San Diego, CA asked in Business Formation and Business Law for California

Q: Hi! I'm not quite sure on how to interpret the California Corporations Code § 5240 subsection (c). May I have help?

Hello! I'm trying to start a non-profit organization that sponsors scholarships to humanities students, from a fund in the organization. I'm not quite sure on how to interpret this section of the California Corporations Code as it's quite verbose (structurally); I'm not making sense of it.

2 Lawyer Answers
James L. Arrasmith
James L. Arrasmith pro label Lawyers, want to be a Justia Connect Pro too? Learn more ›
  • Sacramento, CA
  • Licensed in California

A: Of course! I'd be happy to help you understand California Corporations Code § 5240 subsection (c) and its implications for your nonprofit organization.

California Corporations Code § 5240 subsection (c) pertains to the distribution of assets upon the dissolution of a nonprofit organization. Here's an explanation of the subsection in simpler terms:

The subsection states that upon the dissolution of a nonprofit organization, any remaining assets must be distributed to another nonprofit organization with a similar purpose, to the federal government, or to a state or local government.

If the organization has specific provisions in its governing documents (such as articles of incorporation or bylaws) regarding the distribution of assets upon dissolution, those provisions will prevail over subsection (c) unless they are inconsistent with California law.

If the organization's governing documents are silent on the matter of asset distribution upon dissolution, subsection (c) comes into effect as the default rule.

In summary, subsection (c) ensures that when a nonprofit organization is dissolved, its remaining assets are directed towards other charitable or governmental entities, rather than being distributed to private individuals or shareholders.

Robert Kane
Robert Kane
  • Eagan, MN
  • Licensed in California

A: The AI generated response by the other attorney doesn't seem to address your specific situation. It would be far more beneficial for your organization to provide specific details and your specific concerns to determine what the law means.

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