ANALYTICAL FRAMEWORK FOR DE FACTO MERGER OF NONPROFIT CORPORATIONS FASHIONED BY THE COURT.

The First Department determined questions of fact were raised about whether there was a de facto merger of two nonprofit corporations. If a de facto merger is found in the sale of a corporation, the liabilities of the seller become the liabilities of the buyer. Because the established “de facto merger” law does not address nonprofits (which have no “owners”), the First Department fashioned a “nonprofit de facto merger” analytical framework:

Since, unlike for-profit corporations, nonprofits do not have owners, we hold that continuity of ownership is not a sine qua non of de facto merger of nonprofits, as it is for a finding of a de facto merger of for-profits … . Thus, it is necessary to examine the other elements of de facto merger.

Plaintiffs satisfied the second and third elements, “cessation of ordinary business operations and the dissolution of the selling corporation as soon as possible after the transaction,” and “the buyer’s assumption of the liabilities ordinarily necessary for the uninterrupted continuation of the seller’s business”… . …

Triable issues of fact exist as to the fourth element of de facto merger, “continuity of management, personnel, physical location, assets and general business operation”… . Ring v Elizabeth Found. for the Arts, 2016 NY Slip Op 01127, 1st Dept 2-16-16

CORPORATION LAW (DE FACTO MERGER OF NONPROFIT CORPORATIONS, ANALYTICAL FRAMEWORK)/DE FACTO MERGER (DE FACTO MERGER OF NONPROFIT CORPORATIONS, ANALYTICAL FRAMEWORK)/NONPROFIT CORPORATIONS (DE FACTO MERGER OF NONPROFIT CORPORATIONS, ANALYTICAL FRAMEWORK)