Previously, we discussed two merger/reorganization structures: a statutory merger and a transfer of assets . Part III of this series will discuss the advantages and disadvantages of a liquidating transfer of assets.
A liquidating transfer of assets is very similar to a transfer of assets. A liquidating transfer of assets occurs when the target nonprofit uses its assets to pay its known liabilities and transfers its remaining assets to the surviving nonprofit (just like a transfer of assets). However, after transferring its assets, the target nonprofit dissolves.
The main advantage of a liquidating transfer of assets as compared to a transfer of assets is avoidance of the duplicative fees that would be incurred if the target nonprofit remained in existence.
The disadvantage of a liquidating transfer of assets as compared to a transfer of assets is that the target nonprofit no longer exists to accept known and unknown gifts and then transfer them to the surviving nonprofit. Thus, as we discussed in detail in our last post, the surviving nonprofit would need to petition the court to have the gifts redirected to the surviving entity, meaning there is a possibility that a court could redirect any known and unknown testamentary gifts left to the target nonprofit to a third party and not to the surviving entity.
Check back soon for the next installment of this series, which will cover consolidation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
