Federal Tax Merger of Nonprofits

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					United Way of RI
Merger and Consolidation Fund Forum
March 24, 2009
Non-profit Survey Results Preview
Highlights
     Question:
     As a result of current economic
     conditions, within the last 12 months,
     what has happened to the demand for
     services overall?

     Answer:
     Increased: 63%
     Stayed the same: 23%
     Decreased: 14%
Non-profit Survey Results Preview
Highlights
     Question:
     What steps has your organization taken
     in response to current economic
     conditions?

     Answer:
     Reduced staff hours: 31%
     Realigned staff: 47%
     Salary adjustments: 35%
     Reduced non-personnel expenses: 47%
Non-profit Survey Results Preview
Highlights
     Question:
     In view of current economic conditions
     has your organization taken any of the
     following actions?

     Merging with another organizations?
      • No action intended: 69%

     Merging back office operations?
      • No action intended: 66%
     AFFILIATIONS & ASSET PURCHASES

                 Alternatives to Mergers

NRI COMMUNITY SERVICES, INC. & AFFILIATES

                        Radisson Airport Hotel
                            March 24, 2009
                         8:00 am to 12:00 pm

               Presented by Christian L. Stephens, MS
                          President/CEO

   The 2008/2009 NRI Community Services and Affiliates corporate
  configuring activities have been supported in part from a grant from
             United Way’s Mergers and Acquisitions Fund

                                                                         5
            QUICK ORIENTATION TO
        NRI COMMUNITY SERVICES, INC.
• A 43-year-old licensed and accredited non-profit, tax-exempt
  Community Mental Health Center that has developed a wide
  range of behavioral health services, requiring networking and
  contracting with public, private and nonprofit organizations for
  federal, state or local financial support.
• A parent agency and affiliate nonprofit network that puts $18
  million into the Rhode Island economy primarily in the form of
  staff salaries and spending. We also contribute over $100,000 a
  year in property taxes to the City of Woonsocket.
• A multi-service organization whose service approach includes
  developing resources for clients’ housing, employment, peer
  support, and self help needs, on the assumption that maximizing
  the quality of clients’ lives will reduce their need for, and use of,
                                                                        6
  publicly-funded behavioral health services.
     GOALS OF THE PRESENTATION

A.   Frame Discussion Differently

B.   Brief Description of Affiliation and Asset
     Purchase Approach

C.   Why Some Nonprofits Fail

D.   Tips: War Stories and Examples

E.   Outcomes from United Way Grant

F.   Questions and Answers
            Cynthia J. Warren, corporate counsel
            Frank A. Monti, CPA, audit firm
                                                   7
BELIEFS




          8
     COMMONLY HELD BELIEFS IN
THE FOR-PROFIT AND PUBLIC SECTORS
A.   The huge number of Rhode Island nonprofits equals
     inefficiency.

B.   The funding of so many Rhode Island nonprofits equals
     duplication.

C.   That smaller nonprofits equals a higher percentage of
     funding goes to overhead.

D.   That consolidation and mergers in the nonprofit sector
     equals more effective use of donors’ funds and public
     financial support.

                                                              9
        COMMONLY HELD BELIEFS IN
         THE NONPROFIT SECTOR
A. The large number of nonprofits in Rhode Island is the result
   of small groups and larger constituencies coming together
   around shared concerns to provide new models for services
   and social change. New nonprofits will succeed or fail at
   about the same rate as other small start-up for-profit
   businesses based on initial capitalization, entrepreneurial
   abilities, business model, customer satisfaction, community
   need, etc.
B. “Duplication” is used to criticize the nonprofit marketplace
   unfairly – human services come in different sizes and shapes
   – customers will sustain the business only if it offers
   something different than competitors and at a fair price.

                                                              10
        COMMONLY HELD BELIEFS IN
         THE NONPROFIT SECTOR

C. Administrative costs are lower than the for-profit sector;
   management also often provides direct services; back office
   costs are high only when payors or regulators mandates are
   excessive.
D. Mergers and consolidations inevitably make for larger
   organizations with leadership that is too far removed from
   customers. Mergers generally result in subtle but significant
   changes in mission and volunteer support. Mergers create
   little true saving in administrative personnel.




