In some cases, an organization may consider dissolving and transferring its assets to another entity. In this scenario, when B (the resolution entity) distributes its remaining assets to A (the beneficiary company) and then dissolves, A generally does not automatically assume B.A.`s liabilities. The risk it assumes in acquiring B`s assets may be limited, since B`s liabilities are not necessarily legally transferred to A, unlike a merger. Legal considerations of an asset transfer instead of a merger (dissolution and transfer) The merger procedure involving a not-for-profit corporation is similar to a merger involving a for-profit entity. It generally contains a merger or merger agreement that contains the terms of the merger as well as all appropriate assurances and guarantees from the merging parties. It also includes the filing of merger articles or certificates with the Secretary of State of State. Whether or not the non-profit organization is the surviving entity, it is generally necessary to obtain the director`s approval and the agreement of members when the non-profit organization has members. Another form of business combination is the acquisition or sale of assets in a business. This may take the form of a not-for-profit acquisition of the assets of another non-profit or profit-making organization. The transaction may also include a for-profit acquisition of the assets of a non-profit organization. The structure of such a transaction is very similar to that of an asset acquisition involving for-profit companies. In particular, the selling entity transfers certain identified assets and liabilities to the entity that buys it. The terms of such a transaction are governed by a capital transfer contract.
The recipient company may be able to reduce its liability commitment, although a contractual provision stipulates that it only accepts certain specifically identified assets and liabilities and structures the transaction, so that it is neither on the merits nor on the form of a merger. Particular attention must be paid to the question of whether the compensation provisions, insurance and guarantees offer significant protection, since the beneficiary company may be left without recourse if the dissolution company violates the agreement and has dissolved. A gift structure is not possible if the non-profit organization acquires assets from a for-profit entity or if a for-profit entity acquires assets from a non-profit entity. To the extent that a not-for-profit organization sells its assets to a non-profit organization, such as a corporate corporation. B, as is the case with mergers, government general interest transactions often require a fair value for assets. In addition, many states are requiring that the non-profit organization must obtain permission from a state agency (such as the Attorney General) or a court to continue the operation. In such a situation, it would be important to obtain an independent assessment of the assets as part of the transaction. These are issues that Nixon knows first-hand in two transactions he managed as Missouri`s attorney general. In one of us, HCA bought a non-profit hospital system, Health Midwest. Nixon personally appointed the foundation`s board of directors that received the proceeds and insisted that the board members not be tied to HCA or Health Midwest. The foundation then sued HCA for breach of sales contract, earned hundreds of millions of dollars and proved why it is important to have an independent board of directors.
However, given the uniqueness of not-for-profit organizations, there are other factors that are important to business combinations with non-profit organizations and should be considered part of the due diligence process.