Nonprofits are sometimes offered stock or other securities instead of cash donations. In some cases donors designate a certain number of shares to be given to the nonprofit upon the donor’s death. Other times the donor is still living but wishes to give stock for reasons having to do with the donor’s personal tax planning. Regardless of the scenario, nonprofits should think through what the gift of securities could mean before accepting them. There are a few steps a nonprofit can take before a donor offers securities to be prepared:
- Adopt a gift policy. Among the important policies a nonprofit should have, the gift policy is perhaps the most significant. It spells out not only when and how gifts are accepted, but also when the decision about a specific gift needs to be escalated to higher levels in management. In the course of adopting a gift policy the organization will have an opportunity to explore all the potential pitfalls of gifts of securities.
- Take care before accepting stock that can’t easily be sold. Corporate stock can be subject to a lot of rules and restrictions. An organization may feel little hesitation about accepting stock that can be promptly sold on the market, but many kinds of stock are not so easy to liquidate. Stock may be subject to tight restrictions on sale or may simply be unsellable except to a particular buyer at a substantial discount from fair market value. Especially if the stock has been issued by a privately held company, it may be subject to other restrictions as well, such as how its voting rights can be exercised.
- Be mindful of self-dealing and other conflicts. Like any major transaction, the risk of self-dealing or other potential conflicts of interest should be taken seriously even in connection with gifts of securities. Is the gift of stock tied to another transaction that could benefit a director or officer of the organization? Does the stock come with an obligation to use the associated shareholder vote to benefit someone related to the nonprofit’s the leadership group?
- Evaluate potential tax consequences. Even a nonprofit can become subject to taxes under a wide range of circumstances. If the income from a sale of stock is deemed to be unrelated business income, it may be subject to income tax. This should be evaluated carefully before the stock is accepted.
- Mission considerations. Accepting a gift of stock issued by a business that is fundamentally at odds with a nonprofit’s mission could create optics problems as well as run afoul of restrictions built into the organization’s governance. For example, a nonprofit set up to discourage smoking probably wouldn’t want to accept a gift of stock in a tobacco company.
- Practical problems. Aside from these bigger picture issues, accepting a stock gift can involve complications having to do with the actual assignment of the stock. Can the gift be completed within the scope of the organization’s existing brokerage accounts, or does a separate account need to be established? Is the stock represented by physical share certificates that need to be returned to the issuer company, with new certificates issued in the name of the nonprofit? There are a host of issues like these that an attorney can help the nonprofit plan for.
The Church Law Center is here to answer fundraising questions
The Church Law Center of California helps churches and secular nonprofits resolve planning, governance, and fundraising challenges. We can help your organization develop a robust gift policy and manage gifts of stock in a way that is respectful to donors while also protecting the organization’s interests. To learn how we can help your organization call us today at (949) 892-1221 or reach out to us through our contact page.