                                                               11
                    OUR APPROACH
“Affiliations”
• Can be customized to have as little and as much control as
  the two parties mutually agree upon. Changes in control
  should be applied only where it is necessary to accomplish
  some major objective.
• Bylaws, affiliation terms, and agreed upon business practices
  will establish the degree of integration, the back office
  efficiencies, and strategic alliances that the parties desire.
• Fragile nonprofits, and those stable nonprofits that project
  major uncertainty in the future, should start early to find the
  right affiliation. They owe it to their clients served, their
  founders, and the staff who have worked to sustain the
  agency’s services.

                                                                    12
                   OUR APPROACH
“Asset Purchases”
• Can be used to acquire the intangible assets as well as the
  tangible assets of another nonprofit – preserves staff
  expertise, use of name if desired, maintenance of all or part of
  client services.
• Can be a way one organization settles up some tax liabilities
  and/or small creditor issues for the governing Board of the
  other organization.
• Can provide for Board seats, employment contracts, and
  maintenance of effort to preserve community services for a
  transition period.
• Limits the “parent’s” exposure to unknown liabilities.

                                                                  13
“Mergers”
• Are generally advocated for by state agencies, philanthropic
  organizations, and larger service providers - not by trade
  associations, consumer advocates, or small to medium size
  nonprofits.
• They are by nature, usually top down, originating with Boards,
  consultants, CEOs and therefore, often more about business
  share and agency growth than about service integration.
• Affiliations and Asset Purchases enable nonprofits of different
  sizes to negotiate mutually beneficial arrangements.
• Preserving client services, increasing the effectiveness and
  efficiency of client services, and preserving the
  people/positions with expertise is as important in the nonprofit
  sector as getting agencies to share their “back office” IT, HR,
  Fiscal, Planning/Grant Writing, etc. expertise.
                                                                 14
 MOST COMMON PROBLEMS
      UNCOVERED IN
INTERAGENCY DISCUSSIONS



                      15
Boards
• Inadequate leadership transition planning often had resulted
  in the Board shrinking to three interested volunteers.
• No effort to have a “diversity plan” for directors and officers.
• No Directors and Officers coverage for employee practices.
• Differences between Board and Executive on the current
  problems and solutions.
• Mission/Purpose is a moving target based on where the $ is;
  not much of a strategic plan.




                                                                     16
Leadership
• Poor employment practices.
• Poor budget-to-actual documents and reviews by Board with
  Executive.
• Little strategic efforts with other organizations.
• Executive leaving/left without transition planning.
• Unpaid taxes; other creditors.
• More charisma than execution.




                                                              17
Facilities
• Not handicapped accessible.
• No capital repair and replacement planning.
• Deferred fire and safety improvements.
• Little property management and attention to working
  conditions.
• No ongoing “right sizing” of space.




                                                        18
Services
• Valued by families and/or communities.
• Inadequate screening, training, supervision of staff.
• Generally not following any “best practice” or “evidence-
  based” service model.
• Inconsistent competency of staff.
• Inadequate quality and outcome monitoring by the funding
  source.
• Under use of technology.




                                                              19
                            OPINION
Many organizations we reach too late – or they reached out to us
after losing too much staff capacity or financial support. These
organizations seemed to have no annual plan that related to the
annual budget. There was not much contingency or strategic
planning regarding how they would adapt. Employment practices
were poor. There was little risk management efforts related to
staff, clients, buildings. Executive Directors, Assistant Directors,
Financial Directors lacked some of the training and skills normally
expected in these positions. There were pretty obvious options
for interagency management services agreements, staff leasing
agreements, referral and coordination agreements and strategic
alliances if the organization had been more honest with itself
about strengths and weaknesses. There was no evidence of any
effort to share even non-controversial things like staff training, let
alone complimentary areas of expertise. Nonprofits often seem
to act like they deserve to thrive solely because of the importance
                                                                     20
of their Mission.
TIPS




