A Look at Strategic Alliances through Both a Legal and Funding Lens
1. A Look at Strategic
Alliances through Both a
Legal and Funding Lens
2014 Nonprofit
Empowerment Summit
Giving It Our All!
Kelly Nowottnick, ESQ, Associate, Venable, LLP
John W. Dyess, Senior Consultant, Like Minds
2. A Look at Strategic
Alliances of
Nonprofits through
both a Legal and
Funding Lens
Presented by
Kelly Nowottnick of Venable LLP and
John Dyess of Like Minds, LLC
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3. What is a Strategic
Alliance?
• Two or more organizations combine, affiliate or
otherwise come together; and
• At least one of the organizations gives up some
level of independent decision-making in order to
accomplish an organizational or community goal.
• Strategic alliances usually occur for common
mission-related objectives.
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4. Temporary/Contractual
Alliances vs.
Permanent/Fully-Integrated
Alliances
• Strategic alliances can be contractual or temporary in
nature, such as programmatic collaborations,
administrative back-office consolidations and joint
ventures.
• Alternatively, strategic alliances can involve more
permanent, full integration, such as federations,
acquisitions of dissolving organizations’ assets, mergers
and consolidations.
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5. Some Common Types of
Strategic Alliances
ROUGHLY RANGING FROM LEAST INTEGRATED TO MOST
INTEGRATED:
• Sponsorship Agreements
• Programmatic Collaborations
• Back-Office Consolidations/Common Management
Company
• Joint Ventures
• Federations
• Asset Acquisitions
• Mergers
• Consolidations
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6. Sponsorship Agreements
• Fiscal Sponsorships vs. Corporate Sponsorships: two
different concepts
• A corporate sponsorship is the payment of money
by a for-profit company to a nonprofit to further the
nonprofit’s mission, with an acknowledgment that
the business has supported the nonprofit's activities,
programs, or special event.
• Fiscal sponsorship refers to the practice of nonprofit
organizations offering their legal and tax-exempt
status to groups engaged in activities related to the
organization's missions. It typically involves a fee-
based contractual arrangement between a project
and an established non-profit.
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7. Programmatic
Collaborations
• Nonprofits may share policies, procedures and best
practices and pool financial and human resources
to accomplish a common programmatic objective.
• These programmatic collaborations are sometimes
referred to as “co-sponsorships.”
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8. Back Office
Consolidations
• Nonprofit organizations with similar purposes can
affiliate through a common management structure,
whereby the groups realize the efficiencies of
coordinated “back office” operations such as
accounting, meeting management, IT, human
resources, and other supportive functions.
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9. Joint Ventures
• Relationship that arises from an express or implied
agreement between two or more parties to
undertake some common objective for their mutual
benefit.
• Cross-sector joint ventures between one or more
nonprofit organizations and one or more for-profit
organizations are becoming increasingly popular.
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10. Pros and Cons of Cross-
Sector Joint Ventures
• Pros for nonprofit:
o Greater access to capital and professional expertise;
o Opens up business opportunities otherwise unavailable to a tax-exempt organization.
• Pros for the for-profit:
o New sources of capital;
o Access to/exploitation of specific assets owned by the nonprofit (e.g., intellectual
property rights or specific real property);
o Certain tax credits
o Greater community or political support
o May further the philanthropic goals of for-profit company owners.
• Cons for nonprofit:
o May threaten tax-exempt status, if not carefully structured
o May generate UBIT
• Cons to nonprofit and for-profit:
o May unintentionally result in a partnership whereby one partner is liable for the sole
action of the other partner, if such action was carried out in the name of the
partnership.
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11. Federations
• A Federation is generally an association of nonprofit
associations, often structured around regional lines.
• An affiliation agreement is a binding contract that
sets forth the nature of the relationship between the
parties.
• Examples: United Way and various national
associations
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12. Asset Acquisitions
• A nonprofit organization may acquire the assets of a
dissolving nonprofit organization.
• Preferable when one organization is much smaller in size
than the other.
• Also preferable when there are significant future
contingent liabilities, because successor organization
does not, by law, assume the liabilities of the dissolving
organization.
• Procedural requirements can be complicated for
dissolving entity. The dissolving organization must
typically satisfy due diligence requirements; obtain
member approval; adopt a plan of dissolution; satisfy
outstanding liabilities; transfer any remaining assets to
the other nonprofit entity; file Articles of Dissolution with
the State; and wind up affairs.
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13. Mergers and
Consolidations
• With a Merger, one entity legally becomes part of the other,
surviving entity and dissolves.
• With a Consolidation, each entity dissolves, and an entirely
new nonprofit corporation is created to take on the programs,
resources and membership of the former entities.
• Pros:
o Increases assets
o Reduces costs
o Permits new corporation to provide enhanced services and serve larger
constituency
o Reduces members’ dues
• Cons:
o Legal fees
o State filings
o Member approval
o New corporation may need to submit its own IRS application for tax-exempt status
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16. o bringing in new board members and staff with
new competencies and fundraising potential;
o providing the organization with access to donors
from the other constituent nonprofit
organizations;
o improving the community’s awareness of the
organization and its mission;
o increasing administrative capacity;
o centralizing decision-making; and
o improving organization-wide accountability.
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