Are there any restrictions on the types of investments a nonprofit can make?
Yes, there are restrictions on the types of investments a nonprofit can make in South Dakota. According to the South Dakota Nonprofit Corporation Act, a nonprofit must invest its funds in accordance with a prudent investor rule. This rule mandates that a nonprofit must exercise the same reasonable care and diligence in its investments that a prudent person would use when conducting business. Therefore, a nonprofit must take into consideration the anticipated safety of the investment, the expected return, the liquidity of the investment, and the diversification of investments. The Act also prohibits a nonprofit from investing in certain types of assets, such as those that are speculative or have an associated high risk. A nonprofit cannot invest in derivative securities or securities that are not readily marketable. Additionally, a nonprofit cannot invest in securities that are not registered with the Securities & Exchange Commission. The nonprofit must also ensure that there are no conflicts of interest present when engaging in investments. Ultimately, if a nonprofit organization is found to be investing in an unsafe or speculative asset, or engaging in any other activity that is not in accordance with the prudent investor rule, the nonprofit and its board members may be held liable for any losses resulting from such activities. Therefore, it is essential that a nonprofit exercise good judgment when investing its funds in order to avoid potential legal trouble.
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