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Loren
Loren, Attorney
Category: Business Law
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Experience:  30 years experience representing clients .
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Take me for a fool. 501(c)(7) with IL Land Trust again. I phrased

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Take me for a fool. 501(c)(7) with IL Land Trust again. I phrased my last question you answered the wrong way. What I meant to ask was if the club wants to decrease the number of class A memberships available from 150 to 125 from when the club was first organized, and add 25 class B memberships, does this require an amendment to the charter with the state of IL?
Submitted: 3 years ago.
Category: Business Law
Expert:  Loren replied 3 years ago.
Yes, you may have more than one class of member and that will require the filing of articles of amendment and a change in the bylaws. The following link will take you to the form for the Articles of Amendment: http://www.cyberdriveillinois.com/publications/pdf_publications/nfp11030.pdf

Edited by LawGuy on 8/3/2010 at 2:33 AM EST
Customer: replied 3 years ago.

When I asked this question the first time on 01/19/2009, the JA expert inquired if the members owned shares in the club or have control of the property. I responded no and that the property was held in trust. She then replied that adding non-owner members does not require an amendment to the charter. I think she meant memberships. She also included an excerpt from the Illinois statute supporting her answer. You can view all this in my initial JA question. I also read Illinois statute 805 ILCS 105/Article 6, and if I'm understanding the verbiage, shares are prohibited and are not issued by non profits. So, from what you are saying none of this matters, and in providing a second opinion, a non for profit in the state of IL would have to file an amendment in adding a new class of membership and changing the number available of an existing class of membership, correct?

Expert:  Loren replied 3 years ago.
If you make a change to the classes of members of your corporation that requires articles of amendment. The members have nothing to do with the land trust on an individual level. If you want to change the way the corporation interacts with the trust as the beneficiary, you need to amend the trust agreement. If you want to change the structure of the corporation, you will need to amend the articles of incorporation. So, yes, you are correct in your understanding.

Edited by LawGuy on 8/3/2010 at 3:28 AM EST
Customer: replied 3 years ago.
Finally, and I will pay you a bonus for this answer - are the members, then, owners of the club, and as they are not shareholders, is their ownership interest in the tax-exempt corporation similar to that of a beneficial interest in a trust, or something else?
Expert:  Loren replied 3 years ago.
No. A not for for profit is not "owned" by its members. You do not even have to have members. There can just be directors. The members, if any, have the rights and duties in the bylaws. For example, I represent a flying club organized as a not for profit. In exchange for an initiation fee and then a monthly fee, the members can have use of the airplanes owned by the club. The members have no ownership of the planes, just the right to use them. So, I suppose it is similar to the trust in that respect. Legal ownership of the NFP property is in the NFP and the members have use of that property but not legal ownership.
Loren, Attorney
Category: Business Law
Satisfied Customers: 20336
Experience: 30 years experience representing clients .
Loren and 3 other Business Law Specialists are ready to help you
Customer: replied 3 years ago.
This follow-up question is in regards XXXXX XXXXX club needing to amend its charter if it adds one or more classes of membership per a revision of its bylaws as discussed above. Lets assume a club adds one or more classes of membership by revising its bylaws but does not amend its corporate charter with the state. What are the consequences of non-compliance with state law?
Expert:  Loren replied 3 years ago.
You run the risk of losing a challenge to the new structure with the additional classes. It is easy enough to rectify, however, by simply filing articles of amendment.
Customer: replied 3 years ago.
Finally, in a previous answer on the same topic, you indicated a club should review its corporate charter every three to five years. What is the reason or benefit to doing so?
Expert:  Loren replied 3 years ago.

Not so much the charter, as the bylaws. That is just to stay current and watch for any potential conflicts or other problems. For example, I know of one corporation which was operating for years with fewer directors than their bylaws required.

 

The charter is reviewed pretty much every year with the annual report.

Customer: replied 3 years ago.
What then if the bylaws are current and the charter is never reviewed by the organization, or updated as required by state law? How would the state even find out as I'm not aware they do random audits and the like?
Expert:  Loren replied 3 years ago.
They wouldn't unless the corporation was sued it came out in discovery.
Customer: replied 3 years ago.
So, making sure the charter is current is simply acting in good faith on the honor system to be compliant with state law.
Expert:  Loren replied 3 years ago.
Yes, but that is not to imply that compliance is voluntary.
Loren, Attorney
Category: Business Law
Satisfied Customers: 20336
Experience: 30 years experience representing clients .
Loren and 3 other Business Law Specialists are ready to help you

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