Could Coastal Carolina University form a nonprofit foundation to handle research grants and contracts?

Official title

Asking may Coastal Carolina University establish a research foundation to process grants, contracts and other documents.

Requester

Timothy E. Meacham, Esquire, Coastal Carolina University Counsel

Plain-English summary

Coastal Carolina University's counsel asked whether the public university could establish a nonprofit research foundation to process grants, contracts and related documents. The Attorney General predicted that a court would likely permit it, relying on earlier opinions allowing public agencies to create nonprofits to further their purposes.

The office attached conditions to that prediction: the corporation had to comply with nonprofit law, and transfers of funds allocated to it had to be transparent and lawful. The opinion also recalled earlier advice limiting payments of public money to a private foundation absent specific statutory authority, and noted that such foundations could be subject to FOIA. It did not approve any particular grant agreement or transfer of liability.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: Did the AG think a public university could create a research foundation? A: Yes, as a likely court interpretation, provided the nonprofit and funding requirements described in the opinion were met.

Q: Could the university freely transfer public funds to the foundation? A: The opinion said transfers must comply with law and be transparent. It cited earlier opinions restricting payments to private foundations without statutory authority.

Q: Did forming a separate nonprofit make it exempt from FOIA? A: The office noted a South Carolina Supreme Court decision holding that university foundations may be subject to FOIA.

Background and statutory framework

The request described grant and contract terms that the university said it could not accept directly. The office reviewed prior opinions on public agencies creating nonprofits and the state's nonprofit corporation provisions. Its conclusion addressed the foundation's formation and lawful funding relationship, while recommending a court declaration for a binding answer.

Source

• Landing page: https://www.scag.gov/opinions/opinions-archive/july-29-2014/
• Original PDF: https://www.scag.gov/wp-content/uploads/2014/08/Meacham-Timothy-OS-9786-07-29-2014-00394830xD2C78.pdf

Original opinion text

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Timothy I7.. Meachnm. Tsi[uirc
Coastal Carolina University Counsel

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Conway. SC 29528-6054

Dear Mr. Mcacltani:
Attorney General Alan Wilson has referred your letter dated May 14. 2014 to the Opinions section for a

response. The following is this Office's understanding of your igieslion and our opinion based on that understanding. Issue: May Coastal Carolina University establish a research foundation to process grants, contracts and other documents? 1.aw/Analysis:

As stated in your letter, "Comlul Carolina Uniwrsiiy is a comprehensive public institution of higher education established pursuant to Title 59 of the Code oj Laws of South Carolina, h is also a public agency of the State of South Carolina. As such, the institution is prohibited from accepting grants or signing agreements containing indemnification and stipulations to oulf-Joff-Jstate jurisdictionfsf.

Similarly. Coastal Carolina University is insured through a state agency, the Insurance Reserve Fund. Policy language excludes coverage should the entity accept via contract indemnification or out/-foff• Many public institutions have established independent research foundations,
/stale jurisdiction.
separately insured, to process grants and contracts. These research foundations have separate governing

boards through the Secretary of State and are established pursuant to Section 50 let5) of the Internal Revenue Code. These research foundations are affiliated with the university in the sense that the mission and purpose is to serve the institution. This is the only legal affiliation. They have their own distinctive by-laws, liability coverage, meeting schedules, and have separate counsels.

...

Coastal Carolina

University is interested in establishing a research foundation to process grants, contracts and other documents. The purpose of which is to transfer all liabilityfor the grant to thefoundation awayfrom the slate to the private carrier for the foundation. Secondly, as research foundation enables the institution mine flexibility as some ofthese contracts may contain indemnification. "

This Oflice has issued numerous opinions concerning whether Stale agencies or universities may create an eleemosynary nonprofit eorporation such as one Coastal Carolina University is hoping to create. In a 1997 opinion this Oflice opined that the South Carolina Department of Parks. Recreation and Tourism ("I'R't") could create a nonprolil foundation for the benclit of the Slate and for PRT. Op. S.C. Attv. Gen..

In a 1977 opinion this Oflice opined that the State Mousing

1997 WL 87934 (January 16. 1997).

Authority had the power to establish a non-profit corporation based on its broad powers. Op. S.C. Attv. Gen.. 1977 WL 24406 (February 28. 1977). A 2004 opinion opined that the llunley Commission could create a nonprofit corporation based on prior opinions from this Oflice that concluded governmental entities are not prohibited from creating nonprolit corporations to further their statutory purposes,

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Timothy E. Meachom, Esquire
Page 2

July 29, 2014

opinion also cited an Indiana case upholding as private funds private donations received by a university foundation for the benefit of a state university. Op. S.C. Attv. Gen.. 2004 WL 2451471 (October 22, 2004) (citing Slate Board of Accounts v. Indiana Univ. Foundation. 647 N.E.2d 342 (Ind. 1995)). In a

1994 opinion this Office opined the Patriot's Point Development Authority ("PPDA") could establish a nonprofit corporation to further its purposes given by statute. Op. S.C. Attv. Gen.. 1994 WL 703275 (November 15, 1994). While that opinion acknowledged that such an entity was a creature of statute, it went on to state:

Having reviewed the enabling authority of the PPDA, we are unable to locate any

specific authority allowing the PPDA to create a nonprofit corporation. However, in examining the statutorily authorized powers of the PPDA, it would appear thai the statute gives PPDA very broad and general powers "to do and perform any act or function which may tend to or be useful toward the development and improvement of Patriot's Point. " § 51-13-760(7). Further, the PPDA has the power "to do any and all other acts and things authorized or required to be done by the article, whether or not included in the genera!powers mentioned in § 51-13-770(9). "

Even though the State Legislature has not expressly delegated PPDA power to create a nonprofit corporation, the Legislature has, however, given PPDA the power "to do any and all things necessary to accomplish the purposes to thefe] article. " § 51-13770(10). The fact that the State has given this specific authority to PPDA is an

indication that the power to create a nonprofit corporation would be consistent with the Legislature's intent ofthe Act.

