CHANGES TO CHARTER SCHOOL LAWS

schoolhouse 

The 2013 legislative session provided significant changes in the Charter School funding and formation laws. These changes are outlined in Senate Bill 384 (“SB 384”) and make modifications to Nevada Revised Statues Chapter 386. There were many changes, but three changes stand out as most significant.

Incorporation of a Charter School as a Non-Profit Corporation under NRS Chapter 82.

Prior to the modifications to NRS Chapter 386, a charter school was formed pursuant to a grant of a charter by the sponsoring entity resulting in the school operating as a quasi-governmental entity. Prior to this change, Nevada charter schools did not incorporate as non-profit corporations. Effective July 1, 2013, charter schools are now allowed to incorporate as a non-profit corporation under NRS Chapter 82 (NRS 386.553). As part of this change, this will allow charter schools the opportunity to apply as a non-profit corporation for tax-exempt status with the IRS.

The ability for the Board of a charter school to form a limited liability entity is significant. Once the entity is formed there is limited liability for anything that happens in the schools operations and for occurrences on the school property. Further, fundraising may be easier as the school will now be able to provide donors with a determination letter from the IRS that clearly shows its tax-exempt status.

 

Removal of Requirement of Charter School to Provide a Security Interest in the Charter School’s Real Property to the State.

 

Prior to the modifications to NRS Chapter 386, charter schools were required to assign a security interest in all property, buildings, equipment, or facilities to the State which were purchased with money received from the State. Due to the fact that charter schools are State funded, this essentially required a security interest in all real property owned by the school. This requirement resulted in many charter schools forming separate tax-exempt, non-profit corporations as supporting organizations to hold property for the benefit of the school. SB 384 deleted the security interest requirement and now allows for charter schools to own property without providing a security interest to the State. Further, SB 384 now specifically allows a charter school to acquire real property and facilities with public money, provided that sponsor approval is obtained.

 

By allowing charter schools to incorporate and obtain their own tax-exempt status, there is now the possibility of folding any supporting organization into the school’s non-profit corporation to run the school’s operations and hold property. This could result in significant cost savings for the school as the costs of maintaining one entity are significantly less than the costs of maintaining two entities. Further, the board of directors can be consolidated into one governing body resulting in more concise operations.

 

Charter Schools can now Finance the Acquisition/Construction of Real Property by Working with the Nevada Department of Business and Industry to Issue Bonds.

 

Prior to SB 384, charter schools had to go outside of the State to find an issuer to issue bonds and other obligations to finance the acquisition, construction, improvement and restoration of property, buildings and facilities for charter schools. SB 384 authorizes the Nevada Department of Business and Industry to issue such bonds.

 

This means that charter schools are now able to directly own their real property and issue bonds and other obligations for the financing of property purchases. This allows for a simpler financing transaction and allows for the charter school governing body to have full control of its facilities, while also maintaining limited liability for the liabilities associated with the operations and property.

 

 

 

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