a look at strategic alliances through both a legal and funding lens
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A Look at Strategic Alliances through Both a Legal and Funding Lens
2014 Nonprofit Empowerment Summit Giving It Our All!
Kelly Nowottnick, ESQ, Associate, Venable, LLP John W. Dyess, Senior Consultant, Like Minds
A Look at Strategic Alliances of
Nonprofits through both a Legal and
Funding Lens Presented by
Kelly Nowottnick of Venable LLP and John Dyess of Like Minds, LLC
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What is a Strategic Alliance?
• Two or more organizations combine, affiliate or
otherwise come together; and • At least one of the organizations gives up some
level of independent decision-making in order to accomplish an organizational or community goal.
• Strategic alliances usually occur for common
mission-related objectives.
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Temporary/Contractual Alliances vs.
Permanent/Fully-Integrated Alliances
• Strategic alliances can be contractual or temporary in
nature, such as programmatic collaborations, administrative back-office consolidations and joint ventures.
• Alternatively, strategic alliances can involve more permanent, full integration, such as federations, acquisitions of dissolving organizations’ assets, mergers and consolidations.
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Some Common Types of Strategic Alliances
ROUGHLY RANGING FROM LEAST INTEGRATED TO MOST INTEGRATED: • Sponsorship Agreements • Programmatic Collaborations • Back-Office Consolidations/Common Management
Company • Joint Ventures • Federations • Asset Acquisitions • Mergers • Consolidations
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Sponsorship Agreements • Fiscal Sponsorships vs. Corporate Sponsorships: two
different concepts • A corporate sponsorship is the payment of money
by a for-profit company to a nonprofit to further the nonprofit’s mission, with an acknowledgment that the business has supported the nonprofit's activities, programs, or special event.
• Fiscal sponsorship refers to the practice of nonprofit organizations offering their legal and tax-exempt status to groups engaged in activities related to the organization's missions. It typically involves a fee-based contractual arrangement between a project and an established non-profit.
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Programmatic Collaborations
• Nonprofits may share policies, procedures and best
practices and pool financial and human resources to accomplish a common programmatic objective.
• These programmatic collaborations are sometimes referred to as “co-sponsorships.”
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Back Office Consolidations
• Nonprofit organizations with similar purposes can
affiliate through a common management structure, whereby the groups realize the efficiencies of coordinated “back office” operations such as accounting, meeting management, IT, human resources, and other supportive functions.
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Joint Ventures
• Relationship that arises from an express or implied agreement between two or more parties to undertake some common objective for their mutual benefit.
• Cross-sector joint ventures between one or more nonprofit organizations and one or more for-profit organizations are becoming increasingly popular.
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Pros and Cons of Cross-Sector Joint Ventures
• Pros for nonprofit:
o Greater access to capital and professional expertise; o Opens up business opportunities otherwise unavailable to a tax-exempt organization.
• Pros for the for-profit: o New sources of capital; o Access to/exploitation of specific assets owned by the nonprofit (e.g., intellectual
property rights or specific real property); o Certain tax credits o Greater community or political support o May further the philanthropic goals of for-profit company owners.
• Cons for nonprofit: o May threaten tax-exempt status, if not carefully structured o May generate UBIT
• Cons to nonprofit and for-profit: o May unintentionally result in a partnership whereby one partner is liable for the sole
action of the other partner, if such action was carried out in the name of the partnership.
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Federations
• A Federation is generally an association of nonprofit associations, often structured around regional lines.
• An affiliation agreement is a binding contract that sets forth the nature of the relationship between the parties.
• Examples: United Way and various national associations
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Asset Acquisitions • A nonprofit organization may acquire the assets of a
dissolving nonprofit organization. • Preferable when one organization is much smaller in size
than the other. • Also preferable when there are significant future
contingent liabilities, because successor organization does not, by law, assume the liabilities of the dissolving organization.
• Procedural requirements can be complicated for dissolving entity. The dissolving organization must typically satisfy due diligence requirements; obtain member approval; adopt a plan of dissolution; satisfy outstanding liabilities; transfer any remaining assets to the other nonprofit entity; file Articles of Dissolution with the State; and wind up affairs.
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Mergers and Consolidations
• With a Merger, one entity legally becomes part of the other, surviving entity and dissolves.
• With a Consolidation, each entity dissolves, and an entirely new nonprofit corporation is created to take on the programs, resources and membership of the former entities.
• Pros: o Increases assets o Reduces costs o Permits new corporation to provide enhanced services and serve larger
constituency o Reduces members’ dues
• Cons: o Legal fees o State filings o Member approval o New corporation may need to submit its own IRS application for tax-exempt status
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Tax Considerations
• Minimizing Unrelated Business Income Tax
• Maintaining Tax-Exempt Status
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A Strategic Alliance Can Improve Fundraising
Capabilities by . . . 15
o bringing in new board members and staff with new competencies and fundraising potential;
o providing the organization with access to donors from the other constituent nonprofit organizations;
o improving the community’s awareness of the organization and its mission;
o increasing administrative capacity; o centralizing decision-making; and o improving organization-wide accountability.
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Your Experiences?
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Questions?
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