       21
“Due Diligence”
  Attorneys and auditors create lengthy lists of documents to
  review and a review process that involves use of their
  expertise at considerable cost. A compatibility review for
  synergies and differences, strengths and weaknesses,
  business opportunities often comes down to corporate
  cultures. Due Diligence should start with a leadership staff
  review of both organizations’ key documents, strengths and
  weaknesses and core services in order to identify the key
  questions and hurdles to an affiliation. Use attorneys
  primarily at the end – regarding governance structure and
  terms and conditions – otherwise they tend to create a “we –
  them” dynamic, just by the nature of their roles and
  responsibilities.


                                                             22
“Be Prepared”
  All nonprofits should create a master list and fill one drawer or
  one disk with critical information they will need for a grant, a
  bank, a possible affiliation. Basic agency documents are
  often scattered between the Board President, Director,
  Finance Director with no system to stay current with key data.
  Often it is the brochure, the news article, a section of an
  unsuccessful grant application that, if readily available, could
  help tell your story.




                                                                 23
“Be Prepared if The Executive Director is Founder”
   Boards often are not fully directing the CEO and sometimes
   are hand picked. A founding Executive’s emotional
   investment in the organization is so high that sometimes all
   possible merits of an affiliation cannot get past the Executive
   Director’s opinions. Where Boards thought an affiliation
   would assure long term survival, they often ended up
   deferring to the charismatic leader who assured them he/she
   has and will get them through all future obstacles.




                                                                 24
AFFILIATIONS CAN BE OPERATIONALIZED
AND MAINTAINED VERY DIFFERENTLY
 The “reserve powers” of the new parent company can be as
 visible or invisible as needed for the organizations to preserve
 and grow their funding, their services, their community impact.
 Bylaws, administrative agreements, the meeting style of the
 Board Chair and the management style of the CEOs can make
 every affiliation unique as to the short term and long term
 accomplishments.




                                                                25
LOOK FOR COMPLEMENTARY, NOT JUST
 SUPPLEMENTARY, RELATIONSHIPS
 As we were connecting housing and services, it highlighted the
 important reality that both organizations may not gain equally
 financially, but the clients of both organizations win. Affiliations
 usually result in one organization disproportionately benefiting
 from the back office capacity of the other. An agency may
 preserve its community function by adapting some of its capacity
 to other organization’s clients’ needs.




                                                                  26
WHAT CAN YOU SELL AND TO WHOM?
 If you do not like larger nonprofits approaching you for
 possible win-win opportunities……..if you get so stuck on
 “what is their hidden agenda” that you cannot get out of your
 own way………..then identify every single area of staff or
 program expertise, and brainstorm what private, public or
 nonprofit agency might need your expertise.




                                                                 27
HOW DO WE LOCATE THE POSSIBLE
COLLABORATING ORGANIZATIONS?
 Don’t think like a Rhode Islander! An agency a half hour
 away – half way across the state – could still be a viable
 partner. Think outside your field – what else do your clients
 need? What would compliment your services? What services
 are you trying to find a funding source for that another agency
 is already doing? - It is not always about increasing
 revenues or excess revenue – half of the time it should be
 about decreasing costs. Don’t spend a lot of time and energy
 guarding against seemingly acquisitive or predatory large
 nonprofits. Search out the mid-sized agencies that have
 capacities you don’t have. Purposely write each other into
 your grant applications or contracts to force greater
 coordination.
                                                              28
LAWYERS, AUDIT FIRMS, INSURANCE AGENTS
 Invaluable advisors to the process. Avoid using “pro bono”
 experts or experts serving on the Board wherever possible.
 You need optimal objectivity from the advice and counsel of
 consultants.




