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Merger of Nonprofit Corporations - Legal and Accounting Issues

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Attorney Edward J. Castellani recently spoke at the Michigan Association of Certified Public Accountants Nonprofit Conference on "Merger of Nonprofit Corporations – Legal and Accounting Issues". The presentation addressed how two nonprofits can legally merge into one nonprofit entity. He also addressed the appropriate steps that need to be taken by both directorship and membership corporations mergers to be approved by the Attorney General.

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Merger of Nonprofit Corporations - Legal and Accounting Issues

  1. 1. MERGER OF NONPROFIT CORPORATIONS Legal and Accounting Issues Edward J. Castellani, J.D., C.P.A. © 2015 Fraser Trebilcock Davis & Dunlap, P.C.
  2. 2.  Two types of nonprofit corporations:  Directorship.  Membership or Stock.
  3. 3.  Board of Directors adopt and approve Plan of Merger.  For a corporation organized on a stock or membership basis, the Board of Directors must recommend the Plan of Merger to the shareholders or members.
  4. 4.  The Plan of Merger must include:  The name of each corporation and the name of the surviving corporation.  If a stock corporation, the number of outstanding shares of each class of stock, the classes entitled to vote, and each class, if any, entitled to vote as a class, and any change in the number of shares before the merger effective date.
  5. 5.  If a membership corporation, a description of the members, including the number, classification and voting rights of members.  If a directorship corporation, a description of the organization of the Board, including the number, classification and voting rights of directors.
  6. 6.  The terms and conditions of the proposed merger, including how the shares or membership will be converted into shares, bonds, or other securities or membership, or cash or other consideration in the surviving corporation.  A statement of any amendment to the articles of incorporation of the surviving corporation.  Other provisions as the board considers necessary or desirable.
  7. 7.  If a membership or stock corporation, the Plan of Merger must be submitted for approval at a shareholder or member meeting.  Notice of the meeting ten days prior, but not more than sixty days before the meeting, shall be given to each shareholder or member, whether they are entitled to consider and vote on the Plan of Merger.
  8. 8.  The notice must include a copy or summary of the Plan of Merger. If a summary is given, the summary shall state that a copy of the Plan of Merger is available on request.  A majority of the shareholders or members entitled to vote must approve the Plan of Merger. If more than 20 shareholders or members, a majority of the shareholders or members present in person or by proxy must approve.
  9. 9.  If a directorship corporation, notice of director meeting shall be given to each director twenty (20) days or more before the meeting.  The notice must include a copy or summary of the Plan of Merger. A majority of the directors must approve the Plan of Merger.
  10. 10.  Certificate of Merger must be signed by President/Chair of each entity and filed with the Michigan Department of Licensing and Regulatory Affairs (LARA), along with a $50 filing fee.  Effective Date – is date of filing unless a prospective date is specified in the Certificate of Merger which cannot be more than 90 days prospective.  Cannot have a retroactive effective date, but can provide the effective date is a prior date “for accounting purposes”.
  11. 11.  When the Certificate is approved by the State:  The separate existence of the parties to the merger cease, except for the surviving corporation.  All property, real, personal and mixed and all debts are transferred to the surviving corporation without further act or deed.  The surviving corporation is liable for all liabilities and obligations of the corporations.  The surviving corporation may use the corporate name and assumed name of the corporations.
  12. 12.  Approval of the Attorney General.  A nonprofit corporation which holds assets for charitable purposes, unless organized for religious purposes, must give notice to the Attorney General’s office of a merger.  LARA shall not accept for filing a merger certificate unless accompanied by the written consent of the Attorney General.
  13. 13. © 2015 Fraser Trebilcock Davis & Dunlap, P.C. Fraser Trebilcock Davis & Dunlap, P.C. 124 W. Allegan Street, Suite 1000 Lansing, Michigan 48933 www.fraserlawfirm.com Phone: (517) 482-5800 Fax: (517) 482-0887 Fraser Trebilcock Davis & Dunlap, P.C. One Woodward Avenue, Suite 1550 Detroit, Michigan 48226 www.fraserlawfirm.com Phone: (313) 237-7300 Fax: (313) 961-1651 Edward J. Castellani, J.D., C.P.A. (517) 377-0845 ecast@fraserlawfirm.com QUESTIONS?

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