Page 213 - Washington Nonprofit Handbook 2018 Edition

b. Control and Decision Making

After establishing a shared vision and goals, the issue of control is probably

the most important factor. If an organization aspires to be a tax-exempt entity, all
decisions must be made in furtherance of charitable purposes. If the organization
yields too much decision-making control to a partner organization, even another
nonprofit, there is a risk that some decisions will not further charitable purposes
and this can jeopardize tax-exempt status.

At a minimum, the terms of the agreement should allow an organization to
terminate or limit involvement in the partnership to protect its tax-exempt status at
any time. Consider carefully which organization gets to make decisions over which
issues, including, for example, program design and implementation and funding
priorities.

It is also important to consider how decisions are made. The organization
could, for example, dedicate a governing or advisory board seat to a representative
from the other organization. Alternatively, it could agree that certain decisions will
require the approval of both organizations, or could establish an entirely new entity
in which both organizations participate. Well-defined decision-making processes
that require transparency, and a process for resolving inevitable disagreements is
essential. The agreement should also state whether and how any additional parties
may join as partners.

c. Capitalization and Distribution

If the partner organization is providing funding, the agreement needs to

state clearly what this funding will cover. A project budget that specifies the
sources and uses of all funds should be attached as an exhibit to the agreement,
and the agreement should state whether and how the budget may be modified.
The agreement should specify the extent to which funds are discretionary or
restricted. It should also specify the extent to which additional fundraising or
capitalization is required, how funds will be distributed or disbursed as between the
two organizations, whether any costs are to be covered by others, and whether
there are in-kind contributions or previously dedicated funds that need to be
calculated when determining the respective contributions of the partners.

In general, the ownership interest of the parties in the venture should be
proportionate to the value contributed. When contracting with a donor, the
agreement should state the purposes for which funds may be used, the

circumstances or conditions under which funds will be disbursed (such as whether

WASHINGTON NONPROFIT HANDBOOK -202- 2018