                                                               29
Agency     Type of        Source      Precipitants       Short Term Result            Long Term Result
          Governance      of               to
           Change         Funding       Change
                          for
                          Change
CRA,      NRI created     UW         Less need for    Provided counseling to   Both services continue today
Inc.      non-                      separate entity   insured clients            within NRICS
          controlled                                   Provided state funded
          affiliate,                                 elder services
          controlled
          affiliate, 
          dissolved
Boucher   3 minimally     UW         Affordable       Construction jobs        Convert delinquent
Sadwin    controlled                housing for        Income to church and     properties and church exempt
and       affiliates of             clients           private sellers            properties to tax paying, well
Suther-   NRICS  1                  Lowering         Property on tax rolls    maintained supported
land,     minimally                 interest rates     Affordable apartments    housing. Able to find and
Inc.      controlled                 Financing                                  serve clients.
          affiliate                 improvements
                                     Preserve low
                                    rent status




                                                                                                           30
Agency      Type of     Source of      Precipitants       Short Term Result              Long Term Result
          Governance    Funding             to
           Change       for              Change
                        Change
NRI       NRI created   UW            DCYF contract    Loss of family             DCYF selected new lead
LCC       non-                       consolidation     advocates, charitable        agency. NRICS has year-to-
CASSP     controlled                                   contributions, and           year subcontract.
Inc.      affiliate                                   organizational identity
          minimally
          controlled
          affiliate 
          Asset Pur-
          chase/Disso
          -lution
RJ        Mgmt.         NRICS         Weak Board       Gradual integration of     Licensed, accredited, repaired
Wilson,   Agreement     secured       Leadership      mental health and            half-way house for mental
Inc.       Asset       federal,     change            substance abuse staff and    health and substance abuse
          Purchase/     state &       Financial       treatment approaches         residential treatment.
          Dissolution   local        problems
                        funding
CHIC      Asset         NRICS         Weak Board       Hired staff                Converted into a sober house
          Purchase/     operations    Managed Care     Relocation out of          for homeless veterans
          Dissolution   and           Funding         neighborhood to accessible
                        reserves     challenges        nearby location


                                                                                                            31
Agency     Type of     Source of      Precipitants      Short Term Result             Long Term Result
         Governance    Funding             to
          Change       for              Change
                       Change
DAPAC    Asset         NRICS         Weak Board      Large batterers           NRICS dropped service due
         Purchase/     operations    Leadership     intervention program        to poor regulation of clinical
         Dissolution   and          change            Hired consultants         and business practices in this
                       reserves      Managed Care                               field


