How does a burial association in Arkansas legally dissolve, and what role does the Burial Association Board play in the dissolution or merger process?

Plain-English summary

The Chairman and Executive Secretary of the Arkansas Burial Association Board sent the AG four questions about dissolving a burial association and distributing its remaining assets. The Board wanted to know what statutory framework governs dissolution, what role the Board itself plays, whether the Board can require prior approval before dissolution, and whether Act 1030 of 2015 changes an earlier AG opinion (Op. Att'y Gen. 2007-035).

The opinion answered, in summary:

• Question 1. The dissolution path depends on whether the burial association is incorporated, and under which nonprofit-corporation act:
  • Unincorporated. Probably no clear statutory path. The 2011 Revised Uniform Unincorporated Nonprofit Association Act expressly excludes organizations formed under any other statute governing such associations, so its dissolution provisions in §§ 4-28-628 and -629 probably don't reach burial associations. In the absence of statute or bylaw guidance, an unincorporated burial association would probably have to resort to circuit court. Legislative clarification is warranted.
  • Incorporated under the 1963 Nonprofit Corporation Act (§ 4-28-201 et seq.). Section 4-28-207 governs IRC § 501(c)(3) corporations' dissolution and asset distribution, but it is unclear whether burial associations qualify as § 501(c)(3) entities as a matter of course (a federal-law determination that may be fact-specific). Absent further clarification, a 1963-Act burial association would probably need to resort to circuit court.
  • Incorporated under the 1993 Nonprofit Corporation Act (§ 4-33-201 et seq.). The answer is much clearer: § 4-33-1401 et seq. provides detailed dissolution procedures.
• Question 1(a). A "benevolent nonprofit association" is a type of nonprofit corporation, so the same rules apply.
• Question 1(b). A bylaw provision stating that the association "shall be perpetual" unless voluntarily dissolved has little effect on a voluntary dissolution.
• Question 2. No clear Board role. Although § 23-78-102 and § 23-78-103 say burial associations are organized and operating "exclusively" under the burial-association chapter and subject to Board authority, the chapter itself does not address dissolution except by revocation of the certificate of authority. The Board's general supervisory authority under § 23-78-108(a)(4) is unclear in its application to dissolution. Legislative clarification warranted.
• Question 2(a). Same answer.
• Question 2(b). The current Rule 2 (governing use of burial-association funds) does not by its own terms prevent dissolution, but it has implications for asset distribution; Act 1030 of 2015 loosened some fund-use restrictions, which may make compliance more feasible.
• Question 3. No clear Board authority over mergers either. Legislative clarification warranted.
• Question 4. Yes. Act 1030 of 2015 amended § 23-78-108 to expressly authorize the Board to approve burial-association plans paying death benefits in excess of the face value of certificates of benefits, under stated criteria. That changes Op. 2007-035's prior doubt about such above-face-value payments.

Underlying theme: Arkansas's burial-association regime regulated formation and operation in detail but left dissolution and mergers thinly addressed, with the Burial Association Board's authority over those events ambiguous.

Currency note

This opinion was issued in 2015. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What is a burial association?

A type of mutual-benefit organization, common in Arkansas, that collects regular dues or assessments from members and pays a death benefit (often the cost of burial) when a member dies. In Arkansas they are regulated under Title 23, Chapter 78 of the Code, with the Arkansas Burial Association Board overseeing their operations. The Board got actuarial-rate and reserve-requirement authority by Act 443 of 1987.

Why does the dissolution path depend on the incorporation status?

Because different statutes apply to incorporated versus unincorporated nonprofits, and within incorporated nonprofits, the 1963 act (§ 4-28-201 et seq.) and the 1993 act (§ 4-33-201 et seq.) have different dissolution procedures. The 1993 act has a detailed dissolution subchapter at § 4-33-1401 et seq.; the 1963 act does not. Unincorporated associations fall into a third bucket where neither nonprofit-corporation act applies and the Revised Uniform Unincorporated Nonprofit Association Act probably also doesn't apply because of its express carveout in § 4-28-601(8)(C).

