Mere profitability will not prompt reclassifying a nonprofit corporation as for-profit, the Wisconsin Supreme Court held on Jan. 23.
Likewise, the court held in De La Trinidad v. Capitol Indemnity Corporation, 2009 WI 8, that the non-profit status of a corporation is determined by the purpose stated in its articles of incorporation rather than the statute under which it organized.
Nelly De La Trinidad, Victor Leonardo Aguilar-Hernandez, and Luz Maria Torres-Sanches were the parents of two children who drowned in a pond on the grounds of Halter Wildlife, Inc. The Southeastern Wisconsin hunt club successfully asserted in the lower courts the “recreational immunity” of Wis. Stat. § 895.52 against the parents’ lawsuit.
Before the supreme court, the parents attempted to show Halter was actually a for-profit corporation. First, they argued that Halter was incorporated in 1984 under ch. 180, Stats., that has governed for-profit corporations since 1953.
The court found the legislative intent behind the 1953 revisions of state corporation law too ambiguous regarding nonprofit corporations to determine that Halter was in violation of it. But in any event, the court held that the statute under which a corporation is organized is not dispositive of its nature. Rather, the court affirmed the primacy of the articles of incorporation where it found that Halter had explicitly forbidden any kind of profit sharing with its members and restricted its activities to those of a nonprofit organization.
De La Trinidad unsuccessfully argued that Halter should be deemed for-profit because it retained a legal right to amend its articles and become for-profit. The court held that such a possibility is irrelevant under the “recreational immunity” statute.
The parents’ second argument was that Halter made disguised distributions to its members by subsidizing membership dues with revenue generated from its activities. The court objected that this reasoning would, “with the stroke of a pen, convert innumerable nonprofits in Wisconsin to for-profit enterprises by virtue of the fact that their bills are paid and they have money in the bank.”
“So long as no profits are distributed to members, the fact that members may obtain other benefits from an organization is no bar to its nonprofit status,” the court held.
Alex De Grand is the legal writer for the State Bar of Wisconsin.