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Organizations in Transition

Legal Counsel for Philanthropy and the Nonprofit Sector

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Organizations in Transition

Organizations in Transition: The Spectrum of Organizational Relationships

Contractual Relationship Two or more organizations agree by contract to a collaborative effort (joint funding proposal or program, contract for combined administrative services). The organizations remain legally independent from each other, final legal authority remains with their separate boards of directors.
Strategic Alliance, Affiliation, Partnership Organizations continue to remain independent, but may have overlapping board or shared staffing arrangements. Close organizational coordination provides complementary programs, eliminates duplicative services and administrative redundancy, and/or provides for joint fundraising, public relations, planning, marketing, etc.
Parent-Subsidiary Model The organizations continue to have separate legal existence but one becomes the parent of the other. Bylaws and other legal documents are amended to give the parent legal status as "sole member" of the subsidiary (referred to, in nonprofit terminology, as the "controlled" organization), or to serve as the governing board of the controlled organization or to appoint its board.
Merger Legal absorption of one organization into another. Surviving organization's name may remain the same. The acquired organization is subsumed, along with its funds, assets, property debts, and obligations, into surviving organization. The surviving organization is the legal successor to the other for liability purposes, in contrast to dissolution.
Consolidation into Single Organization The organizations are legally consolidated into a single new or "resulting" organization, which would assume the assets, activities, liabilities, etc. of the original organizations that are being consolidated.
Dissolution An organization terminates its legal existence by filing for corporate dissolution. With state approval, its remaining funds and assets, if any, are granted to one or more similar organizations. These organizations are not legal successors in interest to the dissolving organization, and are not liable for its debts or liabilities, but are treated as grantees or recipients of remaining funds.
Dormancy of One or More Organizations One or more organizations remain active while the other organizations become inactive or "dormant." No legal changes are made to any of the organizations; they remain legally independent from each other. Active organizations may enlarge scope of activities to provide services to constituency or clients of other organizations and assume some or all of the dormant organizations' staff, resources, etc. Dormant organizations continue to meet the legal compliance requirements to avoid penalties or loss of exempt status.

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