MCNE     Asset         NRICS         Leadership      Large batterers           NRICS dropped service due
         Purchase/     operations   change           intervention program        to poor regulation of clinical
         Dissolution   and           Managed Care    Hired consultants         and business practices in this
                       reserves                                                  field
PFLC     Asset         NRICS         Weak Board      Paid bills                NRICS continues parent
         Purchase/     operations    Leadership      Hired staff               aid/education in home
         Dissolution   and          change            Closed office             services on a small scale
                       reserves      Funding
                                    challenges
RITA     Asset         NRICS         Competition     Paid Bills                NRICS unable to maintain
         Purchase/     operations   from ASOs         Relocated out of          Providence area services due
         Dissolution   and           Building       neighborhood to more        to changes in state funding
                       reserves     problems         accessible location         and resistance from ASOs
                                     Funding         Maintained some
                                    challenges       services
                                                      Increased NRICS HIV
                                                     mental health and housing                           32
                                                     efforts
Agency    Type of        Source of       Precipitants        Short Term Result             Long Term Result
         Governance      Funding for          to
          Change         Change            Change
TOCTA    Asset           Current          Increased       Preserved client          No support from nonprofit
         Purchase        operations      competition      transportation service      sector for purchase of client
                                          Loss of         Hired staff               transportation services
                                         funding           Consolidated offices
CSR      For profit,    • Installment    Need for        Served multiple           Providing temporary staffing
         non-profit      purchase        higher quality   nonprofits                  services primarily to
         with outside    from            temp staffing     Hired their consultants   VNSGRI and NRICS and
         management,     business                                                     affiliates in order to keep
          affiliate     income;                                                      overhead low.
         with NRICS      • NRICS
         management      Loan;
                         NFF
CRS      For profit,    • NRICS          Building        Buildings all upgraded    Specialized ALR for veterans
         non-profit      current         problems          Increased coordination    with SPMI. Specialized ALR
         with outside    operations       Leadership     with mental                 for Medicaid enrollees with
         management,     • RIHEBC        change           health/substance abuse      SPMI. Operating support
          affiliate     • Bank of        Funding        providers                   from NRICS in exchange for
         with NRICS      America         challenges        More emphasis on          housing homeless mentally ill
         management                       Tenant         securing full time          clients and coordinating care
                                         Needs            employment in nonprofit
                                                          sector for per diem         Converting one ALR to
                                                          workers                     substance abuse care.
                                                                                                               33
Agency     Type of       Source      Precipitants        Short Term Result             Long Term Result
          Governance     of               to
           Change        Funding       Change
                         for
                         Change
HPPL      New housing    HUD         Need for a       HIV preferred,            Forty-year low rent
          affiliate                 borrowers corp.   independent housing for     independent living
                                    to secure         mentally ill                apartments, for adults with
                                    funding            Improved property         mental illness
Morin     New housing    HUD         Need for new     Independent housing for   Forty-year low rent
Apts.     affiliate                 borrowers corp.   adults with disabilities    independent living
                                    for funding        Improved property         apartments for adults in
                                                                                  recovery
Tanguay   State          HUD         Need for new     Property back on tax      Forty-year supervised
Apts.     building                 borrowers corp.   rolls                       apartments for adults with
          new housing               for funding        Converted state-owned     mental illness
          affiliate                                   group home to apartments
                                                       Reduced number of
                                                      unrelated tenants
                                                       Improved property
BVMHR     Non-           Multiple    Separate         NRICS Board can focus     10 apartment buildings; 100
          controlled     Sources    Board for         on services because         units; $7 million in assets
          affiliate to              development &     affiliate dealing with
          Controlled                management of     “bricks and mortar”
          affiliate                 affordable        issues.
                                    housing for                                                          34
                                    NRICS clients
Agency      Type of         Source     Precipitants       Short Term Result           Long Term Result
           Governance       of              to
            Change          Funding      Change
                            for
                            Change
Pending    • Mgmt.          Staff      New win-win-   Collaborative services   Possible new business
Projects   services         time      business         delivery                  options
           • Affiliations             opportunities
           • Joint
           ventures




                                                                                                         35
   OUTCOME OF UNITED WAY GRANT:
      FOUR LESS NONPROFITS IN
      NORTHERN RHODE ISLAND
• Counseling Resources Associates, Inc. (“CRA”) – a 501 (c) 3
  nonprofit, controlled affiliate of NRI Community Services, Inc.,
  previously used for the provision of fee-for-service mental
  health counseling for self-pay clients (agency net income
  contributed back to NRICS for uncompensated care). Agency
  had little administrative overhead because those services
  were performed by NRICS management. CRA was also
  previously used as a successful nonprofit bidder to the
  Department of Elderly Affairs for providing of elder case
  management services in South County. Doing business as
  Casework, Referral and Advocacy (CRA), the contract and
  services have been integrated into NRICS when DEA placed
  more emphasis on IT capacity, third party billing capacity, and
  quality assurance capacity than on a local office with local
  advisory board. Savings: none. Minimal administrative time.    36
  CRA dissolved.
   OUTCOME OF UNITED WAY GRANT:
      FOUR LESS NONPROFITS IN
      NORTHERN RHODE ISLAND
• Sutherland and Sadwin Apartments, Inc. – 501 (c) 3 nonprofit
  borrowers corporations previously developed by NRICS and
  subsequently became controlled affiliates were merged into
  Boucher Apartments, Inc. HUD approved this consolidation
  because the common Board of all three HUD projects agreed
  to a new 40-year use period (low income rents; occupancy by
  mentally ill adults). The properties were refinanced with an
  FHA guaranteed mortgage. A million dollars of capital
  improvements and fire safety upgrades will be conducted in
  2009. The 1980’s interest rates were replaced with much
  lower interest rates. Savings: interest expense, future capital
  replacement expense, independent audit fees, some
  administrative. $250,000 - $500,000. Sutherland and Sadwin
  dissolved.
                                                               37
    OUTCOME OF UNITED WAY GRANT:
       FOUR LESS NONPROFITS IN
       NORTHERN RHODE ISLAND
• NRI LCC CASSP, INC – Highly effective child and family
  advocacy and direct services agency, previously unaffiliated and
  in recent years affiliated with NRICS. The Department of
  Children, Youth and Families’ restructuring of contracts resulted
  in loss of direct funding. NRICS was able to employ all staff and
  contract with the newly funded agency to maintain most of the
  core services. Employees lost no health, retirement, or benefit
  time accrued. Community didn’t lose their many years of
  specialized training and their knowledge of the community
  resources and the needs of the targeted clients. Savings:
  Approximately $100,000 less of public funding expended on rent,
  financial and personnel management, flexible funds for families,
  audit, etc. Some of this DCYF cost has been shifted to another  38
  agency, but presumably, as a larger organization already funded
PANNONE
LOPES
DEVEREAUX &
WEST LLC




