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What do Faith-Based Nonprofits Need to Know About Prior Notice and Consent Requirements for Major Corporate Actions?
What are Prior Notice and Consent Requirements for Major Corporate Actions?
Nonprofits, like any other organization, occasionally may have to make major corporate changes. These changes (or “major corporate actions”) can take several different forms. A nonprofit may merge with another organization to increase its impact or reduce expenses. It may sell or distribute most of its assets and voluntarily dissolve to wind up operations. A faith-based nonprofit may discover that its articles don’t reflect its religious identity or actual practices and, in order to protect itself from lawsuits and investigations, amend its bylaws or articles of incorporation.
Some states require nonprofit organizations to give prior notice, generally to the state attorney general’s office, before taking certain major corporate actions. Further, some states even require consent from a state judge or attorney general before such actions are permitted.
These requirements may seem harmless and well-intentioned. At times, requiring a reasonable period of advance notice to a state agency can be justified. Since a state foregoes tax revenue from nonprofit organizations, notice requirements can be a legitimate way to ensure that the property and assets of nonprofits are used for exempt purposes. But overly burdensome notice and consent requirements impose serious costs and delays when more effective means to prevent illicit activity may already be available to regulators.
What are the Different Types of Requirements?
Many states have no notice or consent requirements for any major corporate actions. Out of the states that do have requirements, those requirements can look very different from state to state.
Some states require up to 30 days’ prior notice to the attorney general’s office for one particular action. For example, Hawaii requires nonprofit organizations to inform the state AG of its intent to voluntarily dissolve 20 days before doing so. Other states require such notice for several different actions. Missouri requires the same period of notice for dissolutions, mergers, or the sale of substantially all of an organization’s assets.
Other states have similar requirements, but with longer waiting periods. Tennessee requires 45 days’ notice for mergers, voluntary dissolutions, and conversions from a nonprofit to another type of legal entity. Further, some may require posting notice of a merger, amendment to articles of incorporation, voluntary dissolution, or sale of real estate in a local newspaper or state office.
Lastly, some jurisdictions require nonprofit organizations to receive permission from the attorney general or a state court before engaging in a major corporate action. Like the notice requirements, the details of these consent requirements vary between states. For example, California’s attorney general must give permission before a nonprofit in the state can formally dissolve, while Massachusetts requires consent from the superior court in some circumstances.
How Do Different Requirements Affect Faith-Based Nonprofits?
As mentioned earlier, simple notice requirements can help a state government identify and prevent illegal activity. State oversight of major corporate actions can ensure that nonprofits protect the donations of their contributors and use them for tax-exempt purposes, rather than for the private benefit of an individual. Giving the state government an opportunity to be aware of mergers between a nonprofit and a for-profit organization, for example, may help officials identify fraudulent activity.
However, as the requirements become more burdensome, the costs begin to outweigh the potential benefits. Nonprofit organizations may engage in major corporate actions because of serious difficulties. Faith-based nonprofits that undergo a merger, sell or otherwise dispose of substantially all their assets, or voluntarily dissolve may be doing so because of challenging circumstances.
For example, a nonprofit may merge because of unstable finances and fundraising coupled with high operational costs. Forcing these organizations to wade through courts or long waiting periods could cripple organizations with already fragile organizational health. A nonprofit that is ultimately incapable of carrying out its mission and that ceases activities can face serious legal and financial repercussions for failing to formally dissolve. However, excessive prior notice and consent requirements can dissuade resource-stricken nonprofit leaders from going through the official dissolution process. Maintaining relevant and accurate bylaws and articles of incorporation helps to protect faith-based nonprofits from lawsuits. Additional notice or consent requirements for such actions can impede organizations from swiftly taking advantage of these protections in an already complex legal situation.
What Do I Do Now?
When a nonprofit organization decides to merge, voluntarily dissolve, sell substantially all of its assets, convert to another type of organization, or amend its bylaws or articles of incorporation, it may need to give prior notice to or receive advanced permission from a state government agency. While certain requirements are reasonable to prevent fraud, more burdensome notice or consent provisions can become excessively demanding.
Now that you understand the types of major corporate actions that may require prior notice or consent from a state attorney general or a court, take some time to understand your state’s laws. In the 2025 edition of the Faith & Freedom Index, Napa Legal is adding a new factor examining every state’s laws that impose prior notice or consent requirements. This year’s Index will be released on October 27, 2025. Visit Napa Legal’s Faith & Freedom Index later this Fall to understand your state’s laws.
If your organization decides to engage in a major corporate action, consider consulting with an attorney to discuss your options and duties. Understanding your legal obligations can save you time, money, and headaches as your organization changes.
