The IRS has released preliminary results from their study of tax-exempt organizations’ governance practices. As expected, the preliminary findings suggest that organizations with good governance policies are more likely to comply with tax laws. On April 19, Lois Lerner, the Director of the IRS’ Tax-Exempt and Government Entities Division, spoke on this issue at a [...]
Daily Dose of Nonprofit Law
Category Archives: Governance
Mechanics of a Nonprofit Merger
Merger proposals are being prompted by reduction of funding sources, the tight economy, the need for succession planning and a desire to consolidate expenses and increase capacity. Also, many funders prefer to deal with fewer providers of the same programs or services and encourage mergers and other forms of collaboration to reduce overhead and increase capacity. There are special challenges for nonprofits considering a merger. Factors, such as increased capacity and cost savings, drive the deal. Because these benefits can be more difficult to quantify, a proposed merger can feel threatening to a nonprofit board who feels they may lose power and influence.
Yes Virginia, Nonprofit Directors Really Can be Held Liable for An Insolvent Nonprofit’s Debts
When serving as a director or an officer of a nonprofit organization, a director’s duties shall be discharged: (i) in good faith; (ii) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and (iii) in a manner the director reasonably believes to be in the best interests of the corporation. These duties are owed not only to the corporation, but also to its creditors. In discharging duties, a director is entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, if prepared or presented by one or more officers or employees of the corporation whom the director reasonably believes are reliable and competent in the matters presented as well as certain experts and committees. However, a director is not acting in good faith if the director has knowledge concerning the matter in question that makes otherwise permissible reliance on others unwarranted.
Control and Influence – Balancing Nonprofit Governance Rights Among Stakeholders
We have blogged about the phenomenon of nonprofit hostile takeovers and the fact that no one owns a nonprofit. However, there is always control. Although nonprofits generally lack shares that can be owned and transferred, there are many ways to ensure a level of control or influence over a nonprofit entity. Those seeking to control a nonprofit or balance governance rights among different stakeholders need to understand the available options.
Nonprofit Law Jargon Buster: What is an Endowment?
Black’s Law Dictionary, 9th ed., defines an endowment as: A gift of money or property to an institution (such as a university) for a specific purpose, esp. one in which the principal is kept intact and only the interest income from that principal is used. This is the popular definition familiar to most nonprofit executives. [...]
Advantages and Disadvantages of Term Limits
When forming a new nonprofit corporation, one important consideration for incorporators is whether or not term limits should be imposed on members. Additionally, incorporators need to consider whether or not terms should be successive or staggered. There are many pros and cons for both sides of these arguments. However, in our experience, there are more advantages to term limits in the vast majority of cases. Also, we tend to favor staggered terms.
Nonprofit Law Jargon Buster: What is Proxy Voting?
Proxy voting is legal mechanism for a member of a voting body to delegate his or her voting right to another member of the voting body. In the context of nonprofit corporations, voting bodies include the board of directors as well as voting members. Some nonprofit corporations rely on proxy voting because it allows directors or members who have confidence in the judgment of other directors or members to vote for them and allows the voting body to convene a quorum of votes when it is difficult for all members of the voting body to attend. In proxy speak, the individual delegating his or her voting authority is referred to as the “principal” and the individual exercising the delegated voting authority is referred to as the “proxy” for the principal.
Non-profit Directors and Trustees – Should Board Service Pay?
Trustee compensation is a sensitive topic in the philanthropic world. Many people believe that board members should serve out of a sense of giving back to their community. However, the philanthropic world is diverse and there are many positions that require extraordinary talent and an extraordinary time commitment to lead them. Nonprofit organizations are also increasingly complex and subject to complex rules and that make significant demands on that talent. Increasingly, board members face the potential for liability if they fail to fully adhere to these complex and fast changing rules.
Nonprofit Coup d’Etat
We are used to hearing about hostile takeovers of for-profit companies but a lesser known phenomenon is the hostile takeover of a nonprofit organization. Nonprofit takeovers can occur anytime factions develop within a nonprofit. Sometimes incumbent board members are removed in favor of new board members with a different policy agenda. In other cases, a [...]
Nonprofit Law Jargon Buster – What is an Ex Officio Director?
Many boards include directors who are serving “ex officio.” There is widespread misunderstanding regarding the meaning of the term. Ex officio members of a board are serving on the board “by reason of their office,” rather than by being elected or appointed to the position.
Ultra Vires Acts: Why Nonprofits Must Follow Their Articles & Bylaws
Officers and directors of nonprofit corporations who ignore the articles of incorporation and bylaws are setting themselves up to to be on the losing side of a lawsuit.
Six Smart Moves Great Board Chairs Make
3. Think Big. Boards without great leadership can get bogged down in the minutia. The minutia include the compliance and oversight responsibilities of the board. While it’s important to do these things well, it’s not the organization’s raison d’être. Great board chairs help steer the board clear of this phenomenon by keeping the board focused on their vision of the impact the board wants to make on the community the organization serves. Great board chairs understand that focusing on the organization’s breakthrough goals rather than busywork keeps the board energized and engaged.
Nonprofit Bylaws: What to Include and What to Leave Out
Too often, nonprofits include provisions in their bylaws that are old-fashioned, unnecessary, redundant, or that complicate rather than streamline governance.
Executive Committees: The Good, The Bad and The Ugly
An executive committee can be an effective governance tool, but not every board needs one. Executive committees should never ever replace the full board.
Lobbying – Yes You Can!
A common misconception among nonprofits is that they can’t lobby. In reality, this restriction applies only to private foundations, not public charities. Public charities are explicitly permitted to lobby so long as they adhere to limits.
