The Court of Commonwealth issued a ruling in April that should serve as a warning to nonprofit boards in Pennsylvania.
Did you know that Pennsylvania law allows a member of a nonprofit to petition the court to involuntarily dissolve the nonprofit corporation? A court will dissolve a nonprofit when the the corporation abandoned its mission, misapplied its assets, when the director act fraudulently, or when the members are deadlocked about the management of the non-profit's affairs.
In Loveless v. Poconos Forest, Mr. Loveless tried to dissolve his nonprofit, Poconos Forest. The court, eventually ruled in the nonprofits favor, however, it seems the nonprofits only saving grace was the broad language written in the non-profit's bylaws about its purpose and that its directors did not commit fraud. The main purpose of the nonprofit was to host sporting events, however, the nonprofit had not hosted a sporting event in 19 years.
Fortunately for the nonprofit, the bylaws broadly states its purpose is to provide vacation facilities for its members. And while the court found that the directors engaged in self-dealing, the court concluded that the activity did not rise to fraud; the directors conduct fell more along the lines of ignorance, rather than fraud.
The court under these facts refused to dissolve the nonprofit, but the court ruled that the nonprofit must, in the future, conduct all business in strict accordance with its governing documents and all applicable laws. (Loveless v. Poconos Forest Sportsman Club, No. 2196 C.D. 2008, April 2009).
What can you, as a director of a nonprofit, learn from this case?
1. Take minutes of all your meetings.
2. Be sure that each meeting has the required quorum. If your by-laws do not specify the number, then the Pennsylvania Nonprofit law requires that at least majority of all voting members must be present.
3. Follow your bylaws closing when making changes to the by-laws. If your by-laws do not specify the procedures for amending the by-laws, then the Pennsylvania Nonprofit law first the amendment must be proposed to the board by a resolution. The proposal must be presented by petition of at least 10% of all voting members. The amendment must list the existing text of the article with brackets around the language that is to be added. Once the resolution to petition to amend the by-laws is adopted, then all voting members must be given at least a 10-day written notice
about the meeting to consider the proposed amendment. The meeting notice must include the proposed amendment. The proposed amendment may then be adopted by a majority vote of the present quorum.
Then, finally the Articles of Amendment must be executed by the nonprofit corporation and filed with the Department of State. The amendment does not become effective until it is filed with the Department of State.
Consult an attorney for more specific information about your nonprofit. Good luck.
McKee Law Office