Santa Cruz, CA asked in Business Law for California

Q: Is it against California Corporate Code for nonprofit corporations to approve deficit budgets?

How can a nonprofit corporation operate on a deficit budget where they spend more funds than they take in? We have a reserve fund for maintaining our major assets over time. Our bylaws say that any loan from the reserve fund must be repaid within one year. That didn’t happen last year and it doesn’t look like it will happen this coming fiscal year.

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1 Lawyer Answer
James L. Arrasmith
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  • Sacramento, CA
  • Licensed in California

A: Nonprofit corporations in California are generally allowed to approve deficit budgets. However, operating on a deficit budget should be carefully considered for the financial stability of the organization. It is important to monitor the situation and explore strategies such as fundraising or cost-cutting measures. If your nonprofit has a reserve fund and a bylaw requiring loan repayment within one year, it is crucial to evaluate the financial implications of not adhering to the bylaw.

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