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Fraternal organization has incorporated subsidiary

Ken Olson

By Ken Olson
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Ken Olson

Ken Olson

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I am currently the chairman of a fraternal org (ORG) whose member pooled money and bought property in 1951. They built a large social/meeting hall with many amenities both indoors and out. They created an incorporated Association (ASSOC)comprised of all active members of the ORG, with a Board of Directors (BoD)elected by the ASSOC to manage the property which maintained separate accounting from the ORG for income from hall rentals and which paid for taxes, maintenance, etc.. Massive tax increases caused the property to be sold in 1998. [another fine community asset bites the dust due to government taxes] The substantial monies for the 33 acres was placed in CDs by the BoD.

The ASSOC was created with a set of bylaws originally approved by the ORG defining the usual articles. They were poorly written and nothing was ever included that indicated that the ASSOC/BoD was subject to the control of the parent ORG. Without this written authority the BoD could quite honestly write themselves a check for the funds and it's gone. The past practice over the last 12 years has been that the ORG asks the the BoD to pay the rental on the hall where the ORG now meets. Also, there is the precedent that the ORG has passed motions to approve expenditures in support of events which are culturally significant or donations to charities, etc. and the BoD has issued these funds.

NOW - here's the problem. We're getting to be a very small ORG with a bunch of oldtimers, snowbirds and out-of-state retirees. A few members are trying to get on the BoD and take to control of the money. Everyone in the ORG /ASSOC can see that the bylaws are bad and out of date for our needs and I (a parliamentarian in various venues)volunteered to rewrite the bylaws. I couldn't find anything in Robert's that covers the subject - only commitees & subcommittees. I, for one, do not want the BoD to have the authority to spend any money without the approval of the ORG. How do I write a legitamate Article to indicate that the ORG is the umbrella entity and maintains final control?

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Dan Honemann

Dan Honemann

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Posted

I am currently the chairman of a fraternal org (ORG) whose member pooled money and bought property in 1951. They built a large social/meeting hall with many amenities both indoors and out. They created an incorporated Association (ASSOC)comprised of all active members of the ORG, with a Board of Directors (BoD)elected by the ASSOC to manage the property which maintained separate accounting from the ORG for income from hall rentals and which paid for taxes, maintenance, etc.. Massive tax increases caused the property to be sold in 1998. [another fine community asset bites the dust due to government taxes] The substantial monies for the 33 acres was placed in CDs by the BoD.

The ASSOC was created with a set of bylaws originally approved by the ORG defining the usual articles. They were poorly written and nothing was ever included that indicated that the ASSOC/BoD was subject to the control of the parent ORG. Without this written authority the BoD could quite honestly write themselves a check for the funds and it's gone. The past practice over the last 12 years has been that the ORG asks the the BoD to pay the rental on the hall where the ORG now meets. Also, there is the precedent that the ORG has passed motions to approve expenditures in support of events which are culturally significant or donations to charities, etc. and the BoD has issued these funds.

NOW - here's the problem. We're getting to be a very small ORG with a bunch of oldtimers, snowbirds and out-of-state retirees. A few members are trying to get on the BoD and take to control of the money. Everyone in the ORG /ASSOC can see that the bylaws are bad and out of date for our needs and I (a parliamentarian in various venues)volunteered to rewrite the bylaws. I couldn't find anything in Robert's that covers the subject - only commitees & subcommittees. I, for one, do not want the BoD to have the authority to spend any money without the approval of the ORG. How do I write a legitamate Article to indicate that the ORG is the umbrella entity and maintains final control?

I'm afraid you will need hands-on, professional assistance with this -- mostly of a legal nature. Rules of parliamentary procedure will not be of any real help.

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Gary Novosielski

Gary Novosielski

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The ASSOC was created with a set of bylaws originally approved by the ORG defining the usual articles. They were poorly written and nothing was ever included that indicated that the ASSOC/BoD was subject to the control of the parent ORG. Without this written authority the BoD could quite honestly write themselves a check for the funds and it's gone. The past practice over the last 12 years has been that the ORG asks the the BoD to pay the rental on the hall where the ORG now meets. Also, there is the precedent that the ORG has passed motions to approve expenditures in support of events which are culturally significant or donations to charities, etc. and the BoD has issued these funds.

NOW - here's the problem. We're getting to be a very small ORG with a bunch of oldtimers, snowbirds and out-of-state retirees. A few members are trying to get on the BoD and take to control of the money. Everyone in the ORG /ASSOC can see that the bylaws are bad and out of date for our needs and I (a parliamentarian in various venues)volunteered to rewrite the bylaws. I couldn't find anything in Robert's that covers the subject - only commitees & subcommittees. I, for one, do not want the BoD to have the authority to spend any money without the approval of the ORG. How do I write a legitamate Article to indicate that the ORG is the umbrella entity and maintains final control?

The trouble here is that the ASSOC is a separate legal entity, with (if I understand your description) separate bylaws, and (presumably) articles of incorporation. What if they do not agree that the ORG has the power to rewrite them? Is it still the case that the voting members of the ASSOC are the same as the voting members of the ORG? Then you might have a shot at getting it passed, but it depends on how the ASSOC is structured, and what authority the members (shareholders?) have over the BoD in the current structure. How do the bylaws of the ASSOC provide for their own amendment? How much autonomous authority doe the BoD have, and how likely are they to try to retain it?

As you can see, the questions here go well beyond parliamentary procedure.

Even without the added wrinkle of substantial funds involved, you're in a position where you ought to be consulting a lawyer, not a parliamentarian. And with the money issue, there's a substantial chance that another lawyer (or two) may soon be involved with questioning whatever you write, so your language better be capable of withstanding a legal challenge.

In section 55, "Merger, Consolidation and Dissolution of Societies", RONR gives the same advice: "an attorney should be consulted".

Then, you need to assess your voting power. "I for one" isn't going to be enough, no matter how good the language is. You need to see what kind of support, and from whom, it will take to get the new document passed, and start working on the political angle as well.

I'm confused that you couldn't find information on drafting bylaws, since Chapter XVIII, p. 548, deals with nothing else. Are you sure you're looking at the 10th edition?

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