What is a 501(c)(3) dissolution clause and why is it in § 4-28-207?

The Internal Revenue Code conditions tax-exempt status under § 501(c)(3) on certain organizational requirements, including a dissolution clause that ensures remaining assets are distributed for exempt purposes. Section 4-28-207 deems certain charitable, religious, literary, educational, and scientific nonprofits to have such a clause in their articles of incorporation. Whether a specific burial association qualifies as § 501(c)(3) is a federal-law and fact-specific question the opinion declined to answer.

Why doesn't the Burial Association Board have clear authority over dissolution?

Because the Burial Association statutes (Title 23, Chapter 78) regulate formation, operation, rates, and certificate of authority but do not say what happens when an association voluntarily winds up. The opinion read § 23-78-103's "exclusivity" language as limiting other regulatory agencies' insurance-style authority over burial associations, not as broadly authorizing the Board to control dissolution. The Board's supervisory authority under § 23-78-108(a)(4) is too general to clearly cover dissolution.

What changed under Act 1030 of 2015?

Act 1030 amended § 23-78-108 to authorize the Board to approve burial-association requests to pay death benefits in excess of the face value of issued certificates of benefits, where the association has excess financial resources (as determined by the Board). The act also added specific procedures for the request and review. Op. 2007-035 had expressed doubt about above-face-value payments; Act 1030 specifically authorized them with Board approval, changing the analysis.

Background and statutory framework

Arkansas's regulation of burial associations sits in Title 23, Chapter 78. Sections 23-78-102 and -103 establish that burial associations, whether created before or after Act 91 of 1953, are deemed to be organized and operating "exclusively" under that chapter and subject to the Burial Association Board. The Board's powers were enhanced by Act 443 of 1987.

The general nonprofit-corporation framework has two acts: the 1963 Arkansas Nonprofit Corporation Act at § 4-28-201 et seq., and the 1993 Arkansas Nonprofit Corporation Act at § 4-33-201 et seq. Section 4-28-207 covers § 501(c)(3) dissolution requirements. Section 4-33-1401 et seq. provides the 1993 Act's dissolution mechanism.

For unincorporated nonprofits, the previous statute (former § 4-28-501 et seq.) was repealed in 2011 and replaced by the Revised Uniform Unincorporated Nonprofit Association Act. The new act's dissolution provisions at §§ 4-28-628 and -629 don't apply to organizations formed under another statute governing unincorporated associations, per § 4-28-601(8)(C), so they probably don't apply to burial associations.

Citations

• Ark. Code Ann. § 4-28-201 et seq. (1963 Nonprofit Corporation Act)
• Ark. Code Ann. § 4-28-207 (Repl. 2001)
• Ark. Code Ann. § 4-28-501 et seq. (repealed 2011)
• Ark. Code Ann. § 4-28-601(8)(C) (Revised Uniform Unincorporated Nonprofit Association Act)
• Ark. Code Ann. §§ 4-28-628 and 4-28-629
• Ark. Code Ann. § 4-33-201 et seq. (1993 Nonprofit Corporation Act)
• Ark. Code Ann. § 4-33-1401 et seq.
• Ark. Code Ann. §§ 23-78-102 and 23-78-103
• Ark. Code Ann. § 23-78-108
• Ark. Code Ann. § 23-78-108(a)(4)
• 26 U.S.C. § 501(c)(3)
• Acts 1953, No. 91
• Acts 1987, No. 443
• Acts 2015, No. 1030
• Op. Att'y Gen. 2007-035
• 1A Fletcher Cyc. Corp. §§ 77, 79 (2014)

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

Opinion No. 2015-070
July 17, 2015

Steve Ballard, Chairman

STATE OF ARKANSAS
THE ATTORNEY GENERAL
LESLIE RUTLEDGE

Amy S. Goode, Executive Secretary
Arkansas Burial Association Board
101 East Capitol, Suite 113
Little Rock, Arkansas 72201

Dear Mr. Ballard and Ms. Goode:

This is in response to your request for my opinion on several questions concerning the dissolution of a burial association and the distribution of its remaining assets. I will respond to the questions in the order presented.

