In considering a strategic restructuring of a nonprofit organization it is critical to understand, and have agreement on, the nature of ownership of a nonprofit.

Ownership is very different in the nonprofit sector than it is in the for-profit sector. The reality in the nonprofit sector is that no one individual or group such as a management team or board can own a nonprofit organization.  There are no stock shares to be owned or traded. Any assets owned by the nonprofit must remain with the nonprofit.  If a merger of a nonprofit takes place, the assets of the nonprofit must remain within the surviving corporation.   (Similarly, if a nonprofit dissolves independent of a strategic restructuring process any assets remaining after resolving all liabilities must be transferred to another nonprofit serving a similar mission.)

Nonprofits hold special tax status in order to accomplish their mission with the resources developed under that tax status. Therefore, in a sense, through this special tax status, the nonprofit is owned by the public – this is why nonprofit corporations are sometimes referred to as “public benefit corporations.”

Board members, staff, clients, and the public have a profound interest in the organization’s future success and its ability to provide needed programs/services.  The board and staff have the responsibility to manage and make decisions for the organization that are in the best interest of the community and the mission served.

When an organization considers a potential strategic restructuring partnership, the leadership must consider this decision from the perspective of what is in the best interest of the mission and the people or issue it serves – first and foremost.  Clearly, the roles of employees and board representation are important factors in the process of considering the most appropriate organizational design.  But ultimately, the nonprofit’s mission and ownership by the public must be the priority in decision making.

Following up my recent Merging Wisely article in Stanford Social Innovation Review, I will be discussing the practical issues involved in merging nonprofit organizations at the next SSIR Live! webinar. From Nonprofit Partnerships to Mergers: How to Restructure for Success will take place Tuesday, April 6, 2010, from 11:00am – Noon PT. I plan to leave plenty of time for questions, so bring yours and join us. Register today!