Q&A: Nonprofit Corporations and Real Property Ownership

The value of assets in the United States within the nonprofit sector alone was about 6 trillion dollars in 2016 ($5,990,470,000,000.00 to be exact!), according to the National Center for Charitable Statistics.

Real property (like land and buildings) is considered an asset, and it is common knowledge for many that nonprofit corporation can “own” real property and other assets. Confusion often arises, however, when it comes to the ins and outs of such ownership.

Generally speaking, the rules pertaining to the organization and management of nonprofit corporations, including the power to buy and sell real property, are found in statutes/acts enacted by the state legislature.

This article provides a brief overview of the laws pertaining to real property of Michigan and Illinois nonprofit corporations.

What is a nonprofit corporation?

A nonprofit corporation is a legal entity organized under the laws of a state for a purpose other than making profits. For example, a nonprofit corporation can be formed for educational, political, scientific, charitable, or religious purposes.

What law governs nonprofits in Michigan and Illinois?

Michigan’s “nonprofit corporation act” went into effect on January 1, 1983. It applies to every domestic corporation formed under the current or previous nonprofit corporation acts.

Like Michigan, most if not all Illinois nonprofits are subject to the “General Not For Profit Corporation Act of 1986,” which went into effect on January 1, 1987.

Can a nonprofit buy and sell real property?

The short answer is yes. Under both Michigan and Illinois law, a nonprofit corporation can, among other things, buy, sell, receive, gift, lease, or otherwise deal with an interest in real property that is located in or outside the state. Similarly, a nonprofit corporation can mortgage and pledge real property to a financial institution.

Must nonprofits report and describe their assets?

In Michigan, the articles of incorporation for a nonprofit formed on a nonstock basis must provide a description and statement of the value of any assets (both real and personal property).

Conversely, under Illinois law, a nonprofit corporation is not expressly required to list the assets of the corporation in its articles. But keep in mind that when an unincorporated association or society incorporates, all property passes to and vests in the corporation by operation of law.

When can a nonprofit corporation buy or sell real property?

Unless the articles of incorporation, under Michigan and Illinois law, the business and affairs of a nonprofit corporation must be managed by the board of directors. How and when a nonprofit corporation can buy or sell real property will be largely governed by the corporation’s articles of incorporation or bylaws, or both. And the procedure will involve many of the same required steps for approving other corporate actions, like providing notice and complying with out procedural requirements.