HBA-ATS H.B. 3001 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 3001 By: Hartnett Business & Industry 4/11/1999 Introduced BACKGROUND AND PURPOSE Community foundations assist people in meeting their charitable goals in their local communities by raising money and giving grants to causes identified by the foundation or chosen by the foundation's donors. Currently, thirteen of these private charitable institutions exist in Texas. Ten are organized as nonprofit corporations and three are organized as community trusts. Organization as a nonprofit corporation may offer advantages over organization as a community trust. For example, a nonprofit corporation can directly control all assets and funds, increasing investment returns while decreasing transaction costs. Unlike nonprofit organizations, community trusts have separate institutional trustees handle trust accounts, which increases costs. To allow community trusts to convert to nonprofit corporations may result in greater operating efficiencies and investment returns. H.B. 3001 authorizes a community trust to request that a court permit it to transfer the assets of its component trust funds to a nonprofit corporation. To convert, five criteria must be satisfied. First, the governing board of the trust must file a petition in the court requesting that the board be permitted to transfer the assets of the trust's component trust funds to a nonprofit corporation and to terminate the trust and its component trusts. Second, the governing board must publish a notice once in a newspaper of general circulation in the county in which the proceeding is pending. Third, the governing board must send to all living settlors of the trust funds that comprise the trust who can be located with the exercise of reasonable diligence a copy of the board's petition and a notice of the time and place of the hearing on the petition. Fourth, a hearing must be held by the court. Fifth, the nonprofit corporation to which the assets of the funds comprising the trust are transferred must be properly organized under the Texas Non-Profit Corporation Act and be organized for the same purposes as the trust, and the charter of the corporation must, to the fullest extent possible, contain language describing the purpose or goals of the corporation and the use or uses to be made of the assets of the corporation, which language must be identical to the language contained in the initial instrument used to form the trust. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. PREAMBLE. Sets forth findings and intent of the legislature. SECTION 2. Amends Subchapter C, Chapter 112, Subtitle B, Title 9, Property Code, by adding Section 112.058, as follows: Sec. 112.058. CONVERTING COMMUNITY TRUST TO NON-PROFIT CORPORATION (a) Authorizes a community trust (trust), as described in Section 1.170A of the Income Tax Regulations, to request that a court permit it to transfer the assets of its component trust funds to a nonprofit corporation. Sets forth that the trust must proceed in accordance with this section. (b) Provides that the court must order that the assets of the trust's component trust funds be transferred to a nonprofit corporation organized under the Texas Non-Profit Corporation Act and must order that the trust and its component funds be terminated, if all of the following requirements are met: _the governing board of the trust files a petition in the appropriate court requesting that the board be permitted to transfer the assets of the trust's component trust funds to a nonprofit corporation and to terminate the trust and its component trusts; _the governing board publishes a notice, as described by this section, once in a newspaper of general circulation in the county in which the proceeding is pending; _the governing board sends to all living settlors of the trust funds that comprise the trust who can be located with the exercise of reasonable diligence a copy of the board's petition and a notice of the time and place of the hearing on the petition; _a hearing is held by the court stated in the published and sent notices; and _the nonprofit corporation to which the assets of the funds comprising the trust are transferred must be properly organized under the Texas Non-Profit Corporation Act and be organized for the same purposes as the trust. Provides that the charter of the corporation must, to the fullest extent possible, contain language describing the purpose or goals of the corporation and the use or uses to be made of the assets of the corporation, which language must be identical to the language contained in the initial instrument used to form the trust. (c) Authorizes the governing board to request that the court's order be subject to Internal Revenue Service (IRS) approval of the asset transfer. Requires the court's order, if the governing board requests that the order be contingent on IRS approval, to be final and effective on the filing by the governing board of a notice that IRS approval has been obtained. Provides that this notice must be filed within 360 days of the date the court's order is signed and if not filed within that time, the court's order is, as a matter of law, dissolved ab initio ("from the inception": Black's Law Dictionary, Sixth Edition), and of no force and effect. (d) Requires that the duties of the trustee of each component trust, if the court orders that the assets of the trust funds comprising the trust be transferred to a nonprofit corporation and the trust and its component funds are terminated under this section, be terminated on the date on which the assets are so transferred and the order must provide that as of such date, the trustee is discharged. Provides that the liability of the trustee, if any, for acts or omissions occurring before the trustee is discharged are not affected by this subdivision. SECTION 3. Effective date: September 1, 1999. SECTION 4. Emergency clause.