People ex rel. Groman v. Sinai Temple - 20 Cal. App. 3d 614, 99 Cal. Rptr. 603 (1971)

Rule:

The furnishing of benefits to members, without charge or without receiving full cash value in return, is not per se the payment of a dividend, gain or profit by a corporation organized under section 9200.

Facts:

Plaintiff attorney general brought a proceeding in quo warranto based on the complaint of private persons that defendant nonprofit corporation was unlawfully using its corporate franchise to make a profit. The complaint alleged that the profits were being used to pay off the purchase price of its property. The trial court sustained defendant's demurrers to plaintiff's amended complaint without leave to amend and dismissed the action. Plaintiff sought review of the judgment.

Issue:

Was the defendant nonprofit corporation absolutely prohibited from earning profits? 

Answer:

No.

Conclusion:

On review the court affirmed and held that although defendant had made a profit, it was not operating in excess of its nonprofit corporate powers. The court held that Cal. Corp. Code § 9200, did not prohibit nonprofit corporations from earning profits, but required that the main purpose of the nonprofit was not to contemplate the distribution of gains, profits, or dividends to the members. Thus, defendant's practice of providing services to its members at a discount and charging nonmembers full price so as to make a profit that was used to further its religious purposes was permissible. Moreover, providing its members with a discount for services did not constitute distribution of gains.