Tuesday, October 26, 2010

Who Owns Klal?

The question in the title is not quite as inane as you may think. What I'm referring to is who owns the physical infrastructure of Klal and the organizations and institutions? So many of the complaints about what is wrong in Klal end up saying "They won't listen." So, who is this they?

In some cases it is easy to say who owns the infrastructure. Many of the summer camps that abound are owned by individuals and/or family groups. These camps are a business venture, and decisions about pricing and about services provided are decided by the owners. If you like the product being offered you pay what is being asked; if you don't like the price you shop elsewhere. A few of these camps are direct offshoots of existing yeshivot; decisions about pricing and about services are made by the sponsoring yeshiva.

But what about the rest of the infrastructure? Take shuls first. A few of these shuls, chassidishe/litvishe shtiblach for the most part, are owned by the rabbis who opened them. The shul is their business. Should the rabbi decide he no longer wants the shul the mispalellim have no say in the matter. Should a rabbi die it is his heirs who will make decisions about the future of the shul, again not the mispalellim. If the rabbi decides to sell his shul to another rabbi, he makes the decision. That the mispalellim pay dues and give donations to the shul is irrelevant as it is the rabbi's name on the deed of ownership.

Then there are community shuls, and here is where things get murky. Who owns these community shuls? Saying "The community does" gives no information whatsoever. First, you want to define community for me? Just what is a community? And if we are able to define community is some useful way, are we talking everyone in the community? Are we talking about only paid members of the shul or everyone who lives in the community, regardless of whether or not they are paid members? Are we talking about past and/or present paid members? It can't be the rabbis of these shuls that own them because they are salaried employees of the shuls. Most of these shuls have elected boards. The boards are entrusted with making day to day decisions about the practical matters of running the shul. They may use surrogate administrators, paid for by the shul, for the day to day running of the shul. But what if something arises that is not an everyday occurrence? In many shuls it is necessary to have a vote of the full membership for items outside of the ordinary.

Okay, but what about a wholly different scenario--a shul is losing its membership; maybe the community is shrinking or maybe the type of people that shul appeals to aren't moving in etc. The shul gets to the point where it is no longer viable for the shul to remain in existence. Is it that the full membership votes and agrees that it just isn't possible to keep the shul open any longer; the members left simply cannot pay what it costs to keep a building of that size open for only a handful of people? Or is it a different process? So the shul is going to be sold. So, when the building is sold, who gets the profits? "The community does" is a common answer, and back we are to defining just what that community is.

Now the sticky part--who owns the schools in a community? If it is a chabad school that has to close down then there is a national chabad movement which will make that decision, and if a sale is forthcoming, they will make the arrangements and get any monies from the sale. But what about other local schools? What if your kids go to the Derech HaDerech School, a legacy school from 30+ years ago? What will happen to that school's property if the school goes below the numbers needed to keep the school open? We know that school boards can vote to spend money for the school, but what is the financial/legal procedure when a school closes? And who or what is liable if legal action is taken against a school, such as a foreclosure on the school property because a mortgage is not paid? Who, in actuality, owns the schools?

Why am I asking (harping) on this? Many schools today are in financial trouble. We've seen/heard news all year about schools saying they may not be able to open or continue due to financial troubles. Sometimes, if that school is the only school in a community, that closure could be very problematic for parents in the community and for the community itself. Take away a sole local school and you may kill the community. You don't attract new people to revitalize a community if there is no school available for the kids. And you won't attract people to a community if they know ahead of time that tuition at a local school (or schools) is out of sight and growing by leaps and bounds. So yes, the question needs to be asked and answered: who has the authority to increase tuition at a school, and how is it that they have that authority?

If the answer to the question is "school boards have that authority" then show us where that is stated. Where are the schools' official regulations published? What are the actual by-laws? And if a board serves because it has been elected by the parents in the school? Do those same parents have the authority to recall that board if the parents believe the board is working against the interests of the parents? We keep complaining that yeshivas in particular need to give full disclosure about the workings of the school and the way the finances are run. We keep complaining that we are not getting that full disclosure. Well, why aren't we getting that disclosure? We keep saying that "they" won't give it to us, but until we can clearly say who that "they" is we are going to get nowhere. If "they" is a private individual or group with legal entitlement to the school's property that is one thing. But if "they" is really all of us in a community then why aren't we claiming our legal rights as "owners" to full disclosure?

This is very murky water we are swimming in. There are institutions that have been around seemingly for ever. But if change is needed, who has actual authority to make that change? Who can "force" that change? Who can deny that change? Yes, once again, who owns the institutions of Klal?


Anonymous said...