RESPONSE

Question 1 — What steps are needed to actually accomplish a legal dissolution of a burial association?

The answer to this question depends on (1) whether the burial association is incorporated, and (2) if so, whether the association is incorporated under either the 1963 or 1993 Nonprofit Corporations Act.

If the burial association is unincorporated, then it is unclear how the organization would be dissolved and how the remaining money would be distributed. Until 2011, it was probable that the Nonprofit Organizations Act governed this matter for unincorporated burial associations. In 2011, however, this set of statutes was repealed and replaced with the "Revised Uniform Unincorporated Nonprofit Association Act." The new law — specifically, the subsections codified at Ark. Code Ann. §§ 4-28-628 and -629 — establishes clear standards governing dissolving the association and distributing its remaining funds. But these statutes probably do not apply to burial associations. This is because section 4-28-601(8)(C) states that the term "unincorporated nonprofit association" does not include "an organization formed under any other statute that governs the organization and operation of unincorporated associates."

Therefore, in the absence of any guidance in statute or in the association's bylaws, an unincorporated association would probably have to resort to circuit court. Legislative clarification is warranted.

If the burial association is incorporated, then the answer to your question depends on which set of nonprofit-corporation statutes applies. For burial associations incorporated under the provisions of the 1963 Arkansas Nonprofit Corporation Act, it is not entirely clear how the corporation dissolves and distributes its assets. Depending on whether the association qualifies as a 501(c)(3) corporation, Ark. Code Ann. § 4-28-207 may be the applicable provision. [The opinion quotes the deemed dissolution clause for § 501(c)(3) corporations under § 4-28-207.]

Section 4-28-207 appears to only address corporations that are (or are eligible to be) 501(c)(3) nonprofits. But it is unclear whether burial associations are (or are eligible to be) 501(c)(3) organizations as a matter of course. This determination is one for federal authorities and may require evaluating the operations of the particular individual burial association. Thus, section 4-28-207 may be of limited applicability to burial associations. In the absence of further legislative or regulatory clarification — and in the absence of any provision in an association's articles of incorporation or bylaws — a burial association organized under the 1963 Act would probably need to resort to the circuit court of the county in which the burial association is located to determine how to dissolve the corporation and dispose of its assets.

In contrast, the answer to your question is much clearer if the burial association is incorporated under the 1993 Arkansas Nonprofit Corporation Act. If this is the applicable Act, then one should consult Ark. Code Ann. § 4-33-1401 et seq. for a detailed description of the steps required to dissolve the corporation.

Question 1(a) — Would the steps for a legal dissolution be any different if, prior to the 1963 and 1993 Nonprofit Corporation Acts, the burial association obtained a court order and Board approval for formation as a benevolent non-profit association?

No. Given that your question is framed with reference to the two nonprofit-corporation acts, I take your question to be asking about a "benevolent nonprofit association" that is incorporated under either act. A "benevolent nonprofit corporation" is a type of a nonprofit corporation. Accordingly, in the absence of some specific statute to the contrary, the rules governing dissolution of nonprofit corporations generally would govern "benevolent nonprofit corporations." I have not found any statute that establishes different rules for the dissolution of "benevolent nonprofit corporations."

Question 1(b) — What is the effect of burial association bylaws, which are filed and approved by the Board, specifically including a provision that "the period for which this association shall exist, unless at an earlier date voluntarily dissolved by proper action by its officers and board of directors, shall be perpetual"?

The referenced provision has little effect on an attempt to voluntarily dissolve the association. The provision simply states that, unless the association is properly dissolved, the association will continue indefinitely.

Question 2 — What is the Board's role or authority in the dissolution process?