                           Solutions for Nonprofits
                                     ______________________________________




                                     MARCH 24, 2009

PANNONE LOPES DEVEREAUX & WEST LLC                                                GARY R. PANNONE, ESQ.
317 Iron Horse Way, Suite 301
                                                                              ROBERT S. KNYCHALSKI, ESQ.
Providence, Rhode Island 02908
T: 401.824.5100 F: 401.824.5123
www.PLDWLAW.com
                                                                                                   39
“Since the coming of the Industrial Revolution, mergers and consolidations of
business enterprises have been a critical aspect of capitalism and market
economies. Even today, the private sector corporations continually adapt and
reorganize to survive and thrive. Although mergers and acquisitions are
occurring at an unprecedented level in the private sector, mergers between
nonprofit organizations continue to be rare. However, a merger is a powerful
strategic option for a nonprofit to gain economies of scale, fulfill its mission,
and achieve specific goals. Although a merger may not be appropriate for
every organization, it most certainly deserves serious consideration as part of a
complete self-examination by an organization’s governing body and officers of
its mission, competitive position, and strategic alternatives. Many nonprofit
organizations, however, have missed potential opportunities to improve their
effectiveness by failing to consider the possibility and advantages of a strategic
merger.”

Garry W. Jenkins, The Powerful Possibilities of Nonprofit Mergers: Supporting Strategic
Consolidation Through Law and Public Policy, 74 S. Cal. L. Rev. 1089 (2001).              40
               Survival 101
• GOVERNANCE

• COMPLIANCE

• RESTRUCTURING


• SUCCESSION PLANNING

                              41
                2001 vs. 2009

• 2001 – MERGER/CONSOLIDATION AS A
  “STRATEGIC TOOL”

• 2009 – MERGER/CONSOLIDATION AS A
  “SURVIVAL TOOL”




                                     42
           What is the Solution?
• UNDERSTANDING THE DUTY

• CONDUCTING DUE DILIGENCE

• LOCATING AND USING THE TOOLS

• STRATEGIC PLANNING


                                   43
         Developing the Solution
• CONDUCT AN ASSESSMENT

• REVIEW THE MISSION STATEMENT

• UNDERSTAND THE PROGRAMS

• SEEK AND ANALYZE THE ALTERNATIVES


                                      44
 For Profit vs. Non-Profit



DIFFERENT FORM OF ENTITY
SIMILAR CONSIDERATIONS?




