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Nonprofit Biz Sellers: Prepare For Long Wait

 
 

Ryan Derousseau
CNN Money
Janurary 16, 2008

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: (FORTUNE Small Business) -- Dear FSB: Our family is looking to transfer our education business and sell the property.

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We hired a commercial agent but have only received one possible suitor, which did not work out. The business is set up as a not-for-profit and is tax-exempt, so we can take advantage of tax breaks. We would sell the property and transfer the board seats to any suitor who bought the property. While the business took a year or two to get off the ground, it is now doing much better. What can we do to move the sale along more quickly?


- Arthur C. Johnson II, Merriville, Ind.


Dear Arthur: You may not find the quick sale you're looking for. The nonprofit status of your company means the rules and regulations involved increase because of the tax exemption you now receive. The laws that govern this will vary by state - for Indiana, you could use the Nonprofit Legal Clinic at the University of Indiana. It offers free advice. Also, the Indiana Nonprofit Resource Network will help point you to the ideal consultant for your problem.


Selling your biz? Find the best broker


But remember, most states will need to involve the courts in order to transfer ownership. "If you're selling a nonprofit, it's imbued with certain public assets," said Charles Brodbeck, an attorney at Pittsburgh-based Cohen & Grigsby.


This means that the assets are not simply owned by you, but are entrusted to you for the use of a charitable purpose. The courts need to know where those proceeds are going. A court will most likely make sure a nonprofit's cash continues to fund the original intention of the organization, or else it will lose its tax-exempt status. This will prolong any attempt to sell the non-profit.


The sale will only become more convoluted if endowments are involved.


"If charitable organizations are holding an endowment, then people have given gifts over the years," Brodbeck said. "Those people may have given the gifts with certain restrictions, so the courts may review it."


You have company: Broadbeck says he has never seen a quick sale of a nonprofit. You may need to reduce expectations and have patience. But advertising on websites, like thebizseller.com or bizbuysell.com, may help, along with lowering the asking price. Either could shorten the wait, but you should discuss such options with your broker and lawyer first.

Copyright © 2008. CNN Money.