I’ve got this nagging away in the back of my mind and can’t seem to find the answer online. In the UK and other Common Law countries the definition of ‘Charitable’ (for the purposes of Trust Law) has been established through case law rather than Statute. Thus, in the UK one can look at, for example:
Income Tax Special Purposes Commissioners v Pemsel [1891] All ER Rep 28 at 55; [1891] AC 531.
In which Lord Macnaghten (yep, him of the Rules) classified the categories of charitable purposes under four heads:
Charity in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community not falling under any of the preceding heads.
IIRC, much latitude has been granted within those broad categories via case law. That’s the position outside the US, I wondered how the land lied within the US ?
I’m asking because I just wanted to settle in my mind that the obstacles for setting up (presumably) a Bare Trust in relation to the SDMB are insurmountable – my current thinking is that, even should the board fall within the US definition of ‘charitable’ (for this purpose), the most significant hurdle would be severing the board from the Reader – I presume that would be a pre-requisite ?
Most states have non-profit corporation laws, divided into mutual benefit (things like condominiums) and charitable (soup kitchens). You can set one up to do most anything, and the SMBD, if not run for a profit, would certainly qualify.
As to whether any of this is practical for the SDMB, I doubt it since there would be expenses involved with running a not-for-profit, not to mention the hardware and system administration that we already have.
Thanks. I guess my supplemental reflects the fact that the Law of Trusts wasn’t my strong suit way back when – always a little too dry for my excitable taste:
Is this description of the possible mechanics legally correct:
The Board separates itself from The Reader and into a distinct entity but, under the Trust Deed, ownership of the Board reverts back to The Reader after a prescribed period. In the interim, the SDMB Trust is administered by the Trustees in accordance with terms of that Trust Deed, the Trustees also being in a position to accept charitable gifts ?
Note that we are talking about a two-part question, at least in the US. A “not-for-profit” or “non-profit” corporation is formed under state law. In Illinois, for example, a not-for-profit corporation may be formed for any of 30 purposes listed in the General Not For Profit Corporation Act. The less obscure of these purposes are charitable, benevolent, eleemosynary (for the promotion and preservation of the welfare of eels, presumably;)), educational, civic, patriotic, political, religious, social, literary, athletic, scientific, research, horicultural, poultry improvement, trade associations, water and phone cooperatives and mental health.
So, you need to figure out whether or not you need tax-exempt status–if you don’t, you can probably find some way to shoehorn yourself into the purposes of the state not-for profit laws.
In London Calling’s last post, the problem in the US is that not-for-profit assets can never revert to a for-profit entity (such as the Reader). You could establish a trust to do what you suggest, but it would be neither a not-for-profit corporation nor a tax-exempt entity.
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the problem in the US is that not-for-profit assets can never revert to a for-profit entity (such as the Reader)
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Are you certain about that? What about all the Blue Cross/Blue Shields turning into for-profit companies? My (limited) understanding is that usually some sort of payoff to hospitals or others is involved, but they take most of their dough with them to their newly won for profit status.
Let me emphasize my use of the word “revert,” a legalistic word which means “return to automatically without payment.” It is not illegal to sell non-profit assets to a for-profit entity so long as fair value is paid for the assets and the purchase price received by the non-profit is dedicated to the non-profit purposes. As you note, if a non-profit hospital is sold, it applies the proceeds to a foundation dedicated to the “health of the community” or some such valid purpose instead of running a hospital.
I skipped the last few posts, but I don’t think this has yet been addressed.
“What is charitable?” is a question that is asked for two purposes, at least in the U.S. It can mean “Does it qualify for tax-deductable contributions?” or also “Does it qualify for gifts that would otherwise violate the Rule Against Perpetuities?” Most of the above posts have answere the first question. As to the second: The Rule (same as in other common law countries) defeats a gift that might possibly not completely vest within a life in being + 21 years. (This is horrendously complicated, but the upshot is that you can’t give a gift, such as in a will, unless ALL the beneficieries will have been determined within a finite amount of time.)
