. A merger generally involves a period of due diligence in which each party to the transaction confidentially reviews the business dealings of the other, the formal creation of a plan of merger, a review by the PA Attorney General’s Office, potential approval from PA Orphans’ Court and a formal filing to the PA Department of State. Sometimes nonprofits enter into an affiliation arrangement first, and progress to a formal merger later.

A nonprofit may choose to formally and voluntarily dissolve. The dissolving nonprofit must negotiate and settle its debt. This transaction generally requires a review by the PA Attorney General’s office and potential approval from PA Orphans’ Court, especially if there are charitable assets to be distributed upon dissolution. The PA Departments of Revenue and of Labor and Industry must provide tax clearances for the dissolving entity. Securing tax clearances adds to the time to complete the transaction. Formal Articles of Dissolution are eventually filed with the PA Department of State.

The above list of options for nonprofits is not exhaustive, but may provide some food for thought in these challenging times. When considering options, the Board of Directors of a nonprofits is well-advised to keep the charitable purpose of the entity at the forefront and to start to consider options sooner rather than later.

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