SCA SUBSIDIARY TRANSITIONS

Agenda

• Welcome and Introductions• Background• Transition Process• Opening New Bank Accounts• Reporting• Frequently Asked Questions• Wrap Up and Conclusion

22/7/2013

Welcome and Introductions

SCA Corporate TreasurerBaroness Alysia Gabrielle de Fougeres, OL, OPMazelle Attiya901-833-4263Email: treasurer@sca.org

32/7/2013

Welcome and Introductions

Society Chancellor of the ExchequerMistress Katherine Angelique d’Artois de BerryKathy Palmer813-334-7201email: exchequer@sca.org

42/7/2013

Background

• Why is SCA forming Subsidiary Corporations?– SCA was created in 1966.– SCA, Inc. was formed in 1969 and has operated

successfully ever since.– SCA formed affiliate corporations in those

countries requiring “in country” corporations for not-for-profit corporations.

– Forming US subsidiary corporations will reduce, if not eliminate, the cost of complying with new State laws covering not-for-profit organizations.

52/7/2013

Background

The SCA is required to register in each state to solicit funds as a non-profit corporation. Each state is different as to the requirements to maintain yearly registration. The threshold varies per state.

62/7/2013

Background• Illinois transition was the first state to be completed

– $150,000 gross revenues threshold triggers audited financial statements – estimated cost: >$150,000/year for all 700+ branches in US.• Applies to all not-for-profits operating in Illinois.• Boy Scouts, Girl Scouts, hospitals, etc. completed their transitions in

2008• SCA, Inc. had revenues of $4.5 million in 2007 (SCA’s IRS Form 990).• Need to structure corporation to less than $150,000 per year in

revenues to avoid audited financial statement requirements.– 19 bank accounts in 18 local groups and 1 kingdom account at start of

process.– 1 kingdom account moved out of state; 1 group dissolved; 17 groups

created new bank accounts.

72/7/2013

Background – SCA-Illinois MilestonesDate Milestone Responsibility

08/07/09 SCA-Illinois, Inc. Articles of Incorporation developed. SCA attorneys 08/07/09 SCA-Illinois, Inc. By-Laws developed. SCA attorneys 08/19/09 Application filed for Federal Taxpayer Identification Number. SCA Corporate Office 10/28/09 IRS letter received containing SCA-Illinois, Inc. Federal

Taxpayer Identification Number. US Internal Revenue Service

10/28/09 Communication made to local SCA branches in Illinois regarding need to meet regarding SCA-Illinois, Inc. formation.

Society Treasurer, Society Exchequer

11/14/09 Organization/planning meeting held at Crystal Ball event in Barony of Shattered Crystal.

Society Treasurer, Society Exchequer

12/17/09 SCA-Illinois Articles of Incorporation, By-Laws and IRS Federal Taxpayer Identification Letter posted on MidlandsExchequer E-group.

Society Treasurer via Vanished Wood local branch exchequer

12/31/09 15 of 19 bank accounts transferred to SCA-Illinois, Inc. Learned that we did not have a correct list of local branch exchequers and active groups.

Local branch exchequers, seneschals, and bank account signatories

02/05/10 1 bank account moved to Midrealm account. 1 local group dissolved and merged into another local branch. 2 bank accounts transferred completing transition.

Kingdom exchequer, local group exchequers, Kingdom Seneschal

82/7/2013

Background

The following states have already been transitioned to subsidiaries.

• Wisconsin• West Virginia• Michigan• New Jersey• Maryland• Rhode Island• New York• Mississippi• Gulf Wars• Illinois• New Hampshire• Maine• Tennessee

92/7/2013

Why PA?

• In Pennsylvania the threshold for CPA Review of the Books is $100,000 to $300,000 and the threshold limit is $300,000 before audited financial statements are required.

• Pennsic War – separate subsidiary

102/7/2013

Transition Process

• Lessons learned from SCA-Illinois, Inc. Transition– Preparation at SCA Corporate level– Preparation at Kingdom and Regional levels– Converting or moving kingdom bank accounts– Transitioning regional bank accounts– Transitioning local branch bank accounts

Communication is crucial!