The law of South Carolina generally does not prohibit the state agencies or

authoritiesfrom establishing nonprofit corporations. [See Op.Atty.Gcn., February 28. 1977, where the State Housing Authority was found to have the power to create a nonprofit organization as included among its "necessary, proper, incidental or useful" powers. Since the State Housing Authority could issue bonds to finance the construction oflow cost housing it could choose toform a nonprofit organization that would carry out that task. See also South Carolina Nonprofit Corporation Act, Act No. 384, May 10, 1994.]

Here, the entrepreneurial character of the PPDA and the broad powers conferred upon it would seem to allow the PPDA to create a nonprofit corporation. The PPDA has the power "to sue and be sued, to make contracts and to adopt and use a common seal ... and to acquire, lease, mortgage, and dispose ofpersonal and real property. "
§§ 51-13-770(1) A (2).

Therefore, based on the foregoing, it is the opinion of this Office that the PPDA should be permitted to create a nonprofit corporation. The power to establish such a corporation cm be derivedfrom the express power to regulate the manner in which the business ofthe PPDA is to be transacted and the express power to do any and all things necessary to accomplish the purpose of the Act. §§ 51-13-770(8) A (10).

Further, the creation ofsuch a corporation is apparently deemed a necessary tool to the improvement and development ofthe Patriot's Point area over which the PPDA hasjurisdiction.

Timothy E. Meacham, Esquire
Page 3

July 29, 2014

id- Moreover, a 2009 opinion by this Office concluded that while there was no express authority in the enabling legislation for the Office on Aging to create a nonprofit corporation, as long as the nonprofit corporation furthers the purposes of the Office on Aging it could create a nonprofit corporation. Op. S.C. Atlv. Gen.. 2009 WL 276743 (January 7, 2009).

While the prior opinions by this Office address the creation of a nonprofit corporation by a State agency or other such governmental entity, let us address directly nonprofit corporations. Looking at the law concerning nonprofit corporations, South Carolina Code § 33-3 1-301 (1976 Code, as amended) states:

(a) Every corporation incorporated under this chapter has the purpose of engaging in any lawful activity unless a more limited purpose is set forth in the articles of

incorporation.
(b) A corporation engaging in an activity that is subject to regulation under another statute of this State may incorporate under this chapter only if incorporation under this chapter is not prohibited by the other statute. The corporation is subject to all

limitations of the other statute.
It should also be noted a nonprofit corporation must elect to be a public benefit, mutual benefit or

religious nonprofit corporation. S.C. Code § 33-3 1 -202(8X2). 1 Furthermore, a Virginia Attorney General opinion stated that nonprofit foundations that are organized on behalf of state universities "need only comply with the laws that govern such corporations." Op. Va. Attv. Gen.. 1996 WL 658746 (September 3, 1996) (citing 1984-1985 On. Va. Attv. Gen. 46, 47). Therefore, it appears as long as the foundation is in compliance with all laws concerning nonprofit corporations, there would be no hindrance to such a

foundation created as a nonprofit corporation. The issues seem to be in the relationship the foundation has the university or state agency with which it is associated. While you did not ask, it should be noted

that this Office has issued previous opinions concluding that public funds may not be issued to private foundations or other such corporations except payment for goods and services unless the university has specific statutory authority. Ops. S.C. Attv. Gen.. 2000 WL 1205928 (May I, 2000); 1993 WL 7201 1 1

(May 21, 1993); 1976 WL 23033 (August 3, 1976); 1973 WL 21052 (August 10, 1973).2 As a further aside note, our State Supreme Court has previously held such university foundations may be subject to the South Carolina Freedom of Infonnation Act (FOIA). Weston v. Carolina Research & Development Foundation. 303 S.C. 398, 401 S.E.2d 161 (1991).

Conclusion: Therefore, as long as there is transparency in the transfer of funds allocated to any such foundation and that any such transfer is in compliance with the law, it is likely a court will find a university may establish a nonprofit foundation corporation. Nevertheless, there are many other sources

and authorities you may want to refer to for a further analysis. For a binding determination, this Office would recommend seeking a declaratory judgment from a court on these matters, as only a court of law can interpret statutes. S.C. Code § 15-53-20, et al. Until a court or the Legislature specifically addresses the issues presented in your letter, this is only a legal opinion on how this Office believes a court would 1 Please also note S.C. Code § 33-31-150 outlines what a private foundation (as defined in Section 509(a) of the Internal Revenue Code) may and may not do.

2 This Office is also statutorily responsible for investigating nonprofit corporations operating in South Carolina and may determine whether any such nonprofit corporation may have violated its own regulations or any laws of this State. S.C. Code §33-31-171.

Timothy 11. Menclutm, Hsquire

Piige 4
July 29. 2014

inlcrpret the law in the matter. I Til is later determinctl otherwise or if you have any acklitional questions or issues, please let us know.

Sincerely.

Anita S. Pair
Assistant Attomcv (ieneral

REVIEWED AND APPROVED BY:

.

Robert D. Cook

Solicitor General