Who owns private non-profit universities?

Question

Who owns (US) private non-profit universities ? I understand that being non-profit means that no one receives dividends. However does it mean that no one owns a private non-profit university? Can someone decide to sell a private non-profit university ?

Answer 1

Who owns (US) private non-profit universities?

In the United States, no one "owns" a non-profit. Rather, non-profits are administered by a board of directors. It's possible that this board consists only of one person; this is the closest you can come to being the "owner" of a non-profit.

Can someone decide to sell a private non-profit university?

Yes, but what would you with the proceeds? After liabilities are paid, a defunct nonprofit must transfer its assets to another nonprofit or to the Government. In particular, the board could not pocket the proceeds personally. Thus, a viable nonprofit is more likely to talk of "merging itself" with another nonprofit (i.e., dissolving itself and transferring its assets -- and possibly its leadership / philosophy -- to another nonprofit) rather than being "sold."

The situation is essentially the same for public non-profits, except that many public universities are governed by specific legislation. For example, Article IX of the Constitution of the State of California states that the University of California will be a "public trust, to be administered by the existing corporation known as 'The Regents of the University of California' with full powers of organization and government." Thus, the University of California could not sell itself entirely (or otherwise dissolve itself) without a constitutional amendment. It could sell one or more of its campuses; however, it would be required by state law to follow a competitive bidding procedure. And again, the board could not personally profit from this sale.

Answer 2

There are a range of possible legal structures that can be used for a non-profit organisation. Some non-profit organisations are non-stock corporations, some are private companies limited by shares, some are other types of incorporated associations, and some are run through trusts. The particular corporate/trust structure can vary, so you would need to look at each non-profit univeristy on a case-by-case basis. The taxation rules for exempt organisations (including non-profits and other types) are set out in Sections 501-530 of the Internal Revenue Code (26 US Code, Subchapter F). An exempt organisation can include an organisation "...organized and operated exclusively for ... educational purposes..." (s 501(c)(3)) if it meets the exemption requirements; organisations falling within this section are non-profits. Section 503 of the Code removes the tax-exempt status of the organisation for a period if it engages in a "prohibited transaction", which can include certain sales of securities or property.

Depending on the underlying legal structure, there will be mechanisms by which positions in the organisation can be transferred from one holder to another (e.g., transfer of shares, transfer of other appointments, etc.), and a mechanism to wind the organisation up entirely. However, the non-profit status of the organisation usually requires that its controllers cannot obtain a financial benefit for shares in the organisation, so it would usually not be allowable to "sell" shares in the organisation for consideration. What would usually happen instead is that any sales of property in the organisation would need to be applied to its objective, which is for educational purposes.

This is all quite a complex area of corporate/organisational law, equity/trusts, and taxation law, so take my answer with a grain of salt. To get a specific understanding of the rules for a particular non-profit university you would need to find out its underlying legal structure and the relevant laws that apply to non-profit organisations of that kind in the particular jurisdiction(s) it is in.