112/7/2013

Transition Process• What do we need to do?– Form subsidiary as a wholly owned subsidiary of SCA, Inc.

per Federal and State laws – SCA Board of Directors.– Complete Articles of Incorporation – SCA attorneys.– Complete By-Laws – SCA attorneys.– Apply for and receive Federal Taxpayer ID Number – SCA

Corporate Office after attorneys finish above documents.– Make documents available to local branch, regional and

kingdom exchequers – Society Exchequer.– Close out existing bank accounts under SCA, Inc. – local

exchequers.– Open new bank accounts – local exchequers.

122/7/2013

Transition Process

• New banking requirements due to “Patriot Act” subsequent to 09/11/01– Banks conduct more due diligence on new bank

accounts, especially, not-for-profit accounts.– Bank accounts opened prior to Patriot Act banking

requirements implemented will require more documentation than banks have for current accounts.

132/7/2013

Opening New Bank Accounts• SCA Corporate Documents:

– Articles of Incorporation for the subsidiary (created by SCA attorneys)– By-Laws for the subsidiary (created by the SCA attorneys).– Tax Payer Identification Letter (created by the US IRS).– Resolution of the Board of Directors to open bank account (created

by the SCA, Inc. Corporate Secretary (Vice President of the Corporate Office in Milpitas, California). Must be faxed or mailed directly from the Corporate office directly to the individual bank’s representative for the bank/checking account.

– Letter of Authorization specifies signatories on bank account of authorized named, specific individuals to a bank account. (created by the SCA, Inc. Corporate Secretary - Vice President of the Corporate Office in Milpitas, California). Must be faxed or mailed directly from the Corporate office directly to the individual bank’s representative for the bank/checking account.

142/7/2013

Opening New Bank Accounts• In order to get a Resolution of the Board of Directors to open bank

account, local branches must send the following information to their Kingdom Exchequer who then forwards it to the Society Exchequer who verifies accuracy and completeness and send request to SCA Corporate:– Name of the local SCA group– Modern names of the signatories (This must include kingdom and/or

regional exchequer as a signatory on the account)– Bank name– Bank address– Name of bank contact/to whom the paperwork should be sent– Bank's fax number– Contact phone number and/or e-mail address with the Modern name

of the Group Exchequer in case of bank communication problems

152/7/2013

Opening New Bank Accounts• Exchequer and all bank account signatories fill out bank required forms

and present following to the bank (Faxed from our corporate office):– Articles of Incorporation– By-Laws– Federal Taxpayer ID letter from IRS

• SCA VP of the Corporate Office, Renee Signorotti, will fax both the Letter of Authorization and the Resolution of the Board of Directors to open bank account to bank point of contact

• Exchequers and co-signatories:– Transfer funds from old bank account to new bank account – suggest that local

branches use same bank for old and new accounts and change banks later if they want to change banks

– Close out old bank account with bank manager after all checks have cleared– Deposit all funds from old bank account into new bank account– Retain bank statements for both old and new accounts

162/7/2013

Exchequer Reporting

• Continue reporting all income and expenses on SCA, Inc. until subsidiary formed and transitioned. Report “donation to another 501c3” from SCA, Inc. to subsidiary to close out old bank account.

• Begin reporting all income and expenses on subsidiary after initial money is deposited in new account. Report “donation from” from SCA, Inc. to subsidiary to open new bank account.

• At end of quarter and year, exchequers prepare quarterly and Domesday reports for both old bank account and new bank account!

172/7/2013

Exchequer Reporting

• New State specific exchequer workbooks are available on the Society Exchequer’s website

• Kingdom exchequer will prepare consolidated Kingdom Domesday report including, subsidiary and prepare a separate Domesday for subsidiary.

182/7/2013

Frequently Asked Questions

• What is the procedure for transitioning to subsidiary corporations?– Standard Operating Procedure for the Formation

Of and Transition To Subsidiary Corporations Of SCA, Inc.

192/7/2013

FAQ’s

• Why is this necessary?

To reduce the need for audited Financial Statements when filing annual Charitable Solicitation Registrations.

202/7/2013

FAQ’s

• Why isn’t registration with the state sufficient?

Registering with a state for Charitable Solicitation is sometimes not as simple as filling out a form and paying a fee every year. Some states also have financial auditing requirements, including formal audits of branches where the corporation is sufficiently large. Multiple states fall into this category at this time.

