We will discuss the final policies in this series in a single blog post. These policies concern specific situations in which a nonprofit organization may find itself depending on the nature of its structure and operations. These policies are the joint venture policy and the parent-subordinate consistency policy. While these policies are important to know about, many nonprofits will only need to adopt these policies if they’re situation applies.
What are the joint venture policy and the parent-subordinate consistency policy?
The joint venture policy is a policy that is adopted if the organization enters a relationship with a taxable entity (as opposed to a tax-exempt entity) that can be considered a “joint venture.” A joint venture can essentially be any type of financial relationship such as a contract (such as a joint operating agreement or lease), a loan, a limited partnership, a partnership, or a limited liability company. Under this circumstance, a joint venture policy will govern the relationship to ensure it complies with IRS requirements.
The parent-subordinate consistency policy applies to organizations which have local chapters, branches, or affiliates and helps govern the relationship to ensure the parent and subordinate organization operate in a consistent fashion.
Why is a joint venture policy and a parent-subordinate consistency policy necessary?
The primary purpose behind having a joint venture policy is to protect an organization’s exempt purpose when partnering with another entity and to protect the organization from engaging in private inurement/private benefit, excessive unrelated business, or the loss of tax-exempt financing.
A parent-subordinate consistency policy is necessary to ensure that a subordinate organization understands its obligations to the parent and understands what conduct it can and cannot do in order to preserve the parent’s (and its own) tax-exempt status.
How do you draft a joint venture policy and a parent-subordinate consistency policy?
A good joint venture policy will define what joint ventures the organization may engage in, how the organization will choose which joint ventures to engage in, and under what terms such engagement will occur. The policy should make it clear that the tax-exempt organization should have control over the joint venture, as ceding control over to a for-profit organization could result in revocation of the organization’s tax-exempt status. The policy should also make it clear that the tax-exempt purpose of the organization is prioritized in the venture. Finally, the policy should require regular reporting and should described in detail how the joint venture is approved by the organization’s board of directors.
A good parent-subordinate consistency policy will establish adequate internal controls for each local branch, chapter, or affiliate under a parent and establish how each such local branch, chapter, and affiliate can help further the parent’s exempt purpose and align with the parent’s overall policies regarding employment, conflict of interest, and any of the parent’s other policies.
If you need help in preparing a travel reimbursement policy for your organization, please feel free to call The Apex Law Group PLLC. We’d be happy to help! This article, or contacting Apex, does not in any way form an attorney-client relationship. If you have any questions or would like to learn more, please contact Jacob Ferrari at email@example.com or visit our website.