Court Opinion

ID: 9591808
Source: CourtListenerOpinion
Date Created: 2023-08-22 00:07:52.519413+00
Date Added: 2024-06-11T09:13:50.635919
License: Public Domain

KLAPHAKE, Judge
(dissenting).
I respectfully dissent. Although I agree with the majority on the legal principles, I disagree with its application of these principles and conclude that DCDC’s declared purpose and conduct shows that it is a not-for-profit corporation.
In re Red River Valley Livestock Ass’n, 235 Minn. 267, 271, 50 N.W.2d 287, 289 (1951) reaffirmed that the key to determining a corporation’s nature and status is its articles of incorporation. Read in their entirety,1 DCDC’s articles unambiguously identify the corporate purpose and intended beneficiaries: to promote the economic well-being of the City of Delano and vicinity. See, e.g., Atkinson v. Consumer-Farmer Milk Coop., 197 Misc. 336, 94 N.Y.S.2d 891, 893 (1950) (purpose to organize farmers and consumers for cooperative distribution of milk and to serve economic welfare of members and public). The class of intended beneficiaries is similarly unambiguously identified: the residents of the City of Delano. See Longcor v. City of Red Wing, 206 Minn. 627, 635, 289 N.W. 570, 574 (1940) (in contrast to specific individuals benefitting from private trust, beneficiaries of charitable trust are “a large shifting class of the public”). By expressly contrasting this purpose and broad class of beneficiaries with the conventional “monetary profits to the shareholders” of a business corporation, the purpose clause further distinguishes DCDC as a not-for-profit corporation.
While it is true that the incorporators could have expressly prohibited all profit-making activity, as in Red River, permitting incidental profit-making does not create a for-profit corporation. See Nicollet Nat’l Bank v. Frisk-Turner Co., 71 Minn. 413, 418, 74 N.W. 160, 162 (1898) (“An incidental power is one that is directly and immediately appropriate to the execution of the specific power granted”) Economic development of a city for the city’s welfare necessarily confers a benefit, and very possibly a financial benefit, on the city’s residents. As long as the benefits flowing to the shareholders are the same as those flowing to the general public, the purpose is consistent with a non-profit corporation. Cf. State v. North Star Research & Dev. Inst., 294 Minn. 56, 77, 200 N.W.2d 410, 423 (1972) (contributors to nonprofit hospital may use hospital without depriving hospital of nonprofit status). By expressly limiting “any monetary profits or other benefits” to shareholders to those “merely incidental” to the overall economic development of the city, city residents could participate in DCDC without jeopardizing its primary goal of promoting the economic well-being of the entire community.
Assuming some ambiguity as to the corporate purpose exists, we look beyond the articles of incorporation to determine the intent of the articles. See, e.g., Mohr v. Minnesota Elevator Co., 40 Minn. 343, 346, 41 N.W. 1074, 1075 (1889). The abundant evidence of DCDC’s corporate actions is consistent with not-for-profit status. Corporate documents reveal the following: (1) the shareholders never received dividends, and (2) shareholders and officers received no compensation for their substantial contributions of time and services. It is undisputed that DCDC shares were always purchased and transferred in the original 50-share blocks at the original price of $1.00 per share. Additionally, there is no evidence that the corporation was engaged in profit-making. It was only after *926some 25 years of consistent2 charitable activity that anyone questioned DCDC’s corporate status. Only then, with $100,000 in cash available, did the shareholders veto the directors’ resolution to contribute DCDC’s assets to a newly-organized non-profit corporation and vote to amend the purpose clause to state “general business” only. At best, these actions were efforts made to avoid the consequences of the prior not-for-profit actions.
In short, a corporation “cannot be made one kind of corporation merely by labeling it such, if its declared objects and purposes show it to be something else.” State ex rel. Clapp v. Thresher Mfg. Co., 40 Minn. 213, 222, 41 N.W. 1020, 1023 (1889). Here, the forprofit form of the corporation is inconsistent with its not-for-profit purpose and actions.
Accordingly, I would reverse and order summary judgment imposing a trust status on the corporation’s assets.

. Only the purpose clause in the articles purports to address the corporate purpose or to otherwise restrict or define the expressed corporate purpose. See generally 1A William Meade Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 100, at 107 (perm.ed.rev.vol. 1993).

. DCDC paid nominal income taxes during its first 25 years. This was consistent with its formation under Minn.Stat. ch. 301. In 1991, when greater income taxes were anticipated, the board of directors took steps to avoid the tax by creating another nonprofit corporation called the Economic Development Corporation of Delano. Payment of taxes, however, does not require a holding of for-profit status. See, e.g., North Star, 294 Minn, at 81, 200 N.W.2d at 425 (reversing tax judgment on non-profit corporation).