For Nonprofits

Charitable organizations serve and strengthen Montana communities through their contributions to health, the environment, education, spiritual development, research, the arts and human services.

The attorney general, as the state's chief law enforcement officer, has authority to supervise charitable organizations and plays an important role in ensuring that all Montanans continue to benefit from the services they provide. Montana law does not require charities operating in the state to register with the Attorney General's Office. However, charities that solicit contributions through telemarketing must comply with Montana's telemarketing laws.

The following information is provided to help charities operating in Montana comply with state regulations.

Nonprofit Corporations

Nonprofit corporations are created to support charitable, religious, educational, scientific or artistic endeavors. Unlike for-profit corporations, nonprofits:

• must be permanently dedicated to an exempt purpose as defined by the Internal Revenue Service, and
• may not distribute profits to any corporate member.

In Montana, the Montana Nonprofit Corporation Act governs the organization and operation of nonprofit corporations. Section 35-2-126 of the Montana Code Annotated (MCA) requires that an organization must be designated as a mutual benefit, public benefit or religious corporation, as determined by the articles of incorporation filed with the Secretary of State's Office.

• Public Benefit Corporations such as civic and community groups, foundations and other charities serve the public and may have members. A public benefit corporation operates for public or charitable purposes, and members may not sell their interests or receive dividends from the organization.
• Mutual Benefit Corporations such as private clubs or associations serve their members. Examples include trade associations, social clubs and fraternal organizations. Members are not entitled to receive dividends while the organization is operating, but they are entitled to sell their memberships and receive income or assets should the organization dissolve. Section 35-2-725, MCA.
• Religious Corporations such as some churches and religious orders, serve religious purposes and may not have members. The IRS provides useful tax-related information for religious organizations.

Important Provisions of the Montana Nonprofit Corporation Act

General Duties of Directors and Officers. The duties of nonprofit directors include:

• acting in good faith, prudently and in the best interests of the corporation. Section 35-2-416, MCA.
• avoiding conflicts of interest. In some instances, this may require taking specific steps to avoid a conflict, including obtaining the attorney general's approval of a transaction when directors are unable to do so without a conflict. Section 35-2-418, MCA.

Officers also must act for the corporation in good faith, prudently and with the best interest of the corporation in mind. Section 35-2-441, MCA.

Disclosure of Corporate Records to Members. A nonprofit corporation must keep records of its meetings, finances and membership. Section 35-2-906, MCA. Upon request, a nonprofit corporation must make certain of those records available to members. Section 35-2-907, MCA.

Public Information. Nonprofit corporations with 501(c)(3) status must make their tax returns and tax exemption information available to the public in accordance with IRS public disclosure requirements. Nonprofit tax returns are available online through sites such as GuideStar.

Annual Report. All nonprofits, regardless of designation, must file an annual report with the Secretary of State's Office. Annual reports need not be filed with the attorney general. Section 35-2-904, MCA.

Mergers. Public benefit and religious corporations frequently determine that their interests and those of their beneficiaries are better served by merging with another similar corporation. In that event, they must notify the attorney general of the planned merger. Court approval is not required if the attorney general has been properly notified. Section 35-2-609, MCA.

• Nonprofit Health Corporation Conversions. Nonprofit health entities such as hospitals and insurers are subject to the provisions of Title 50, Chapter 4, Part 7, MCA. They may not convert their organization or their assets to for-profit status without prior approval from the attorney general and the insurance commissioner, and must take certain steps to protect public benefit assets.

Disposal of Assets or Property. Public benefit and religious corporations must provide written notice to the attorney general 20 days before the organization in any way disposes of all or substantially all of its property. This allows the attorney general to review the proposed transfer or disposal, address any issues and commence any necessary court proceedings. Section 35-2-617(7)(a), MCA.

Dissolution. Public benefit and religious corporations must submit a completed Notice of Dissolution form to the attorney general if the organization intends to dissolve. The Notice of Dissolution must:

• be given to the attorney general at or before the time the company files articles of dissolution with the secretary of state, and
• include a summary of the organization's plan for dissolution, describing the organization's assets and explaining where they will go upon dissolution.

The attorney general reviews the plan to ensure that company assets are transferred to another public benefit or religious corporation in accordance with Section 501(c)(3) of the Internal Revenue Code. Corporation assets cannot be transferred or conveyed for at least 20 days unless the attorney general has waived the notification requirements. Section 35-2-722, MCA. See Section 35-2-725, MCA or IRS exemption requirements for additional information.

Mutual benefit corporations that intend to dissolve should consult Section 35-2-725, MCA for important information about distributing or transferring assets.

Attorney General Enforcement Actions. Nonprofit corporations are required to notify the attorney general of any legal actions taken either against them or on their behalf under the Nonprofit Corporation Act. The act authorizes the attorney general to intervene in such legal proceedings or to initiate them to enforce Montana law. Section 35-2-131, MCA.

• Dissolution by the Attorney General. The attorney general also can initiate legal action to dissolve a public benefit or religious corporation that breaks the law by, for example, wasting or misusing corporate funds. Section 35-2-728, MCA.

Charitable Trusts

Charitable trusts are created for a variety of charitable purposes that benefit the public, including relief of poverty, advancing education and religion, promoting health, governmental purposes, and other objectives that benefit the general public. Sections 72-33-501 and 72-33-502, MCA.

State law relating to oversight of charitable trusts and prohibitions on certain activities are outlined in Title 72, Chapters 33–36, MCA, and are summarized below.

Important Provisions of the Trust Code

General Duties of Trustees. Trustees have a duty to:

• administer the trust solely in the interest of the beneficiaries. Section 72-34-103, MCA.
• keep the beneficiaries of the trust reasonably informed of the trust and its administration. Section 72-34-124, MCA.

The attorney general is considered a beneficiary for purposes of charitable oversight. Section 72-33-108(1), MCA.

Prohibited Conduct. Trustees are prohibited from:

• engaging in self-dealing
• retaining excess business holdings
• making any investments that would subject trust property to tax
• making any taxable expenditure

For additional information on prohibited conduct and duties, see Sections 72-34-203 and 72-34-105, MCA.

Duty to Report. Charitable trusts must provide, on reasonable request by a beneficiary of the trust or the attorney general, a report that includes information about the assets, liabilities, receipts and disbursements of the trust. Trustees may also be required to provide information about acts of the trustees as well as details relating to its administration. Section 72-34-125, MCA.

Oversight Authority of Attorney General. As Montana's chief law enforcement officer, the attorney general protects the interests of the state's public beneficiaries. The attorney general may bring legal action to ensure that trust assets are properly distributed and that its charitable purpose is carried out. Sections 72-35-315 and 72-33-503, MCA.

Change-of-Purpose Proceedings. If it becomes apparent that a trust's charitable purpose can no longer be carried out because it is impossible, impracticable or illegal to do so, the trustees or the attorney general may apply to the court to redirect the trust's assets to another charitable purpose. That purpose must be in keeping with the trust's goals. Section 72-33-504, MCA. The attorney general is a necessary party to the change-of-purpose proceedings. Section 72-33-108(1), MCA.

Contact the Attorney General's Office

For additional information about nonprofit corporations and charitable trusts, contact: