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Distribution or Disposition of Property and Funds

The assets of a dissolved unincorporated organization may be distributed in accordance with its by-laws or constitution.  In the absence of any by-law or statute to the contrary, the members of an unincorporated organization are entitled to an equal share of the net assets of the organization at the time of dissolution.  Generally, members of an association have no severable interest in its assets.  “Members are regarded as the beneficial owners in common thereof in equal shares and, as such, are entitled to have such property distributed among them upon its dissolution.”[i]

Courts have held that upon the dissolution of a voluntary association, its property should be distributed pro rata among its members unless otherwise provided by its constitution or by-laws.[ii]  The title to the personal property of an association is vested in the individual members.  When a member leaves the association, he/she abandons his/her interest in the property and those who remain in the organization succeed to it.  This applies when a group of members secede from the association.  Even if the seceding members constitute a majority, they lose all interest in the association’s property and will not be entitled to any right to sue for dissolution and a distribution of its assets.[iii]

In the absence of a provision to the contrary in the constitution or by-laws of the association, members lose whatever interest they may have in the property upon the termination of their membership during the continued existence of the association.  A member’s interest will be terminated by his/her voluntary withdrawal from the organization or by expulsion upon a specific charge of some offense.  A member cannot be expelled without notice and a hearing or opportunity to be heard.  Also, a charge resulting in an expulsion must be one that is declared by the constitution or by-laws to be a ground of expulsion.

Funds of an unincorporated organization cannot be transferred to a successor organization except by unanimous consent of the former organization’s members.  In the absence of such consent, the funds of the disbanded unincorporated organization should be distributed among its members.[iv] Also, upon dissolution, the creditors of an organization should be paid their debts as provided in the by-laws or constitution and the remaining proceeds are to be divided amongst the members.

[i] Rehder v. Rankin, 249 Iowa 1201, 1207 (Iowa 1958)

[ii] Holt v. Santa Clara County Sheriff’s Benefits Assn., 250 Cal. App. 2d 925, 932 (Cal. App. 1st Dist. 1967)

[iii] Low v. Harris, 90 F.2d 783 (7th Cir. Ill. 1937)

[iv] Height v. Democratic Women’s Luncheon Club, 131 N.J. Eq. 450 (Ch. 1942)

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