Saint Paul, MN asked in Business Law for Minnesota

Q: Can the bylaws of a national 501c3 org control the election mechanism of a chapter 501c3 organization?

A national organization is seeking to change their national bylaws to control the manner in which all their chapters conduct local chapter elections. What are the relevant issues here? Is there a risk of the corporate veil between these two organizations being breached? Does the chapter risk becoming determined to be a "controlled entity". Are the bylaws of a national organization even enforceable upon a chapter corporation? What factors would make them unenforceable?

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2 Lawyer Answers
Robert Kane
Robert Kane
Answered
  • Eagan, MN
  • Licensed in Minnesota

A: Since it's an ongoing relationship, the local chapter would most likely have to abide to any rule or policy changes implemented by the national organization. Otherwise, the local chapter would have their membership revoked.

James L. Arrasmith
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Answered

A: A national 501(c)(3) organization's bylaws can influence the operations of its chapters, but the enforceability depends on the relationship defined between the national organization and its chapters. If the chapters are separate legal entities, they would generally have their own bylaws, but they might also have affiliation agreements with the national organization that could allow certain overarching rules to apply.

One risk in exerting too much control over a chapter is potentially piercing the corporate veil, which could expose the national organization to liabilities of the chapter. Another concern is that the chapter could be viewed as a "controlled entity" under certain tax rules. The enforceability of a national organization's bylaws upon a chapter often hinges on the legal and contractual relationship between them. Factors that might render them unenforceable include violations of state corporate laws or conflicts with the chapter's own governing documents. For a clear understanding of this intricate relationship and potential legal implications, it's essential to consult with an attorney familiar with nonprofit law in your state.

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