Not-For-Profit GAAP: Defining Equity Transfer and Equity Transaction

An equity transfer is a nonreciprocal transfer between related not-for-profit (NFP) organizations, where one of the not-for-profits owns the other or the entities are under common control. They do not require repayment and are effectively a gift.

For example, NFP “A” is the parent organization to NFP “B.” NFP “A” transfers resources to NFP “B,” with no expectation or requirement of repayment, and unrelated to any goods transferred or services performed. This would be a considered an equity transfer, not a contribution and would be presented separately as changes in net assets on the statement of activities. The same is true if NFP “B” (the subsidiary) were to transfer resources to NFP “A” (the parent) under similar circumstances. Equity transfers are recorded at book value. It would not be appropriate to record an equity transfer at fair value (increase the basis) similar to a noncash contribution.

Equity transactions, not to be confused with equity transfers, are typically the result of an agency transaction where an organization receives an asset intended for another specified beneficiary. To be considered an equity transaction the following criteria must be met:

1. The resource provider specifies itself or its affiliate as the beneficiary.
2. The resource provider and the recipient entity are financially interrelated entities.
3. Neither the resource provider nor its affiliate expects payment of the transferred assets.

The reporting depends on the specifics of the transactions, but typically results in the beneficiary recording its interest in the assets transferred.

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