If you gave a gift in your will to buy everyone in the 1st grade a bunch of candy every year, that would fail. Why? Who gets the gift 25 years after your death? The pupils in the first grade. But what are their names? You won’t be able to find out until the distribution b/c new kids might join the class. However, if you gave a gift to teach this kids math (or religion), the gift would be OK, because gifts given for charitable purposes are exempt from the Rule. These typically include benificent social, educational, or health purposes that benefit whoever happens to fall into a class, not any specific individuals.
Thanks ** Humble Servant**. If you’re still out there could you clarify a couple of points:
So, it would be possible for The Reader to buy back the SDMB Trust at a fair price. One questions what price a non-profit board with serious overheads would be worth – maybe it would not be unreasonable for that option to be available for a very nominal fee ?
Would it be possible to build in a ‘preferred buyer’ condition to the Trust Deed or would the sale be in the hands of the Trustees ?
[quibble] Although the law governing charities is normally described as common law, it has its roots in statute: the Charities Act, 43 Eliz. I, c. 4 (1601). The preamble to this Act (often called the Statute of Elizabeth in the cases on charities) is the source of the four categories of charities referred to by Lord MacNaughten.
Of course, the Statute of Elizabeth is so old that it doesn’t speak much to particular cases nowadays, but it was the source of the basic principles. I believe in England it was repealed in the great statute revisions of the latter 19th century, so in that sense the law of charities in England may be considered common law, albeit with statutory roots.
In other Commonwealth jurisidictions, the Statute may still be in force, depending on the date of reception for the jurisdiction, and whether the jurisdiction has subesquently repealed the Statute in that jurisdiction.
I think that US and UK law are different with respect to charitable organizations, and I want to clarify a few terms to be sure that we are not talking at cross purposes.
In the US, most operating charitable entites are organized as corporations, as discussed in my first post. I believe from what I read in the papers and from what you have posted that most UK charities are organized as trusts (that whole bit with the donations following Princess Diana’s death was when this point was driven home to me ;)). This is not to say that even US trusts cannot be charitable, as I will try to discuss.
Anyone can do just about anything with a trust, so long as they write a trust document and appoint willing trustees to carry out the trust’s purposes. In the US, trusts are most commonly used as estate planning tools to manage investments for intended heirs–a decidedly non-charitable endeavor. Nonetheless, trust documents can be drafted with charitable purposes and they can apply to the IRS for a tax exemption, just like a non-profit corporation can. (I would probably recommend using a not-for-profit corporation for the vehicle if an operating business (as opposed to a mere pool of investments) is being carried on since this is more typical and functionally the requirements are pretty much the same.)
However, if there is no need for a tax exemption, you can draft a trust document any way you want–you can have assets revert to a for profit organization if you want to.
Which really brings us to the point: what would the Reader hope to accomplish by putting the SDMB into a trust or not-for-profit corporation? If the Reader is uncomfortable taking donations (and, BTW, though I have never before commented on the earlier discussions, I don’t think the Reader’s taking “donations” would be illegal–the donations would, however constitute ordinary taxable income to the Reader and would not result in a tax deduction for the donors; also, if the Reader is trying to develop a “business model,” then non-recurring, unpredictable donation drives don’t fit in to normal ways of thinking from an accounting and business perspective), most of the tax and similar issues are not solved unless you give the trust (or, as I would probably recommend, the not-for-profit corporation) charitable purposes and get it the tax exemption. If you give the entity charitable purposes and/or qualify it for the tax exemption, then, to actually answer your question, no, you cannot give the Reader a cheap buy-back option. You could give them a “right of first refusal” (which may be what you mean by a “preferred buyer”), but the buy back price would likely have to be the SDMB’s fair value at the time of the sale (currently unknowable, but you’re right, possibly ultimately very low). Note that you also have to answer the question of what assets are to be transferred–I understand that the Reader owns all of the hardware and intellectual property rights, so the only thing to transfer might be a license to use and run the message board content–maybe including a transfer of the vB software (would likely need vB’s consent). BTW, the costs of establishing the entity and transferring the assets and drafting license arrangements and rights of first refusal and an agreement to allow the SDMB to have access to Jerry the Tech God when needed at cost-plus (hiring its own tech employees would certainly be prohibitive) and setting up a Board and getting the tax exemption are not insignificant in terms of time or money. And remember, the entity may or may not be able to qualify for the tax exemption in the first place.
Yeah, I too have thought about this because I like it here, but I don’t have a great answer.