212/7/2013

FAQ’s• Who makes this decision?

The SCA, Inc. Board of Directors, the SCA President, and the SCA Treasurer make the decision to create subsidiary corporations.

• Who is responsible for implementing this?

The SCA Treasurer, the Society Exchequer, the Kingdom Exchequer and all branch Exchequers within the state are responsible for implementing the transition to subsidiary corporations. The Seneschal equivalents at all those levels must assist in this for several reasons. Most of the seneschals are also signatories and bank accounts and the seneschals continue to ensure that the SCA meets all of its legal obligations.

222/7/2013

FAQ’s• How is this different from affiliation like SCA Australia and

other affiliates?

Affiliated organizations are subject to different civil laws in their countries, and so their corporate documents are not the same. Their Boards of Directors are completely different people. The only thing affiliate organizations share with the SCA, Inc. is Corpora.

A subsidiary company is one whose controlling interest is owned by another company. Subsidiaries use the same corporate documents except for those that specifically apply to the state. So SCA, Inc. and SCA-IL, Inc. share not only Corpora, but the Corporate Policies and any other governing documents that do not have a specific SCA-IL, Inc. version.

232/7/2013

FAQ’s• Why do this?

Several states require that corporations having over different threshold gross income submit to (and pay for) formal audits of all included branches. The SCA, Inc. is well above that income limit. If the SCA, Inc. itself was to register in states, we would not have enough money to pay for the formal audits of all US SCA branches even once. The branches in individual states together do not come close to the annual income amount, so creating a subsidiary and registering that subsidiary sin will allow us to operate within without those costly audits for a while.

242/7/2013

FAQ’s• Is my state first?

No. Illinois was the first state in this situation. Like Illinois, the local groups in many states all fall under the same Kingdom making it simple to convert. Those states with multiple kingdoms will require a little more work for the Society Exchequer but not the local branches.

• Will other states need to do this too?

There are other states in similar situations that will need to go through this process. States containing more than one kingdom and local groups residing in more than one state will be more difficult to transition to subsidiaries.

252/7/2013

FAQ’s• What does the new corporation look like? Who is the Board

of Directors? When are their Board meetings?

The new corporation looks like a small, mirror image of SCA, Inc.

The Board of Directors of the SCA-Wisconsin, Inc. is the same as the Board of Directors of SCA, Inc. The SCA-Wisconsin, Inc.’s Articles of Incorporation are almost exactly the same as the SCA, Inc.’s Articles of Incorporation. Corpora is the same, Bylaws are the same, Corporate Policies are the same.

The Board meetings will be at the same time and place – and be similar to a court where the Crown allows a Baronial Court as part of their Court. The Board meeting for subsidiary will open, and if there is any business, it is conducted. Then that meeting will close, and the meeting for the SCA, Inc. will open.

262/7/2013

FAQ’s

• What about SCA members living in subsidiary corporations? Are they members of SCA, Inc. anymore?

SCA, Inc. members in subsidiary corporations are still members of SCA, Inc. There won’t be any members in the subsidiary corporations except for the Society for Creative Anachronism, Inc. SCA, Inc. membership cards are still in effect, and nothing changes about the process of purchasing membership for anyone in subsidiaries.

272/7/2013

FAQ’s

• Are there any changes in events in subsidiary corporations?

No and Yes. – Events can occur just the same as they do today. SCA, Inc.

insurance will still be available for events and practices. – The only change is that all ads have to say to make the

check out to SCA-[state], Inc. - [branch] instead.

282/7/2013

FAQ’s

• Are there any changes to how the branches in subsidiary corporations will do business?

No, the subsidiary branches shouldn’t notice any change in anything other than the one-time change of bank accounts, and financial reporting going forward. Nothing else changes due to this transition.

292/7/2013

FAQ’s

• How do we handle Certificates of Deposit that mature?

Let the CD’s go to full maturity, close them out of SCA, Inc., donate funds to the subsidiary when they mature. Show the CD as an asset on SCA, Inc. and as a payable to subsidiary on quarterly and Domesday reports.

When the CD’s mature, open new CD’s if that is the desire of the local group. This avoids incurring early cancelation fees and complies with the contractual requirements of the CD’s.

302/7/2013

Wrap up and ConclusionAny other questions?

Thank you