Our club is in good financial condition, and we hope to keep it that way despite the current financial crisis and any negative impact on our members.
However it does provoke the question, what if the worst comes to the worst and we have to dissolve the club, what do we do with the club assets such as cash in the bank, rolling stock, power supplies etc etc?
How to apportion remaining funds and asset cash values to members? Pro rate in relation to members’ longevity as club members, or work contributions, or other considerations? Auction the physical assets? etc etc.
We’d be interested in hearing what others have done in the past and whether any clubs have formalized the ground rules for such an eventuality.
In the meantime we’ll keep having fun running our trains. It helps taking our minds off the real world outside the windows. [:D]
It might be an idea to discuss this with any lawyer or trustee who has worked in that area.
otherwise I think that one could auction off physical assets to pay off any overhanging debts and ,in the unlikely situation of owning the building selling the place off. All money accruing should be split amongst the membership–although who knows about how… erg.
Is there a State law that covers this? Maybe it should be handled as if it were an estate. I agree that a lawyer could formalize a rule in your club bylaws by drawing up an agreement signed by all members, and new members would have to sign as they join, with a witness signing as well. So, however you guys agree to divide the spoils, as it were, that will be how it will “go down”.
I’m surprised that these topics weren’t included when the by-laws of the club were written. I’m sure trying to come up with an agreeable plan at this point in time will lead to possible infighting or arguements. It might work out more smoothly if an independent party is contracted to draw up the dissolution plan.
One thing that will have an effect on how you handle club assets at dissolution of the club is whether the club is incorporated, and if so, how it is incorporated.
My modular club is incorporated as a 501(c)3 not-for-profit tax-exempt corporation. One of the requirements of a 501(c)3 corporation is that individual members do not receive financial or material profit from the club’s operations. For this reason, we wrote into our bylaws a statement that at dissolution of the club, all members take their own stuff home (most of the modules are privately owned) and all club-owned assets are to be sold (with no preferential price consideration given to members). All club debts are then paid, and any balance donated to a qualifying tax-exempt non-profit organization, such as another tax-exempt model railroad club, railroad museum or a public charity such as the Red Cross.
Working through those kinds of details and including them in the documentation accompanying our application made it very easy for us to get 501(c)3 status in the first place.
Our club dues go to pay for general expenses, but for any ‘assessment’ or materials donated(like track) or the DCC system; ‘shares’ are credited to the member. In my case, I have paid ‘assessments’ over the past 3+ years as the layout was built, plus I have donated the cost of a lot of electrical/computer/DCC equipment.
In our bylaws, if we dissolve the club I will get first right to recover any materials I have donated. After the donated stuff is gone, the remaining stuff(track/turnouts/etc) will be available to the folks who still have ‘shares’. We will go by order of date of membership until all of the materials are gone. If a member ‘leaves’ the club before it is dissolved, he/she loses their shares. We had a lot of discussion about this, but it will only matter if the club is dissolved.
I’m not surprised at all. Most clubs are started with good intentions, and no one wants to muddy the giving birth uphoria by worrying about possible death. I think that’s human nature, and is probably the reason a lot of us have to be dragged kicking and screaming to the lawyer to get wills drawn up. The point about coming up with an agreeable plan leading to arguments at the late date is valid, but then how does one come up with an agreement as to what constitutes an independent party?
Club I belong to has been in the same rented location for about 40 years. The building has already changed hands once. We are in the basement, which is fortunate as it isn’t really a likely candidate for any renovation for other use. And we pay a very nominal rental, if you know what I mean. But nothing is 100 percent certain. Recognizing this, I attempted to bring up the “we need a plan in case…” discussion several times. You would have thought I had the plague. No one wanted to even have the conversation.
Regarding the “assets”, most clubs have things that were donated by the members. Giving those items back to the donors is a good one, assuming that those individuals are still members. Selling off the club’s other layout related assets is another good idea, recognizing of course that you’ll be lucky to get 25 cents on the dollar unless any brass engines/cars are involved.
But then you get to the cash assets (ie: the bank account) and you have a moral dilemma. I believe that many clubs probably have been using the member’s dues
I wouldn’t worry much about the bank account. After all, if there are substantial cash reserves, then the club wouldn’t be in the kind of financial trouble that would cause it to dissolve. If you’ve got 50 members and $500 in the bank, well, throw a party and throw what’s left into the Salvation Army pot.
I’d worry more about the “lost your lease” scenario, where the club might have to move. This might involve a relocation where some members might end up too far from the club.
As Fritz said, my club is also incorporated (in our case, in Massachusetts) and a 501(c)3 Not For Profit organization. Therefore, there are certain rules that apply to us.
Before we got 501(c)3 status in the early 1990’s, we had no By-Laws addressing dissolution of the club (and we’ve been around since 1938!). But the IRS had us add the following Article to our By-Laws during our application process:
ARTICLE XII: DISSOLUTION SECTION 1. In the event of the need to dissolve the corporation, the Club property and funds shall be distributed to other non-profit, tax-exempt organizations. This shall be determined by the remaining members of the organization. SECTION 2. No member of the corporation shall be eligible to receive Club property or funds under the above conditions.
At one club its get your personal items and then then remainer will be equally divide among among members.I am not to sure about the other HO club…
The N Scale club is simple…The modulars is privately own and its been good to know ya but,its the end. Take your modulars home,leave your keys in the box and the last one out turn off the lights and lock up.
I am curious how you got (c)(3) status, which is charitable/educational/etc… I would have expected (c)(7), which is social club. No matter.
As stated above, if the club was indeed formally organized, as opposed to just happening, the by-laws should have addressed this if done by a competent attorney. If the club was organized fairly recently you may be able to contact the attorney that set it up.
I nearly joined one years ago, but it was a ‘just happening’ type. I foresaw trouble and steered clear.
501c3 status applies to educational or charitable organizations. If you draft your bylaws correctly, a model railroad club can qualify. It does require paperwork and regular reporting and filing of taxes, etc. The mention of what happens if dissolved is correct, though, as the proceeds would have to be donated to another charitable organization, not returned to the members. This may be one place where c7 status may offer an advantage, however I’m only familiar with what c3 dictates.