Overview The American Rainwater Catchment Systems Association (“ARCSA”) has the opportunity to expand its service to the community by transforming itself into a focused and board-governed charitable foundation with a focus on educational and research purposes benefitting the rainwater catchment systems industry. At the same time, ARCSA has the opportunity to strategically align with the Texas Rainwater Catchment Association (“TRCA”) for lobbying, tradeshows and related trade association activities likewise benefitting the rainwater catchment systems industry.
At present, ARCSA is a public charity and is tax-exempt under section 501(c)(3) of the Internal Revenue Code. With this specific form of tax-exemption, ARCSA is prohibited from engaging in certain political and lobbying activities as well as other typical trade association activities. These limitations place tremendous restrictions on ARCSA’s ability to impact critical legislative and industry-advancement matters that affect the rainwater catchment systems industry. In essence, these challenges severely restrict ARCSA’s ability to both (a) seek grants and funding to support its educational/research programs and (b) be effective as a trade association or to engage in political or lobbying activities. Thus, as currently structured, ARCSA’s effectiveness as an educational organization and/or in its trade industry activities is limited, even with ARCSA’s strong industry representation.
TRCA is a trade association and is tax-exempt under section 501(c)(6) of the Internal Revenue Code. With this specific form of tax-exemption, TRCA is not so limited in its ability to influence critical legislative and industry-advancement matters that affect the rainwater catchment systems industry. Since its inception, TRCA has been active in political lobbying in Texas.
To achieve greater potential as an educational public charity organization (ARCSA) and as a trade association organization (TRCA), and to provide greater benefit to the public at large and the rainwater catchment systems industry, ARCSA and TRCA have an opportunity to strategically align with one another from both a governance perspective and an industry-participation perspective. Through the proposed alignment and restructuring process, ARCSA and TRCA propose to identify and divide certain strengths, responsibilities, memberships and focuses of the two organizations so that both organizations are stronger industry participants, individually and as a combined force.
Through the proposed re-alignment, ARCSA will maintain its educational/research activities, and will change its name to “ARCSA Foundation”. If approved by the memberships of both organizations, ARCSA membership will be transferred to TRCA, and the TRCA Board of Directors will appoint the directors serving the ARCSA Foundation. With these changes, ARCSA, as the ARCSA Foundation, will become nimbler and will acquire a greater focus on the educational and charitable activities of the organization. It will then be able to better communicate that ARCSA Foundation is not a political or trade association.
ARCSA and TRCA propose to migrate the traditional “trade association activities” into or under TRCA. Since TRCA is already organized, operated and recognized by the IRS as a tax-exempt trade association, ARCSA and TRCA believe that the proposed realignment and reorganization will create a stronger and more effective voice for ARCSA in the rain harvesting industry in public, educational, and political forums.
All of ARCSA’s membership activities and trade association type activities will be migrated to TRCA and TRCA will change its name to “American Rainwater Catchment Systems Association”. In essence, TRCA will become ARCSA minus the educational/research and philanthropic activities that will remain in, and the prerogative of, the ARCSA Foundation. All TRCA’s historical trade association and political activities will remain with TRCA.
It is common for industry organizations to exist in a combined form: a trade association for political and industry-advancement activities, and a charitable “arm” whose focus is on educational, charitable and philanthropic activities that impact the industry and public at large. With the proposed restructure, the ARCSA Foundation would serve the latter; ARCSA (the former TRCA) would serve the former; and both would serve together where their similar but different organizational purposes overlap.
The Process Proposed.
Board and Membership Approval Required. The proposed restructure and relationship arrangement has been presented to and approved by the Boards of Directors of both TRCA and ARCSA. Now, both organizations must submit the proposal to their respective members for approval. The members of both organizations must approve the restructure and reorganization. Assuming all of the required approvals are received, the transaction will take effect so that ARCSA will become the ARCSA Foundation (public charity) and TRCA will become ARCSA (trade association).
Governing Documents. The documents to be approved by each organization are a Restated Certificate of Formation and the Restated and Amended Bylaws. These are documents have been prepared by experienced outside legal counsel to be suitable for each organization’s new purpose and meeting the requirements of the Internal Revenue Code. These governing documents are up-to-date and customized as necessary for each organization.
New ARCSA-501(c)(6). “New ARCSA-501(c)(6)” (formerly TRCA) will be managed by a Board of Directors elected by the voting members, just as ARCSA has been historically governed. In future years, the election will be held using the procedures as set out in the Restated and Amended Bylaws which are being presented for approval as part of this reorganization. For the first year, as specified in the Restated and Amended Bylaws, the existing ARCSA Board will continue in their Board positions with the New ARCSA- 501(c)(6) and several of the members of the existing TRCA Board will continue as Board members.
If the reorganization is approved by the members of both organizations, all of the members of the current ARCSA will be migrated to become members of the New ARCSA-501(c)(6) with the same membership features as they currently have. There will be no change in membership requirements or categories as a result of this migration because New ARCSA-501(c)(6) will adopt the membership requirements and categories that currently exist in ARCSA. The membership rights and responsibilities will be as set forth in the Restated Certificate of Formation and the Restated and Amended Bylaws being presented for approval.
All future membership dues will be paid to New ARCSA-501(c)(6). The former TRCA members, to the extent not already currently ARCSA members, will be “legacy” members of the New ARCSA-501(c)(6) until their term expires, at which point they will be given the opportunity to renew at the “ARCSA membership levels” on their renewal dates.