A while back oot a shul found out the hard way just who owned it. When the community started someone donated the land the shul would be built on. The cost of the shul building was paid for by the members and by fundraising and a mortgage. When the community started changing rapidly the members moved to a different part of town. They decided to sell the old shul and build in the new area. That's when they found out that the original donation of the land was only given as long as the shul remained on it--in perpetuity or some legal term like that. The land reverted back to the original owner who would get either the land back or the amount the land was worth when a sale was made. The shul still had a mortgage and instead of having money from the sale to build a new shul, they were facing debt from the old shul and no money to build again.

I'd guess that that shul is not the only community structure that has some items buried in the paperwork that can come back to bite you.

JS said...

The questions you're asking are all sourced in corporate law. The answers for a standard corporations are that the shareholders own the corporation and the board of directors have a fiduciary duty to oversee the running of the corporation by the managers. In a publicly-owned corporation, the shareholders are anyone who bought a share of the company on the stock market, the board of directors usually include people who are disinterested (people who do not have a stake in the company's business decisions), and the managers include the CEO, CFO, etc.

So, in a publicly held corporation, the managers make the business decisions and the board of directors oversee the company generally (e.g., overseeing regular financial statements) and major decisions (e.g., merge or sell a business unit). If the company dissolves or reorganizes under bankruptcy, the creditors take first, then the shareholders.

The wrinkle here is that you're talking about non-profit corporations, which is what a shul or yeshiva is. The role of the managers and board of directors is essentially unchanged. In a yeshiva your managers are the dean, principals, assistant principals, financial director, etc. The board of directors, like in a regular company, are influential people - in this context called "machers" :).

But, who are the "shareholders"? In short, there are none. No one "owns" a non-profit. So, who gets to decide if the non-profit dissolves? Depends a lot on how the non-profit was set up. In a membership non-profit, the members of the organization get to vote in members of the board of directors, amend articles and bylaws, and bote on mergers or dissolution. It sounds like this is how many shuls are set up. So, I guess whoever is a member when the place goes under gets to vote on what happens. If it's not a membership non-profit, the board makes all of the decisions.

Because a non-profit has no owners, it also can't be sold even when it dissolves. Instead, first all creditors are paid off. Then, the remaining assets must be transferred to another non-profit with the same purpose (e.g., one yeshiva to another, not a yeshiva to a hospital). In some states, this process is overseen by a state official.

Generally, you go through the following process when dissolving (varies by state):
1) Spend donor money intended for purpose X on that purpose.
2) Pay off the state and lawyers aiding in the dissolution (lawyers make the laws, they get paid first)
3) Pay off all debts to creditors.
4) Distribute assets to other non-profit using articles or bylaws for guidance (e.g., assets are given back to parent organization).

The essence of a non-profit is that because there are no owners they can't distribute profits to anyone by any means other than a salary for services rendered (compare to a regular corporation which can issue a dividend for example to shareholders). So, this further explains why you couldn't just sell a shul and pocket the money.

Mark said...

It's a VERY good question and will likely lead to some problems in the future.

Sarah said...

You seem to know something about this JS, so is a non-profit the same as a tax exempt organization? I'm seen both on mailings sent to me from shuls, schools and organizations. If they aren't the same, what's the difference?

JS said...

Well, let me clarify I don't deal in non-profits. My knowledge is based purely on general knowledge of corporate law.

The main distinction is that one has to do with how the corporation is structured and the other has to do with federal tax law.

A non-profit corporation is a creature of state law. You meet certain requirements of the state you incorporate in and you are a "non-profit". This entitles you to certain benefits such as, for example, exemption from state sales tax, income tax, and property tax.

However, because it's a state law creation, it has nothing to do with federal taxes. A non-profit created under state law has to file for federal tax exemption with the IRS that has its own requirements.

Usually the two overlap so the distinction is meaningless.

A charitable or religious tax-exempt organization is a 501(c)(3) organization (named after the tax code provision). The tax-exempt status could be lost if they engage in political campaigning or try to influence legislation.

So, if a shul supported a candidate, it's possible it could be a non-profit that is not tax-exempt.

The Rebbetzin's Husband said...

Re: Shuls - There are many responsa on the topic, and it seems that the community itself was historically considered the owner: anyone who resides there for at least a year, and pays the communal tax. Today, dues might be considered the equivalent of the tax. Then there were responsa re: balancing the votes of the major donors vs. votes of a plurality. I can give you references to research if you like.

Micha said...

If I'm reading the comments correctly then according to the Rebbetzin's Husband there is some precedent for shul members having a say in what goes on in the shul because they could be considered owners of the shul. Can't speak for the Prof but I'd like to see those responsa.

But I'm also figuring out from the comments JS made that when it comes to schools and yeshivas, unless paying tuition is considered as membership dues, then the people using the schools and living in the communities that have the schools in them really have no say in how the school is run or what it does. The only choice they have is to either send to that school or not send to that school. All the discussion online about having the schools be more open and present the community with the figures as to what the costs are and who is getting what has nothing to back up the discussion. They are just another business providing a service. If you can't ask your cleaners to open his books and show you why he charges what he does, then you can't make the schools do that either.

So maybe we need to stop dreaming that we can make these schools more open and look more seriously at other alternatives if we really are unhappy with the schools.

JS said...


It all comes down to what the non-profit's articles and bylaws say. But, yeah, if they say all power vests in the board of directors and there are no "members" - then you're just a customer despite all the flowery talk about it being a communal institution and serving the community and being there for the community, etc.

I haven't done any research into this, but I would imagine (and I hope someone can provide more information) that shuls are member-based and yeshivas are not. So, shuls define what it means to be a member (e.g., paying dues in full) and those members vote in a board (president, treasurer, secretary, etc.). And, yeshivas have a board that is appointed when the yeshiva is incorporated and they establish procedures for electing new directors - members have no say. This makes sense to me as most shuls I know have general elections for board positions and I have never heard of a yeshiva having similar proceedings.

I think all the talk the yeshivas give the parents and community is simply to collect donations - it has no real legal basis. The parents don't "own" the yeshiva and have no ownership stake or any control whatsoever beyond choosing to pull the kids out.

Rae said...

So here it is in black and white that all the talking and yelling and complaining about the schools is going to get parents exactly nowhere. If parents and the community don't own the schools then they have only one choice as paying customers--don't send the kids to that school. They don't have any power to make changes, and complaining is going to get them nowhere.

If a pizza shop in your neighborhood has lousy service and high prices complaining is not going to get you anywhere as long as you still are a customer of the pizza shop. Saying it's the only pizza shop in town is a cop out--so don't buy pizza or travel further to get it. Same applies to the school situation. If you really want change then you have to hit the school owners in the pocketbook--don't send your kids there. Nothing else will make a difference.

Miami Al said...


You are right on the money on the legal structure, but missing a few wrinkles.

The "Shul" as a 501(c)3 "religious organization" is considered a "Church" by the IRS. Church's have special protections under the law. A charitable organization files a public 990 form laying out the finances, a Church is exempt from that. The reason, the First Amendment prohibits Congress from restricting the free actions of a religious organization, which has been codified into Churches (totally exempt) and Religious Charities, not exempt. As a result, the Catholic Charities CANNOT prohibit "protected classes" of people from employment, while the Church can.

For example, your Shul can require the maintenance guy be a non-Jew, or require that secretary/receptionist be a modestly dressed Orthodox woman, without strongly demonstrating "need." If Catholic Charities are hiring people to work in a food bank as a Chef, they CANNOT require that they be Catholic.

Now, the Shul, the operating entity, is so registered. However, the Sanctuary/Shul building, can be anything. The "Church" can own it, a separate non-profit could own it and rent it to the Shul, or a private individual can own it and rent it. So the ownership of the Shul may be distinct from the religious organization that operates it.

Regarding the School/Shul boards/members, obviously it depends on state law as well. I know that at least one of the schools here is a membership organization, each family with a child enrolled is a member, and therefore has a vote on the board, and the board collective exercises executive authority.

HOWEVER, the President of the Board appoints a nominating committee that reviews applicants, and proposes a slate of board members, including a president. In theory you could storm the meeting and vote down the slate, but slate elections are VERY hard to organize against, there is no secret ballot for members.

Further, the board only meets in it's official capacity once/year. They do meet monthly for information, but it's technically meeting as a committee of the whole in parliamentary terms, basically it operates as a committee with all the same membership, but the obligations to be open is lessened. Further, between meetings, an executive committee, appointed by the President exercises authority in place of the board, and between executive committee meetings, the President has the full authority of the board.

So the President chooses who is on the nominating committee, that nominates a slate of all officers.

So the non-profit IS "member owned" of sorts, but the management of that is completely separate.

The dissolution of assets is largely theoretical. Our communal organizations are so terribly run that they would all be significantly behind on their obligations before they would be wound down, with nothing to distribute. You'd be lucky if the employees got paid in full, let alone unsecured creditors.

JS said...


Spot on. I didn't get into 990's and the details of how the committees and boards, etc. work, but everything you wrote is correct.

The main thing you learn when you study corporations and corporate law is that the primary purpose of a corporation is to remain a going concern. In the financial sense that means staving off insolvency/liquidating. In the corporate structure sense, it means keeping the managers and board of directors firmly in control of the corporation and staving off attempts to wrest control of the corporation (hostile takeover, electing hostile board members, etc.).

