The purpose of a for-profit corporation is to enhance the value of the enterprise for the benefit of residual interest-holders, ordinarily the owners of the enterprise. The purpose of a nonprofit corporation is to further the stated mission of the enterprise, rather than to generate wealth for stakeholders. Some nonprofits have members nonprofit membership organizations and some do not non-member not-for-profit organizations. While in some respects the members of a nonprofit membership organization are like shareholders of a for-profit corporation, in that they elect a board of directors, membership interests in a nonprofit, unlike shares in a for-profit corporation, represent a controlling rather than an economic stake in the enterprise.
They cannot be transferred for value like shares of for-profit corporations, and often do not even entitle members to a share of the residual value of the enterprise upon dissolution. The members of a nonprofit membership organization periodically elect a board of directors, which is ultimately responsible for the operation of the enterprise and the fulfillment of its mission.
The boards of non-member not-for-profit corporations are self-selecting and self-perpetuating. The mission of a non-member not-for-profit will be to advance a particular charitable or public purpose. When a for-profit corporation becomes insolvent, the directors continue to be obligated to preserve and, if possible, enhance the value of the enterprise, although the beneficiaries of this obligation shift from the owners to the creditors of the company.
Similarly, when a nonprofit corporation becomes insolvent, the directors remain obligated to fulfill their fiduciary obligations as delineated under state law i. In some respects, a bankruptcy filing will shift the landscape to provide greater power to creditors. For example, in a bankruptcy case a debtor will be required to provide a greater level of transparency regarding its financial condition and operations than is ordinarily required. Soon after the filing of a chapter 11 case, a representative of the Office of the United States Trustee a branch of the Department of Justice will solicit indications of interest from unsecured creditors in forming an official committee.
In other respects, a bankruptcy filing shifts the landscape to provide directors with greater power to deal with recalcitrant creditors. The goal of the board of a for-profit corporation is to maximize the value of the enterprise without subjecting the enterprise to unreasonable risk. Subscribe to the NPQ newsletter to have our top stories delivered directly to your inbox. By signing up, you agree to our privacy policy and terms of use, and to receive messages from NPQ and our partners.
As set forth in Torch Liquidating Trust ex rel. Are you an entrepreneur, nonprofit leader or philanthropist with questions? We have answers! Schedule a time to speak with us today. March 29, Bankruptcy As an Option for Troubled Nonprofits Bankruptcy can become an option for a variety of reasons — some avoidable and others the result of outside, unexpected forces like a serious economic recession or sudden dry-up in government funding.
Tags: finance , nonprofit. However, nonprofits filing for bankruptcy remain rare. It is never an easy decision to file for bankruptcy. Corporations should carefully consider all relevant factors and seek out legal guidance as well. Many of the considerations are the same that for-profit corporations should consider. First, if you file for bankruptcy, will you be able to appreciably reduce the amount of debt that you are servicing? Not all debts can be discharged in a bankruptcy. For example, you might have secured debt or certain tax liabilities that are very hard to eliminate.
You also should consider why you fell in financial difficulty. Generate Forms. File Bankruptcy. Free Forever Generate your bankruptcy paperwork for free! Access on any mobile or desktop web browser. Designed and built alongside experienced bankruptcy attorneys. Take Upsolve Screener. Prep for Creditors Meeting.
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