As we discussed in post 1 of this series, non-profits are required to consolidate other non-profit organizations if they meet certain criteria.
When and how do you consolidate another entity? Statement of Position (SOP 94-3) addresses when/how a Church or ministry should consolidate.
Many of our client's create additional non profit organization for designated purposes. Although founded by the same individuals or boards and funded by the original organization, the purposes and goals of the new organization are different.
When does an organization have majority interest?
1. If the organization has vetoing control of the new organization that is a signal that the original organization has a "voting control" of the new board. The original nonprofit has indirect control and must consolidate.
2. If the original organization has less then 50% of the new board member mix and does not approve board members, or appoint board members - then the original organization has to look at whether they have economic interest or "control" due to concentrations, through such items as contributions, sales, ect.
If the originating organization does not have direct voting control, but has indirect control the organization has the option to consolidate the entity, as long as the indirect control is not a temporary situation. If the indirect control is temporary they the organization is unable to consolidate.
Therefore, using knowledgeable attorneys and accountants in the planning and creation of separate entities is very important. By taking these issues into account at the time of creation provides management with importion tools in determining the appropriate results in achieving management's goals.
If you have any questions, contact me or Becky DaVee or call us at 918-628-0500.
Good luck in creating a new non-profit organization.
