Charitable fundraisers who understand the legal issues affecting potential donors are often better able to suggest gifts that work well for both the donor and the charity. Since corporations operate under different rules than individuals, it is important to understand the differences.
Bylaws of a nonprofit Corporation should not simply be taken “off the shelf” and adopted by the organization. The Articles of Incorporation and the Bylaws essentially form the “Constitution” of the organization and establish the rules for governance. Like all Constitutions, they should be considered carefully.
In most states, the state nonprofit corporation law provides minimum standards and default procedures if the Articles and Bylaws are silent on many issues. But the Bylaws can be used to spell out specific provisions and are particularly important in establishing the rules about who controls the organization.
Unlike a business corporation, in which,...
Articles of Incorporation, sometimes called a Certificate of Incorporation or Articles of Organization, are the fundamental governing document of a nonprofit corporation. They are filed with the appropriate state office to create the corporation.
The Articles normally include only the most basic provisions to meet the requirements of state law and the requirements established by the Internal Revenue Service to qualify for tax-exempt status, particularly the charitable exemption under Section 501(c)(3). The bylaws of the corporation usually contain significantly more provisions for ordinary governance of the corporation.
The Articles of Incorporation have primacy in the hierarchy of governing documents. Provisions...
As the IRS begins to inquire gingerly about nonprofit salaries in excess of $1 million a year, it is informative to look at the complaint New York Attorney General Eliot Spitzer has filed to challenge the $187.5 million pay package awarded to former New York Stock Exchange Chairman and CEO Richard Grasso. (People v. Grasso, Supreme Court of New York in New York County, filed 5/24/04.)
The “forensic audit” of the operation of the Board of Trustees of the Barnes Foundation during the mid 1990’s, which was recently made public in the current Foundation litigation, contains a host of vivid examples of how not to run a nonprofit Board.
It shows contracts between the president and persons with whom he had close business relationships which were not reviewed or approved by the Board, failure to develop a serious fund raising plan while suffering consistent annual deficits, failure to change investment policies when authorized by the court, and a number of odd real estate and other transactions...
None of these situations is insurmountable so long as both the lawyer and the other members of the board understand the issues. The key is acknowledging the issues before they arise, so that nobody will be surprised and neither the lawyer nor the organization will be put at risk.
A lawyer serving on the board of a nonprofit should have a serious discussion with the other members of the board about their mutual expectations for service. The lawyer may face ethical issues which could come as a surprise to everyone if not faced in advance. The lawyer and the organization...
The use of LLCs by charities is developing rapidly in special situations and is another tool for consideration in your planning for expansion. Since they are relatively new in most states, there is still a lot of law to be written on how they actually function is some situations, but they provide a flexibility that may not exist with other structures.
Even where nonprofits have restructured to create separate entities to protect their assets from zeppelin-sized liabilities, they must assure that the separation is respected. They must conduct their activities so that courts and creditors will not be able to "pierce the corporate veil" and impose liability on a parent or affiliated entity within a system.
Minutes of nonprofit Board meetings can vary widely in format, and in the level of detail they capture. In some regards, this is fine; there is no one correct style. Each Board should adopt a style of record-keeping that suits its own particular needs.
However, minutes serve several vital managerial and legal functions. It’s important to understand those functions, in order to understand the types of material that should be recorded.
Minutes are a Board’s collective journal. They provide all members of the Board, including brand new ones, with a common baseline of information about what the Board has...
By Eric Vieland
Montgomery, McCracken, Walker & Rhoads, LLP
A healthy board of directors serves an important function that an individual manager, no matter how skilled, could not. It provides a reservoir of diverse knowledge and experience, deeper and broader than that which an organization can muster on a daily basis.
Many boards will tend to drift with little diversity, since it is usually easier and more comfortable for a board to identify new members who are much like the existing members. But diversification is an important process, and a rewarding one for organizations that pursue it diligently....