                             45
                      Comparison

                       FOR PROFIT
• STRATEGIC PLANNING TOOL

  –   Reduce Costs of Operation
  –   Enhance Long-Term Position
  –   Maximize the Efficient Use of Resources
  –   Increase Value to Shareholders


                                                46
                  Comparison
                    Comparison

                     NONPROFIT
• SURVIVAL PLANNING

  – Reduce Costs of Operation and Increase Buying Power
  – Enhance Delivery System Through Greater Efficiency
  – Increase Value to Donor Public



                                                          47
             Merger/Consolidation
             Perception or Reality?
• STRATEGIC PLANNING/SUCCESSION PLANNING

  – Advance Organizational Objectives
  – Provide Long-Term Benefits to Stakeholders
  – Assure the Efficient Uses of Charitable Resources




                                                        48
          The Role of the Advisor
• ASSIST IN UNDERSTANDING THE CONSEQUENCES OF
  ACTION OR NON-ACTION

• ASSESSING ALTERNATIVES

• REVIEW LEGAL CONSEQUENCES

• DEVELOPING A PLAN THAT IS CONSISTENT WITH
  THE MISSION AND APPLICABLE LAW
                                              49
    Challenges of the Nonprofit Sector
• FISCAL THREAT
  – Increased Demand for Services Coupled with Losses in
    Government Funding
• ECONOMIC THREAT
  – Competition with Profit-Making Businesses that Distract and
    Harm Traditional Charitable Activity
• ACCOUNTABILITY THREAT
  – Concerns About the Effectiveness of Nonprofit Activities and
    the Need for Improved Performance Measures
• LEGITIMACY THREAT
  – Challenges to the Sector’s Exempt Status and the General
    Public’s Weak Level of Confidence in Nonprofit Organizations
                                                                   50
              Value of Taking Action
            ORGANIZATIONAL BENEFIT
• REVIEW COSTS OF STRATEGIC CONSOLIDATION

• CONDUCT AN ASSESSMENT OF EXISTING PLAN
   – Survival of an Organization's Work, Services and Mission
   – Desire to Achieve or Handle Growth
   – Opportunity to Improve Service Delivery



                                                                51
          Value of Taking Action
              PUBLIC BENEFIT
• EFFICIENCIES THROUGH ECONOMIES OF SCALE

• EFFICIENCIES THROUGH INTEGRATION

• CONSERVE PUBLIC RESOURCES

• ENHANCE COMMUNITY POSITION
                                            52
   Overcoming Impediments to Merger
• DIRECTORS’ FIDUCIARY DUTY IS TO CONSIDER
  WHAT IS BEST FOR THE ENTITY

• DIFFERENTIATE BETWEEN ORGANIZATION “SELF-
  PRESERVATION” AND MISSION STEWARDSHIP

• ASSESS STATUTORY REQUIREMENTS

• UNDERSTANDING THE BENEFITS

                                              53
            Fiduciary Obligations
                    FEDERAL
• SARBANES-OXLEY – TRANSPARENCY AND
  COMPLIANCE

                      STATE

• R.I.G.L. § 7-6-22(b) - DUTIES OF CARE AND LOYALTY



                                                      54
        Directors’ Responsibilities
• ACHIEVING ORGANIZATION’S MISSION

• CONSIDERING ALTERNATIVE STRUCTURES

• STRATEGIC PLANNING

• BALANCING DELIVERY OF SERVICES WITH
  MAINTAINING IDENTITY

                                        55
             Overview of the Process
• WHAT IS A CONSOLIDATION?
  – Transfer of Assets From Two Nonprofit Organizations to a
    Newly Formed Entity

• WHAT IS AN AFFILIATION?
  – Combining Selected Disciplines of Each Nonprofit
    Organization

• WHAT IS A MERGER?
  – Combination of Two Nonprofit Organizations with One
    Survivor
                                                           56
                  Challenges
• WHO SURVIVES?

• CONTRACT REVIEW, ASSIGNABILITY OF ASSETS,
  LICENSES, INTELLECTUAL PROPERTY

• PROCESS OF DETERMINING THE BEST COURSE OF
  ACTION



                                              57
             Consider Legal Issues
• WHAT ARE THE STEPS?

  – Review Mission Statements and Charters

  – Is the New Structure Capable of Providing Better and
    More Efficient Services?

  – Review the Board: Who Survives and Who Becomes
    Advisory?

