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1997 Wisconsin Act 140 defines unincorporated nonprofit associations, limits liability

by Thomas L. Frenn

The Wisconsin Legislature recently passed the Uniform Unincorporated Nonprofit Association Act (UUNAA) as 1997 Wis. Act 140, effective May 5, 1998.

UUNAA provides limited liability

The major change 1997 Wis. Act 140 makes to Wisconsin law is to provide very clear statutory authority that an individual member, director, or officer of a nonprofit unincorporated association is not personally liable for the organization's contract or tort obligations.

Prior to the UUNAA, each member, officer, and director of the unincorporated association was jointly and severally liable for the contractual obligations of an unincorporated nonprofit association.

Prior law also held that individual members, officers, and directors may be personally liable for the tort obligations of a nonprofit unincorporated association. Therefore, under the UUNAA, unincorporated nonprofit associations now acquire some of the limited liability provisions of a corporation and protection for its members, officers, and directors.

1997 Wis. Act 140 does not give volunteers immunity for their own negligence. However, the Federal Volunteer Protection Act of 1997 provides limited immunity for volunteers.

Act defines nonprofit organizations and members

The UUNAA also provides clarification on what is considered a nonprofit organization and who would be considered members of that organization. 1997 Wis. Act. 140, Wis. Stat. section 184.01(2), defines a nonprofit organization as an "unincorporated organization consisting of three (3) or more members joined by a mutual consent for common nonprofit purpose. Joint tenancy, tenancy in common or tenancy by the entireties does not, by itself, establish a nonprofit association even if the co-owners share use of property for a nonprofit purpose."

Previous Wisconsin case law generally did not use the term "unincorporated nonprofit association" but rather used the term "unincorporated association." The definition of nonprofit association used in section 184.01(2) is consistent with how the courts have previously defined unincorporated association. Organizations that normally would come under this definition include, for example, churches, fraternities, sororities, clubs, various social groups, and unions.

The requirement that an unincorporated association have three or more members is new to Wisconsin law. However, since an organization normally would require at least two persons to be considered an organization, the three-member requirement should be considered clarification of the law rather than a change in the law.

Under the UUNAA members are defined as "persons who, under the rules of practice of the nonprofit association, may participate in selecting persons authorized to manage the affairs of the corporation or developing the policy of the nonprofit association."

The term "member" is not precisely defined under current Wisconsin case law. In defining a member, the UUNAA generally has focused on the implications for external relations, such as liability to third-parties and contractor tort.

Consequently, under the UUNAA a "member" is defined in terms appropriate to such purposes. Under section 184.10(1), a nonprofit association may appoint an agent to receive service of process by filing a form with the Department of Financial Institutions.

Section 184.13 defines who can be served on behalf of an organization, including: an agent who is authorized to receive process; an officer, manager, or general agent; or a person who is authorized to participate in managing the affairs of the unincorporated association. If none of these persons can be served, service may be made on a member of the association. This is an expansion of current Wis. Stat. section 801.11(7), which is repealed by Act 140.

Other provisions of the UUNAA

The UUNAA also states that "an unincorporated nonprofit association" is considered a resident in the county in which it has an office for the purpose of a lawsuit's venue.

The act also contains provisions clarifying the right of an unincorporated nonprofit association to hold and transfer interest in real estate or personal property, and directs disposition of personal property for inactive unincorporated nonprofit organizations.

Section 184.02 states that the existing common law of unincorporated nonprofit associations in Wisconsin will remain good law unless specifically overruled by the UUNAA.

A copy of 1997 Wis. Act 140 may be obtained at the state's Web site or by calling Legislative Documents at (608) 266-2400.

Wisconsin Lawyer