## Facts

- Shorter College (Shorter) was incorporated in Georgia as a nonprofit college.
- In 1959, Shorter amended its charter to give the Baptist Convention of the State of Georgia (GBC) exclusive authority to name Shorter’s board of trustees; by virtue of that power, GBC was treated as a statutory “member” of Shorter under Georgia nonprofit law.
- For many years, Shorter and GBC cooperated in selecting trustees, and GBC provided financial support to the college.
- A college-accreditation organization questioned Shorter’s independence because GBC held the trustee-selection power and threatened Shorter’s accreditation.
- Shorter asked GBC to surrender some control so the college could satisfy the accreditor; GBC refused.
- GBC appointed two new trustees without Shorter’s approval, and the preexisting (“old”) trustees disputed their status.
- Even without the votes of the two contested trustees, the old trustees had sufficient votes to approve a plan described as a “dissolution” that would:
  - dissolve Shorter as a corporate entity,
  - transfer all of Shorter’s assets (including the college’s name) to a separate nonprofit, the Shorter College Foundation (Foundation), for no consideration, and
  - continue operating the college through the Foundation without GBC’s involvement (because the Foundation’s directors would not be subject to GBC selection or removal).
- After this restructuring, Shorter and the Foundation sued GBC seeking release of several million dollars they alleged GBC had budgeted for Shorter or held for Shorter’s benefit before the attempted dissolution.
- GBC counterclaimed to stop the dissolution and challenged the characterization of the transaction.
- GBC conceded the trustees could dissolve Shorter without GBC’s approval in a true dissolution, but argued the plan was not a dissolution at all; it was, in substance, a merger-like reorganization or a transfer of substantially all assets that required member approval.
- The trial court ruled the trustees had carried out a valid dissolution. The Georgia Court of Appeals reversed. The Supreme Court of Georgia granted review.

## Issues

1. Whether the trustees’ plan labeled a “dissolution,” which transferred all assets and the college’s name to a new foundation and continued operations, constituted a valid dissolution under the Georgia Nonprofit Corporation Code.
2. Whether the transaction was instead a transfer of substantially all assets (or merger-type transaction) that required approval by the corporation’s member, GBC.
3. Whether directors may use dissolution procedures to shift a going concern to a new entity in order to eliminate a member’s charter-based governance rights.

## Decision

- The Supreme Court of Georgia affirmed the Court of Appeals.
- The Court held the trustees did not effect a valid dissolution of Shorter within the meaning of the Georgia Nonprofit Corporation Code.
- The Court concluded the plan operated as an unauthorized transfer of substantially all corporate assets (functionally similar to a merger/asset-transfer transaction) that required member approval, which was not obtained.

## Legal Principles

- A person or entity with charter-based power to elect or appoint directors/trustees may qualify as a statutory “member” of a Georgia nonprofit corporation and holds the member rights given by the nonprofit code.
- Courts evaluate nonprofit restructurings by what the transaction accomplishes, not by the label used in corporate paperwork.
- “Dissolution” contemplates winding up the corporation’s affairs, not transferring all assets and the institution’s identity to a new corporation so the same enterprise continues under a different governance structure.
- When a nonprofit with members carries out a transaction that transfers substantially all assets or otherwise accomplishes a merger-like change, the statutory member-approval protections for those transactions apply and cannot be avoided by using dissolution formalities.
- External pressures (such as accreditation concerns) do not authorize directors to bypass statutory and charter-based member approval requirements for fundamental corporate changes.

## Conclusion

Shorter’s trustees attempted to respond to accreditation pressure by approving a “dissolution” that transferred all assets and the college’s name to a separate foundation and then continued operating the college free of GBC control. The Georgia Supreme Court held this was not a genuine dissolution but a transfer of substantially all assets that required approval of Shorter’s member, GBC; because that approval was not obtained, the attempted dissolution and restructuring were invalid, and the Court of Appeals’ reversal of the trial court was affirmed.


Shorter College v. Baptist Convention of Georgia, 614 S.E.2d 37 (2005)