Sometimes, nonprofit organizations will work with other companies to accomplish things better together. With these arrangements, both companies can save money and do their job more efficiently. Working with other companies is often a great idea, but it is critical that your accounting departments know how to accurately report these collaborations to the government. Reporting obligations vary based on how these ventures are structured, and knowing the difference helps when it is time for nonprofit audit services to be performed.
From an accounting standpoint, the easiest business relationship for nonprofits may be a collaborative arrangement. Here, there typically is a contractual agreement where cooperating organizations carry on shared operations.
Mergers and Acquisitions
Sometimes, simply carrying out a joint venture is insufficient for the principal nonprofit to accomplish its goals. In this situation, sometimes the Board of another not-for-profit will turn over control of its operations to the principal. Generally, this is done in the name of cooperation. From a regulatory standpoint, this is considered an acquisition, although no new legal entity is formed. With acquisitions, the acquiring company must determine the fair market value of the acquired nonprofit’s assets and liabilities. One way to do this is through a California Nonprofit Audit of the acquired entity.