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Merger and dissolution of non-profit corporations

For business owners in Texas, mergers and acquisitions are common. Many people may be aware that the regulations and provisions regarding mergers are different for non-profit and for-profit organizations. Non-profit organizations generally refer to those organizations in which the income is not distributed to any of its members.

According to the law, a merger is possible between two or more domestic non-profit organizations. The organizations also can merge with one or more foreign non-profit organizations. A domestic non-profit organization may endanger its charitable status if it merges with any corporation other than another non-profit organization. Every merger is subject to approval by the board of directors and other members who have voting rights. The merger plan needs at least two-thirds of the votes to pass. A domestic non-profit organization may merge with another organization only if the domestic corporation doesn't cease to exist.

In the event that the nonprofit organization has no members or if the members do not have voting rights, a merger proposal may still be adopted after arriving at a consensus from the majority of the directors in office. The merger plan should include the name of the organization that has proposed the merger or the name of the organization with which the other entity wishes to merge, as well as all of the terms and conditions of the merger. Any changes in the existing articles of incorporation of the surviving corporation also should be notified.

Section 22.301 of Texas Business Organizations Code suggests that the governing body of a non-profit organization should abide by all of the rules that are required for dissolution. This also is clearly stated in the Chapter 11 provision of the TBOC. If the members are eligible to vote on the dissolution, a notice is sent to them and they are given the opportunity to vote. If the members are unable to vote, the dissolution is still possible if the members of the governing body of the nonprofit organization cast their votes. After the authorization of the dissolution, the certificate of termination is filed with the Secretary of State of Texas.

Source: Texas Statutes, "Business Organizations Code," accessed May 2, 2015

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