The applicable law governing burial associations states that all burial associations, whether created before or after the passage of Act 91 of 1953, are deemed to be organized and operating "exclusively" under the provisions of this chapter and subject to the authority, control and supervision of the Board. See Ark. Code Ann. §§ 23-78-102 and -103. However, this chapter does not address dissolution of a burial association other than by revocation of the certificate of authority. The Board was created to regulate burial associations and by Act 443 of 1987 was given the authority to establish actuarial rates and reserve requirements necessary to ensure the financial integrity of all burial associations thereby protecting the members of the association. Likewise, the Board would like to make sure it has the ability to ensure member protection in the event a burial association chooses to no long exist.

Given current Arkansas law, I cannot definitely opine on this question because Arkansas law is silent on the matter. No Arkansas law gives the Board any clear role in the dissolution process.

The "exclusivity" language quoted in your question (and derived from the Board's enabling statutes) does not alter this conclusion. The Arkansas Code — i.e. Ark. Code Ann. §§ 23-78-102 and -103 — uses broad language to refer to the source of burial associations' authority. The former statute states that burial associations are "deemed in all respects to be organized or operating exclusively under the provisions of this chapter." The latter statute states that this "chapter shall be deemed and held exclusive authority for the organization and operation of burial associations within this state, and the associations shall not be subject to any other laws respecting insurance companies of any class, kind, or character." In my opinion, the emphasized phrase indicates that the "exclusivity" language is referring to the regulatory authority that the Board has over burial associations. The language indicates that no other entity or agency will have regulatory authority. I do not interpret it to mean that no other statutes affect burial associations. Nevertheless, legislative clarification is warranted.

Question 2(a) — If dissolution is accomplished by corporate filings with the Secretary of State, does the Board currently have the authority under existing law to amend its rules to require burial associations to seek prior approval from the Board before starting the legal dissolution process?

Please see my response to Question 2, above.

Question 2(b) — Does the current Rule 2 of the Arkansas Burial Association Board Manual prevent a burial association from dissolving by requiring that "all assessments, dues and/or other funds of whatever kind and character … over and above necessary expenses … shall be and remain the property of the association for the use and benefit of its members only"?

There are two questions here: (1) whether, as a threshold matter, the Board has the authority to regulate the dissolution process; and (2) if so, whether Rule 2, which governs the use of burial-association funds, prevents burial associations from dissolving. I addressed the Board's authority over the dissolution process in Question 2, above.

The answer to the second question — namely, whether Rule 2 prevents dissolution — requires a distinction. One must clearly distinguish between dissolving an association and distributing the association's remaining assets during that dissolution. By its own terms, Rule 2 does not expressly address dissolution or distribution. Rather, Rule 2 governs the use of moneys paid into the burial association. The use restriction clearly has implications for distributing the association's assets when it dissolves. But the only way Rule 2's provisions could affect dissolution is if it were impossible for an association to both dissolve and comply with Rule 2's provisions. It seems possible, especially in light of Act 1030 of 2015 (which is explained below), to do both.

Question 3 — Adding to the request for clarification of the Board's authority under current Rule 2, we would also like to know whether the Board has the authority to approve mergers of burial associations.

Please see my response to Question 2, above. Just as there is no Arkansas law that clearly authorizes the Board to regulate dissolution, so also there is no Arkansas law authorizing the Board to regulate mergers. Legislative clarification is warranted.

Question 4 — Does Act 1030 of 2015 change the analysis of Attorney General Opinion No. 2007-035?

Yes. Opinion No. 2007-035 addressed, among other things, the question whether a dissolving burial association could pay its members more than the face value of their policies. That opinion expressed doubt about such a practice. In Act 1030 of 2015, the General Assembly specifically amended Ark. Code Ann. § 23-78-108 to authorize this practice under certain conditions:

[The Burial Association Board … shall have full and complete authority to: a]pprove requests from burial associations that have excess financial resources, as determined by the board, to adopt a plan to pay death benefits in excess of the face value of a certificate of benefits issued by the burial association to members of the burial association.

The Act then goes further to provide (a) specific procedures to govern the burial association's request for approval and (b) criteria for the Board's review.

Assistant Attorney General Ryan W. Owsley prepared this opinion, which I hereby approve.

Sincerely,

LESLIE RUTLEDGE
Attorney General
LR/RWO:cyh