It's a bit different for a non-profit, but not all that different. As, Al aptly pointed out, even when a non-profit such as a yeshiva is a membership organization (and would presumably give more control to the members), step after step is taken to make sure that the "powers that be" remain in power. The theory is that it's better for the corporation to have these strict policies - volatility is bad, people on the outside don't have best interests of corporation/shareholder at heart, etc. But, the reality is what it is - no one wants to give up control.

Sucks if you're on the outside looking in, but it's wonderful if you're on the inside.

N said...

Just supplementing some earlier commentators:

legally speaking, a shul can be set up as a for profit corporation that is effectively "owned" by persons or persons. I have never seen this happen. If it did happen, however, the "owners" would be legally entitled to operate the business for profit and keep such profits -- as in the pizza shop example above.

Such an entity would not be eligible to be a charitable/501(c)(3) organization under the tax law. Donations to such a privately owned shul would not be tax deductible.

To be tax deductible, no benefit can inure to any individual. Accordingly, a 501(c)(3) compliant shul can be formed as a non-for-profit organization under state law. The organization can pay salaries, but no profits can be paid as a dividend to any persons. (In theory the state or the IRS could challenge the legality of compensation that is overly generous--this is rare).

In New York for example, a "Church" or in Synagogue must comply with specific not-for profit laws which regulate annual meetings etc. In my experience, compliance with these rules vary. A Young Israel or "MO" type institution usually does; a shteeble rarely does. You can see examples of some relvant rules at the link below:


Generally, the board and/or membership ultimately controls what legally happens in a shul. As discussed above by other commentators, schools are typically controlled by their boards. It would generally be a violation of state not for profit law (and likely of tax law as well) for the administration or board of a shul or a school to pay themselves anything but a reasonable salary.

Miami Al said...


True, and the IRS has guidelines for it... So you can max out to that guideline without questions being raised. You can also employ the spouse, children, etc., all without raising an automatic red flag.

Further, your Shul's legal "Church" could of course pay "fair market rent" to a private landlord. They could outsource office staff to an "employee leasing firm" that marks things up, and purchase telephony/Internet from a private "phone management system" and other nonsense. They can direct contracts for cleaning to their private corporation that re-outsources it at mch lower costs.

IRS Non-profit means that the "corporation" doesn't either "retain earnings" that are either taxed as corporate profits (C-corp) or taxed as pass-through income (S-corp). It doesn't mean ANYTHING about how it runs itself.

The state non-profit statutes govern the management of the corporation, but as you said, compliance varies.

These institutions are not owned by "the community," they are "ownerless" in the eyes of the law, and "owned by the insiders" for all practical concerns.

N said...


My point was not that people could not skirt the law or push the envelope. There are many ways to do so, and employment of insiders, etc. in "klal" institutions is certainly not unheard of. (A topic for another time, but to my mind I do not understand how we tolerate the blatant nepotism that we do). Certainly concerns about personal abuse of communal office, as well as actual abuse, are ancient. (There are reasons why the robes of temple cohanim did not have pockets). My only point was -- in response to K's question -- that communal organizations do have a legal structure. The insiders are permitted reasonable compensation but are not permitted to enrich themselves under the law.

The Rebbetzin's Husband said...


You might look at Rama Choshen Mishpat 312:9, R' Eliyahu Mizrachi 1:53, Be'er Yitzchak Orach Chaim 24, Pischei Teshuvah Choshen Mishpat 162:6 as a good start.

JS said...

Rebbetzin's Husband,

I'm curious what your thoughts are on shuls/yeshivas that set up legally under US law with an "ownership" arrangement that is not in accord with the halacha/responsa you are citing. For example, you said above, "it seems that the community itself was historically considered the owner: anyone who resides there for at least a year, and pays the communal tax. Today, dues might be considered the equivalent of the tax."

What then if a shul is set up under US law as a non-membership organization - there are no members, the shul is "owned" only by the rabbi, for example.

Do you think our communal organizations are set up properly under halacha?

Abba's Rantings said...


"And you won't attract people to a community if they know ahead of time that tuition at a local school (or schools) is out of sight and growing by leaps and bounds."

bulloney. you think young couples have stopped shopping for houses in teaneck?

"Take away a sole local school and you may kill the community."

but this is true. did you see the recent post by harry maryles where he reminisced about his role in preventing the closing a jewish girls school because it would have killed the community?

" Where are the schools' official regulations published? What are the actual by-laws?"

part of the shulamis lawsuit involved the fact that the parents couldn't get access to the by-laws

"And if a board serves because it has been elected by the parents in the school?"

how many schools--are there any--that have boards elected by the parents at large?

The Rebbetzin's Husband said...

Without giving the topic full treatment, I'd say that yes, they are likely fine. Any group of people is entitled to contract between themselves as they choose, so long as they don't violate halachah (like ribbit or shemitah).

Micha said...

Thank you Rabbi for responding with the sources.