A great deal of wealth in the United States is controlled by charitable nonprofit organizations. These entities dominate fields such as education, health care, religion and social services, while they play prominent roles in the arts and many other areas. Applicable legal structure descends from the law of wills, the law of trusts, and the law of for-profit partnerships and corporations, among others. Yet, an authoritative statement of the law in charitable nonprofit organizations does not exist. The law of charities, drawn as it is from various other parts of the law, in many aspects remains confusing and incomplete. It is difficult for somebody who has not worked in this field to manage all these sources. This is the basis for the Restatement.

The Restatement of Charitable Nonprofit Organizations is designed to provide guidance on the legal issues faced by nonprofit institutions. The Council approved the start of this project as a Principles project in 2000. It later approved changing the project to a Restatement in 2014. The change was appropriate for several reasons. During the drafting process, it became clear that the drafts were primarily reflecting the law as it is, noting where there are conflicts, explaining alternative approaches, and discussing the rationale for the decision when one approach was chosen over another. The Council decided that, consistent with ALI’s traditional practice, the Restatement label should be used for projects that seek to provide guidance to the courts and where there is an established body of positive law. In contrast, the Principles label is appropriate for projects where the main intended audiences for the Institute’s guidance are institutions other than the courts, such as legislatures, administrative agencies, or private actors. Under this categorization, this project belonged on the Restatement side of our ledger and the Council approved the name change.

The Restatement of Charitable Nonprofit Organizations includes six Chapters. Chapter 1 deals with Definition and Choice of Form; Chapter 2 with Governance; Chapter 3 with Changes to Purpose and Organization; Chapter 4 with Gifts: Solicitation, Restrictions on Charitable Assets, and Enforcement of Pledges; Chapter 5 with Government Regulation of Charities; and Chapter 6 with Standing of Private Parties.

Pending approval by ALI Council in January 2019, the remaining Sections of this project will be presented at the 2019 Annual Meeting for membership approval, marking the completion of this project.

Below is a more detailed projected Table of Contents with notes on which Sections have been approved. The colored text denotes Sections that have not been presented to the membership for approval.

Projected Overall Table of Contents (As of Preliminary Draft No. 5 (August 17, 2018))

CHAPTER 1. DEFINITION AND CHOICE OF FORM (approved at 2016 Annual Meeting)
Introductory Note
§ 1.01. Definition of a Charity
§ 1.02. Choice of Legal Form
§ 1.03. Charities with Members

CHAPTER 2. GOVERNANCE*
§ 2.01. Fiduciary Defined and Scope of Duties (approved at 2016 Annual Meeting)
§ 2.02. Duty of Loyalty (approved at 2016 Annual Meeting)
§ 2.03. Duty of Care and the Business Judgment Rule (approved at 2016 Annual Meeting)
§ 2.04. Management and Expenditure of Investment Assets
§ 2.05. Definition and Duty of the Governing Board (approved at 2016 Annual Meeting)
§ 2.06. Delegation to Board Committees (approved at 2016 Annual Meeting)
§ 2.07. Fiduciaries’ Rights to Information (approved at 2016 Annual Meeting)
§ 2.08. Modification of Fiduciary Duties and Exculpation of Fiduciaries (approved at 2016 Annual Meeting)
§ 2.09. Immunity, Indemnification, and Insurance

CHAPTER 3. CHANGES TO PURPOSE AND ORGANIZATION
§ 3.01. Procedures for Changing a Charity’s Purposes in its Governing Documents and the Application of Existing Assets to New or Additional Purposes (approved at 2016 Annual Meeting)
§ 3.02. The Doctrine of Cy Pres (approved at 2016 Annual Meeting)
§ 3.03. The Doctrine of Deviation (approved at 2016 Annual Meeting)
§ 3.04. Change of Structure: Fundamental Transactions (approved at 2016 Annual Meeting)
§ 3.05. Insolvency and Bankruptcy (approved at 2017 Annual Meeting)
§ 3.06. Termination and Dissolution (approved at 2016 Annual Meeting)

CHAPTER 4. GIFTS: SOLICITATION, RESTRICTIONS ON CHARITABLE ASSETS, AND ENFORCEMENT OF PLEDGES
§ 4.01. Restrictions on Charitable Assets
§ 4.02. Creation and Interpretation of a Specific Restriction on a Charitable Asset
§ 4.03. Release or Modification of a Specific Restriction on a Charitable Asset
§ 4.04. Enforcement of Pledges
§ 4.05. Solicitation of Charitable Assets
(TBD, possibly § 4.01 if section remains freestanding)

CHAPTER 5. GOVERNMENT REGULATION OF CHARITIES
§ 5.01. Role of the State Attorneys General (approved at 2017 Annual Meeting)
§ 5.02. Role of the State Courts and Remedies
§ 5.03. Role of the Federal Government
§ 5.04. Choice of Law

CHAPTER 6. STANDING OF PRIVATE PARTIES (approved at 2017 Annual Meeting)
Introductory Note
§ 6.01. Standing of a Private Party to Commence or Intervene in a Direct Suit Against a Charity
§ 6.02. Standing of a Private Party to Commence an Action on Behalf of a Charity: The Derivative Suit
§ 6.03. Standing of a Private Party to Enforce the Purposes to Which Charitable Assets are Devoted and Administrative Terms Governing Charitable Assets
§ 6.04. Standing of a Private Party to Commence or Intervene in a Cy Pres or Deviation Proceeding
§ 6.05. Definition of a Private Party with a Special Interest for Purposes of Standing

*Approved at 2016 Annual Meeting as §§ 2.01-2.07; § 2.08 was previously numbered § 2.04

SHARE

ALI Staff

The American Law Institute

0 Comments

Submit a Comment

Your email address will not be published.