Q: What are the duties/responsibilities of a non-profit organization and/or its Board of Directors regarding surplus funds and physical inventory should that non-profit decide to cease operations?
A: The law of non-profit organizations is complex. The first thing to know is that the law varies considerably from state to state. For example, Massachusetts is subject to a detailed statute that requires a specific procedure for distribution of assets upon dissolution of a non-profit organization. See – https://www.mass.gov/guides/dissolving-a-charity. New Hampshire is almost uniquely devoid of statutory guidance for non-profits, with an ancient, brief and inconsistent governing statute (NH RSA 292). This article assumes we are talking about a New Hampshire non-profit. These are governed primarily by the state’s Director of Charitable Trusts, to whose website you should refer – https://www.doj.nh.gov/charitable-trusts/ – and by case law.
Note second that New Hampshire’s definition as to who is a “charitable trust,” subject to regulation by the Director and by the courts, is very broad, and is not limited to “non-profit organizations” or “charities.” See RSA 7:21, II(a).
Note third that a non-profit organization is responsible to donors, intended beneficiaries, and often, to the public, for all assets. Dissolution of or shutting down the non-profit does not end this responsibility. If need be, the courts and the Director can and will look beyond the organization to assign personal responsibility to individual board members and officers. Remember the basic rule of charitable trusts: “it’s not yours.”
With that context in mind, there are two answers to your question. First is that the Articles or other basic document of your organization may set out where assets go on dissolution. NH RSA 292 has required inclusion of such information for many years. Second, such provision may be absent or vague. In that case, the organization must do the best it can to determine the purpose for which donors gave the money or assets in question, which may be explicit or may be the purpose for which the organization held itself out when it obtained the money or assets. The trustees (board) should formally vote to distribute its assets to a specific recipient. The closer the match of the recipient of the remaining assets, the better. If there is any question, consult a lawyer with knowledge of charitable trust law. It may, under some circumstances, be appropriate to ask the Director of Charitable Trusts to bless the proposed distribution.
Know the Law is a bi-weekly column sponsored by McLane Middleton. Questions and ideas for future columns should be emailed to knowthelaw@mclane.com. Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.