Nonprofit Joint Venturing and How It Changes Exposures

insurance for nonprofitsManaging funds is a never-ending task for nonprofits, and many nonprofits are still recovering from losses suffered as a result of the 2008 recession. When organizations find they cannot survive on their current levels of government grants and private contributions, they are forced to reduce staff, amp up fund-raising, and sometimes even eliminate locations. Merging with another nonprofit is sometimes the most logical solution to an organization’s cash-flow problems.

The NEO Law group defines a joint venture as “a separate legal entity formed by two or more parties to undertake economic activity together.” A joint venture can come in one of four legal forms: a general partnership, a limited partnership, a limited liability company (LLC), or a for-profit or nonprofit corporation.

The Center for Nonprofit Management explains, however, that a joint venture is much more than this.

“It is important to realize that a merger is not simply a legal procedure; the compatibility of each organization’s culture and the personal skills and relationships of board and staff will be key factors in the success or failure of any merger.”

Combining two groups of people in a joint venture brings a whole new slew of risks. As Insurance Journal writer Andrea Wells states, “Such cost-cutting measures keep insurance providers on the lookout for changing exposures, even in a very competitive insurance market.”

Both parties considering a joint venture need to understand exactly what liabilities they are retaining, avoiding, and/or accepting. This will involve assessing exposures related to third-party liabilities as well as unique risks related to new staffing arrangements. As one law firm put it, shared staffing means shared risk. Some of the areas the firm deems as “hot spots” for legal risk include pending claims, untended employee relations issues, misclassified workers, and contractual commitments.

Are you a nonprofit business owner who has had issues or success with a joint venture or merger? Share your experience in a comment below.


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