ARCSA Foundation-501(c)(3). The ARCSA Foundation-501(c)(3) will be managed by a smaller Board of Directors that will be appointed by the Board of Directors of the New ARCSA-501(c)(6). The ARCSA Foundation-501(c)(3) board members do not necessarily have to be members of the Board of the New ARCSA-501(c)(6), but in all likelihood some will be.
The ARCSA Foundation-501(c)(3) will have no members, and it will serve as the educational, research and philanthropic arm in the industry. Assets that it will retain include: the new ARCSA manual, all cash held by it at the time of the transaction, and other assets to be identified in the transaction.
ARCSA Foundation-501(c)(3) will be able to seek out grants and donations for educational and philanthropic purposes without any confusion as to whether it is a trade association.
Assets and Liabilities, Revenues and Expenses.
A Strategic Relationship Agreement (“SRA”) to define the terms of the reorganization has been drafted by the external legal counsel and approved by the Boards of Directors of both organizations. The SRA defines more specifically the general terms described above and below. As used below, “C3” refers to ARCSA Foundation-501(c)(3), formerly ARCSA, and “C6” refers to New ARCSA-501(c)(6), formerly TRCA.
A summary of C3 assets/liabilities and related revenues/costs that will be in place through the SRA include the following:
1. C3 will retain all rights to the RWH manual, in all languages. Therefore, C3 will receive all book sales revenues and Amazon royalties. C3 will bear all costs of manual updating, editing, translating, printing, etc.
2. C3 will retain all aspects, e.g. webpages, of the URL that are research or educational in nature and may acquire a new URL for the Foundation to host this material.
3. C3 will retain all cash held in its checking and savings accounts.
4. C3 will have all online class revenues and bear all costs of developing and producing the classes, unless otherwise agreed.
5. All historical webinars in the bookstore will remain as educational assets of C3 so revenues from those will continue to be revenues of C3.
6. All contractual liabilities for administrative services and employees will be transferred to the C6. C3 will pay an allocated share of overhead administrative services and out-of-pocket costs as billed by the C6.
7. It is expected that C3 will have no employees, but will reimburse C6 for all services provided by employees of C6 for the benefit of C3.
8. C3 will likely have no need for a convention since C3 will have no members. If the C6 has educational content for its convention or annual meeting, then C3 will likely be involved to assist with presentation and cost allocations.
9. C3 may host educational classes at any time at its own cost, whether or not they would compete with any educational classes offered by the C6. The historical education program will be used by the C6 for its educational purposes since it will be using the related manual as its principal training program. C3 will benefit from the educational program offered by the C6 through the sales of manuals, but it could also create educational/training programs to be offered at other forums, or through other organizations such as community colleges, for its own benefit.
A summary of C6 assets/liabilities and related revenues/costs that will be in place through the SRA include the following:
1. All members of the current ARCSA will become members of C6. All future membership dues and CEU renewal fees will become assets of C6. This stream of future revenues is currently an asset of the C3 that it is transferring to C6 so the C6 must compensate C3 for this and all other assets transferred from the C3 to the C6. However, to the extent that current members of the C6 are also members of the C3, then those memberships have no incremental value to the C6 (it already is collecting dues from those members) so the C6 only needs to compensate the C3 for any incremental members, not all.
2. The C6 will retain all the cash in TRCA’s current checking and savings account (less than $10,000).
3. The www.arcsa.org URL and website (excluding education and research webpages) will become the property of the C6. Again, this is currently an asset of the C3 and so the C6 must compensate C3 for transferring this asset.
4. All website sponsorship renewals will be assets of the C6. Since current sponsorships have very limited time spans and the current TRCA already has most of those same sponsors, the value assigned to this category of assets is minimal.
5. The Resource Guide will become part of the C6 and revenues from that will be revenues of C6. This revenue stream is another asset for which C3 must be compensated.
6. The C6 will produce a newsletter and any E-news advertising revenues will be a benefit to the C6 only.
7. C6 will continue to require training for its accredited members. All educational classes offered by the C6 will use materials from the C3. The revenues and costs of any educational classes will be to the benefit of the C6 since this is part of its membership recruitment program. The instructor materials previously created by the C3 have some value and the C6 will need to compensate the C3 for the initial use of those materials.
8. The C6 may choose to require examinations for its prospective members. Since this is only a function of obtaining membership credentials, the costs and any revenues from examinations should belong to the C6. The C3 has an existing exam that the C6 may choose to use: if so, then the C6 owes some compensation to the C3 for the historical preparation of the exam.
9. The C6 is likely to have an annual conference for its members, probably in connection with the annual meeting. Since this is a feature for members and may have a trade show associated with it, then all costs and revenues should inure to the C6. There is little or no value to transfer from C3 to C6 except perhaps for any prepayments for facilities. If any educational programs are presented, they should be at the cost of the C3 as part of its educational outreach, since the attendees at the conference are its specific target market for enhanced education.
10. In return for the transfer of assets, the C6 will take responsibility for ARCSA’s existing contractual liabilities to third parties such as SOS, employees and independent contractors. This means that most costs of managing the C3 organization will become the responsibility of the C6. However, since some activities performed by staff and certain costs are shared, the C6 will work out a cost sharing, administrative services agreement whereby the C3 will be billed for its proportionate share of overhead and specific costs.
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