Who owns (US) private non-profit universities ? I understand that being non-profit means that no one receives dividends. However does it mean that no one owns a private non-profit university? Can someone decide to sell a private non-profit university ?
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1While I agree with the answers as given, one way to think about it is that such universities "own themselves". There are some legal requirements that bind such things, of course. The Board of Directors (or equivalent) act on behalf of the organization and are, themselves, bound to act in its interests (morally and usually legally). – Buffy May 06 '22 at 14:15
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Who owns (US) private non-profit universities?
In the United States, no one "owns" a non-profit. Rather, non-profits are administered by a board of directors. It's possible that this board consists only of one person; this is the closest you can come to being the "owner" of a non-profit.
Can someone decide to sell a private non-profit university?
Yes, but what would you with the proceeds? After liabilities are paid, a defunct nonprofit must transfer its assets to another nonprofit or to the Government. In particular, the board could not pocket the proceeds personally. Thus, a viable nonprofit is more likely to talk of "merging itself" with another nonprofit (i.e., dissolving itself and transferring its assets -- and possibly its leadership / philosophy -- to another nonprofit) rather than being "sold."
The situation is essentially the same for public non-profits, except that many public universities are governed by specific legislation. For example, Article IX of the Constitution of the State of California states that the University of California will be a "public trust, to be administered by the existing corporation known as 'The Regents of the University of California' with full powers of organization and government." Thus, the University of California could not sell itself entirely (or otherwise dissolve itself) without a constitutional amendment. It could sell one or more of its campuses; however, it would be required by state law to follow a competitive bidding procedure. And again, the board could not personally profit from this sale.
cag51
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2True, but some states (including California) do allow only 1. Federally, you do have to apply for an exemption to get 501(c)(3) status with only one director, however. – cag51 May 05 '22 at 14:29
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Right. The private/public distinction is more about who has a right to appoint the board (the prior board members vs. the legislature or it’s representatives) than anything else. – Dawn May 05 '22 at 15:07
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Correct on the point about federal law requiring 3 but having a clause for exemption. In practice, I have never seen this 1 bd member exemption carried out. It would certainly invite quite a bit of scrutiny. – Dawn May 05 '22 at 15:09
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There are a range of possible legal structures that can be used for a non-profit organisation. Some non-profit organisations are non-stock corporations, some are private companies limited by shares, some are other types of incorporated associations, and some are run through trusts. The particular corporate/trust structure can vary, so you would need to look at each non-profit univeristy on a case-by-case basis. The taxation rules for exempt organisations (including non-profits and other types) are set out in Sections 501-530 of the Internal Revenue Code (26 US Code, Subchapter F). An exempt organisation can include an organisation "...organized and operated exclusively for ... educational purposes..." (s 501(c)(3)) if it meets the exemption requirements; organisations falling within this section are non-profits. Section 503 of the Code removes the tax-exempt status of the organisation for a period if it engages in a "prohibited transaction", which can include certain sales of securities or property.
Depending on the underlying legal structure, there will be mechanisms by which positions in the organisation can be transferred from one holder to another (e.g., transfer of shares, transfer of other appointments, etc.), and a mechanism to wind the organisation up entirely. However, the non-profit status of the organisation usually requires that its controllers cannot obtain a financial benefit for shares in the organisation, so it would usually not be allowable to "sell" shares in the organisation for consideration. What would usually happen instead is that any sales of property in the organisation would need to be applied to its objective, which is for educational purposes.
This is all quite a complex area of corporate/organisational law, equity/trusts, and taxation law, so take my answer with a grain of salt. To get a specific understanding of the rules for a particular non-profit university you would need to find out its underlying legal structure and the relevant laws that apply to non-profit organisations of that kind in the particular jurisdiction(s) it is in.
Ben
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7What is this nonsense about nonprofit “shares”? Not a thing. Or if so, an edge case that I have not encountered in my 15 years of scholarship and practice in this area. – Dawn May 05 '22 at 04:59
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"There are a range of possible legal structures": The ones I checked are all 501(c)(3). – Nate Eldredge May 05 '22 at 14:10
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2@NateEldredge: My understanding is that a 501(c)(3) is not a legal structure; rather, a corporation, trust, or other structure may qualify for tax exemption under section 501(c)(3). These are often referred to as "501(c)(3) organizations." – cag51 May 05 '22 at 14:46
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@cag51 the reason “trusts” are on that list is that 501(c)3 designation is also applied to private foundations. However, the additional requirements placed on PFs by the IRS would make that an unsuitable structure for a university. This is why universities often have separately incorporated private foundations to do their fundraising. – Dawn May 05 '22 at 15:01
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And you are all correct: the legal structure is a corporation (this answer says “private company” which is not specific enough to be meaningful) and the tax designation is exempt under regulation 510(c)3. – Dawn May 05 '22 at 15:03
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@Dawn: My understanding is that non-profit corporations limited by shares are allowed in some US states, but rarely used; so it is an "edge case". So unless I am mistaken, it is a thing. – Ben May 05 '22 at 22:25
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Do you have a specific citation in mind that led you to this understanding? – Dawn May 06 '22 at 02:04
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@Dawn: Well, for example, there are a few states that allow non-profit corporations operating on a stock-share basis (see e.g., 15 PA Cons Stat § 5752 (2014) in Pennsylvania). More importantly, since the onus is on the person asserting prohibition, do you have any citation from 501(c)(3) or other law that would universally prohibit a corporation limited by stock from becoming a non-profit? – Ben May 06 '22 at 03:01
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I am assuming that exists for co-ops. The question is not about who can own a university in some edge case scenario. It is about who does own universities. – Dawn May 06 '22 at 03:14
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So not at all nonsense, as you previously asserted. Rather than trying to move the goalposts, perhaps you could just retract your previous incorrect comment and concede that this is a thing after all. – Ben May 06 '22 at 03:43
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It is not a thing for universities. The question is about universities. Universities are not co-ops. – Dawn May 06 '22 at 03:48
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You're going to tell me you know the ownership structure of every private university in the US? Show me your evidence that none of them are structured by incorporation by shares. – Ben May 06 '22 at 03:51