  – What are the Fiduciary Duties of Board Members?
                                                           58
          Business Considerations
• ROLE OF THE BOARD OF DIRECTORS

• RESPONSIBILITIES OF THE OFFICERS

• PHYSICAL ASSETS

• BANK RELATIONSHIPS

• CUSTOMER OR CONSUMER RELATIONSHIPS

• PUBLIC RELATIONS ISSUES
                                       59
               Statutory Considerations
• PROCEDURE FOR MERGER OR CONSOLIDATION IS OUTLINED
  IN THE RHODE ISLAND NONPROFIT CORPORATE LAW STATUTE

•   R.I.G.L. § 7-6-43 - PROCEDURE FOR MERGER
        – Any Two Corporations May Merge Into One Corporation Pursuant to a
          Plan of Merger.
        – Plan of Merger Must Set Forth:
            1)Name of Merging Corporations and Name of Surviving
              Corporation
            2)Terms and Conditions of the Proposed Merger
            3)Statement of any Changes to the Articles of Incorporation of
              the Surviving Corporation
            4)Any Other Information Regarding the Merger that is Necessary
              or Desirable
                                                                              60
            Statutory Considerations
• R.I.G.L. § 7-6-44 – PROCEDURE FOR CONSOLIDATION
     –   Any Two Corporations May Consolidate Into a New Corporation
         Pursuant to a Plan of Consolidation

     –   Plan of Consolidation Must Set Forth:
          1) Name of the Corporations Consolidating and the Name of the
             Designated New Corporation
          2) Terms and Conditions of the Proposed Consolidation
          3) Regarding the New Corporation, All of the Statements
             Required in the Articles of Incorporation
          4) Any Other Information Regarding the Consolidation that is
             Necessary or Desirable
                                                                          61
             Statutory Considerations
• OTHER REQUIREMENTS
  – The Final Agreement Must Be Filed with the Rhode Island Secretary of
    State, Along with Articles of Merger or Consolidation

  – Upon Issuance of the Certificate, the Merger or Consolidation is
    Effected

  – After a Merger or Consolidation, the Surviving or New Corporation
    Succeeds to all the Rights, Powers, Liabilities and Obligations of the
    Original Corporations


                                                                             62
                     How?
• AFFILIATION

• HOLDING COMPANY MODEL

• JOINT PURCHASING

• EMPLOYMENT AGENCY

• CFO ON WHEELS
                            63
             Web Based Tools
• NON-THREATENING FOR COLLABORATION

• FORUM TO SHARE COMMON ISSUES

• DEVELOP IMPROVED EFFICIENCIES

• IDENTIFY SOURCES OF FUNDING


                                      64
             Web Based Tools
• IDENTIFY CONSULTANTS

• MANAGEMENT SOLUTIONS

• PROGRAMMATIC SOLUTIONS

• IDENTIFY MERGER CANDIDATES


                               65
                   Summary
• ANTI-MERGER SENTIMENT

• ECONOMIES OF SCALE ARE IMPORTANT TO
  SURVIVAL

• WASTING ASSETS

• BETTER USE OF RESOURCES AND IMPROVED
  EFFICIENCIES

                                         66
                  Conclusion
• HIGHER PROFITS AND SHAREHOLDER VALUE IS KEY
  IN THE FOR-PROFIT WORLD…

• BETTER USE OF RESOURCES AND IMPROVED
  EFFICIENCIES IS PARAMOUNT IN THE NONPROFIT
  SECTOR

• UNDERSTANDING THE CONSEQUENCES AND USING
  THE TOOLS AVAILABLE IS NOT A LUXURY, IT IS A
  RESPONSIBILITY                               67
        Thank You.
PANNONE LOPES DEVEREAUX & WEST LLC
       317 Iron Horse Way, Suite 301
      Providence, Rhode Island 02908
     T: 401.824.5100 F: 401.824.5123
           www.PLDWLAW.com



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DOCUMENT INFO
Description: Federal Tax Merger of Nonprofits document sample