Are there any restrictions on the types of investments a nonprofit can make?
Yes, there are certain restrictions on the types of investments a nonprofit can make in North Carolina. According to the North Carolina Nonprofit Corporation Act, nonprofit organizations are restricted in the investments they can make and must follow the prudent investor rule. This means that all investments must be made with the “care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters” would exercise when managing the assets of another. Nonprofit organizations are restricted from investing in securities or instruments not considered to be legal investments for fiduciaries in North Carolina. This includes futures contracts, margin accounts, options on securities, and investments in hedge funds, limited partnerships, and high-risk securities, such as penny stocks. Nonprofit organizations must also disclose and document all investments prior to making them and can only invest in securities that are appropriate for their organizational purposes and those that can be reasonably expected to create a reasonable return. Nonprofit organizations must also periodically review their investments to make sure they are consistent with their policies and the prudent investor rule. Finally, nonprofit organizations are not allowed to borrow money or incur debt in order to make investments.
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