Are there any restrictions on the types of investments a nonprofit can make?

Nonprofit organizations in California are subject to restrictions when it comes to investments. Generally, non-profits are limited to investments that are not significantly risky and that can help further their mission. This includes investments in stocks and bonds, as well as investments in real estate for certain purposes authorized by the organization’s governing documents. It is important to note that investments must be considered in light of the charitable purposes of the organization. Any investment that might be deemed as unrelated or excessively risky business activities to the organization’s mission is prohibited. Additionally, when considering investments, nonprofits must take into account the fiduciary duties of loyalty, care, and obedience to their organization’s governing documents when deciding where to make investments. Nonprofits must also be aware of California’s Unrelated Business Income Tax (UBIT) when making investments. UBIT taxes certain types of income that are unrelated to the mission of the organization, such as income from investments. Nonprofits must exercise due diligence to avoid any possible application of this tax, as it can impact the ability of the organization to continue to serve its mission. Finally, any investments made by a nonprofit should be in the best interests of the organization, its members or beneficiaries, and those who benefit from its charitable purpose. The decisions about investments should be made carefully and based on rational considerations, such as long-term benefits and low risk.

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