HBA-TYH, ATS C.S.H.B. 3001 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 3001 By: Hartnett Business & Industry 4/23/1999 Committee Report (Substituted) 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 (trust). Organization as a nonprofit corporation may offer advantages over organization as a trust. For example, a nonprofit corporation can directly control all assets and funds, increasing investment returns while decreasing transaction costs. Unlike nonprofit organizations, trusts have separate institutional trustees handle trust accounts, which increases costs. Allowing trusts to convert to nonprofit corporations may result in greater operating efficiencies and investment returns. C.S.H.B. 3001 sets forth provisions for the conversion of a trust to a nonprofit corporation. 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. Amends Subchapter C, Chapter 112, Property Code, by adding Section 112.058, as follows: Sec. 112.058. CONVERSION OF COMMUNITY TRUST TO NONPROFIT CORPORATION (a) Defines "community trust" and "assets." (b) Authorizes a community trust (trust) with court approval to transfer the assets of the trust to a nonprofit corporation and terminate the trust as provided by this section. (c) Authorizes the trust to transfer the assets of the trust to a nonprofit corporation if it is organized under Article 1396-1.01 et seq., V.T.C.S. (Texas Non-Profit Corporation Act), and organized for the same purpose as the trust. Provides that the charter of the nonprofit corporation must describe the purpose of the corporation and the proposed use of the assets transferred using language substantially similar to the language used in the instrument creating the trust. (d) Provides that to transfer the assets of and terminate a trust under this section, the governing body of the trust must: _file a petition in the appropriate court requesting the transfer of the assets of the trust to a nonprofit corporation and the termination of the trust; _send to each trust settlor and each trustee of each component trust of the trust who can be located with the exercise of reasonable diligence a copy of the governing body's petition and a notice of the time and place of the hearing on the petition; and _publish a notice, in substantially similar language to the language set forth in this section, once in a newspaper of general circulation in the county in which the proceeding is pending. (e) Requires the court to schedule a hearing on the petition to be held after the 10th day after the notices are deposited in the mail or the date the notice is published, whichever is later. Provides that the hearing must be held at the time and place stated in the notices unless the court, for good cause, postpones the hearing. Provides that if the hearing is postponed, a notice of the rescheduled hearing time and date must be posted at the courthouse of the county in which the proceeding is pending. (f) Authorizes the court, on a request from the governing body of the trust, to, by order, require approval from the Internal Revenue Service (IRS) for an asset transfer. Authorizes the asset transfer to occur on the date the governing body of the trust fund files a notice with the court indicating that the IRS has approved the asset transfer. Provides that the notice must be filed on or before the first anniversary of the date the court's order is signed, and if not filed within that time, the court's order is dissolved. (g) Provides that a court order transferring the assets of and terminating a trust must provide that the duties of each trustee of each component trust fund of the trust are terminated on the date the assets are transferred. Provides that this subsection does not affect the liability of a trustee for acts or omissions occurring before the duties of the trustee are terminated. SECTION 2. Effective date: September 1, 1999. SECTION 3. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The substitute modifies the original by changing the caption from "relating to community trusts converting to non-profit corporations" to "relating to authorizing certain trusts to convert to nonprofit corporations." The substitute modifies the original bill to conform to Legislative Council format. The substitute modifies the original bill by removing SECTION 1 (sets forth findings and intent of the legislature) of the original bill and redesignating proposed SECTIONS 2-4 to SECTIONS 1-3. The substitute modifies the original bill in SECTION 1 (proposed Section 112.058(a)) by setting forth a new title "CONVERSION OF COMMUNITY TRUST TO NONPROFIT CORPORATION," and by defining "community trust" and "assets." The substitute modifies the original bill in SECTION 1 (proposed Section 112.058(b)) by providing that the court may, rather than must, authorize the transfer proposed for by this section. The substitute modifies the original bill in SECTION 1 (proposed Section 112.058(c)) by providing that the charter of the nonprofit corporation must use language substantially similar, rather than identical, to the language used in the instrument creating the trust. The substitute modifies the original bill in SECTION 1 (proposed Section 112.058(d)) by providing that the governing body of the trust must send a copy of the petition and a notice of scheduled hearing on the petition to each trust settlor and each trustee of each component trust of the trust, rather than to all the living settlors of the trust funds comprising the community trust. The substitute also modifies the original bill in this proposed section by amending the language of the notice to be published in a newspaper of general circulation. Subsection (b) of the original addresses the language of the notice. The substitute modifies the original bill in SECTION 1 by adding new Section 112.058(e) to require rather than authorize the court to hold a hearing within the specified time frame. This subject is addressed in proposed Section 112.058(b)(4) of the original. The substitute modifies the original bill in SECTION 1 (proposed Section 112.058(f)) by authorizing the court, by order, on a request from the governing body of the trust, to require approval from the Internal Revenue Service (IRS) for an asset transfer. The original bill, in proposed Section 112.058(c), authorizes the governing board to request that the court's order be subject to IRS approval of the asset transfer. The substitute modifies the original bill in this proposed section by authorizing the asset transfer to occur on the date the governing body of the trust fund files a notice with the court indicating that the IRS has approved the asset transfer. The original bill 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. The substitute also modifies the original bill in this proposed section by providing that the notice must be filed on or before the first anniversary of, rather than within 360 days of, the date the court's order is signed, and if not filed within that time, the court's order is dissolved, rather than is dissolved ab initio and of no force and effect. The substitute modifies the original bill in SECTION 1 by addressing the termination of the duties of each trustee of each component trust fund of the trust in proposed Section 112.058(g), rather than proposed Section 112.058(d) of the original. The substitute modifies the original bill by removing reference to assets of the trust's component trust funds and replacing it with assets of the trust throughout the bill. The substitute modifies the original bill by removing reference to governing board of the trust and replacing it with governing body of the trust throughout the bill.