Somewhat related to some of the recent discussions around non profits and railroad preservation, I would be interested to get some of the folks here on RYPN's thoughts on a "hypothetical" situation tha I have outlined below;

The Players;

- "Entity A", a 501c(3) non profit that leases a privately owned steam locomotive for occasional operation on property that it also leases from the same individuals who own the locomotive. The locomotive's owners are also board members of "Entity A".

- "Entity B"; A 501c(3) non profit historical society, focused on a specific railroad. "Entity B" has worked with "Entity A" on "Entity A"'s project but has no agreement (lease or otherwise) with the private parties that own the property upon which the project is located and the locomotive.

Some (perhaps)pertinent details;

- "Entity A" was formed for the specific purpose of undertaking its current project and has existed for about 5 years.

- "Entity B" has existed for over 20 years as a general historical society, devoted to a specific railroad.

- "Entity A" presently has a six person Board of Directors. Three of these folks are also members of "Entity B"'s Board as well as officers of one or both entities.

- Other than presently being located on a property that was associated with the railroad that is the focus of "Entity B", the locomotive has no historical ties to said railroad.

The Question

Is it appropriate for "Entity B" to use funds that were donated to it to help fund repairs (essentially capital improvements) to the aforementioned locomotive? Are there any potential adverse consequences to undertaking this course of action?

Thanks

Jason Midyette

> Is it appropriate for "Entity B" to use funds that were donated to it to help fund repairs (essentially capital improvements)
> to the aforementioned locomotive?
> Are there any potential adverse consequences to undertaking this course of action?

A couple of points. I would not consider "repairs" as "capital improvements" to a steam locomotive. To me a capital improvement might be a new boiler, otherwise its just repairs.

I see no issue with Entity A having the locomotive and property owner being on their board. Again, probably need to know how and who set up Entity A to begin with along with more information on the lease or agreement the owner has with Entity A for the locomotive and property. A half decent 501c has a Conflict of Interest form signed by their board members to help avoid the perception of a conflict. A check of the minutes would verify who abstained due to a conflict.

As to Entity B, to better answer your question, we would need to know more about the purpose of Entity B? Yes, it is specific to a railroad as to interests, but is the mission statement broad scope enough to where it can fund most any transportation related project? If so, I see no issue with B supporting A, although I do come back to the perception of a conflict based on the number of trustees who have ties to both organizations. A check of the minutes would verify who abstained due to a conflict.

The short answer is I see no issue as long as board members with an obvious conflict abstained from any vote related to the other organization.

J.R. May

JR May hit the basics pretty well here. I want to expand on one of the topics mentioned.

One thing that I would add is to look at the funding being used and see if any of it was specifically directed. For example, if the money was donated for the historical society to specifically support restoration of that railroad's equipment, then problems could come up. Also, consider that some might not donate if they are worried about funds going to projects not related to the historical railroad.

A second issue is whether time, efforts and money is being used for this project that could be used for historical preservation of things closer related to the historical society - Entity B.

Basically, it gets down to the purpose of Entity B and the funds that are involved. There is also just the general perception about what is going on, which is why it is important to have clear minutes and agreements in place.

Bart