When considering whether to include voting members in a nonprofit corporation, it is important to understand that voting members of a nonprofit corporation are generally analogous to shareholders of a business corporation. Voting members have statutory rights under state law; therefore, it is important to clarify the right of members to avoid inadvertently creating a voting membership class and vesting ultimate control in the members when that is not your intention. Once a membership has been established, it may be difficult to eliminate, and it may be impossible without the consent of the members.
Could one man really do that much damage to an Arizona institution as high profile and important as the Fiesta Bowl? More likely, the nonprofit scandal of the year was a group effort fueled by a dysfunctional board. The Fiesta Bowl board bears all the hallmarks of a board more interested in administering than governing the organization. Still, there are lessons to be learned from the Fiesta Bowl’s governance and oversight failures.
Because minutes hold such legal importance, it is necessary to make certain that every organization has a policy of recording minutes in such a way that ensures that the minutes accurately reflect the wishes and actions of the board of directors; however, all language which might be used to the company’s disadvantage in the future should be eliminated. Minutes should be worded in a way that is clear and concise and accurately conveys the meaning of the action taken.
Tax-exempt Organizations engaging in social enterprise or other active business pursuits often worry that a growing stream of unrelated business income could threaten their tax-exempt status. This concern is related to the prohibition against tax-exempt organizations engaging in more than an “insubstantial” amount of activity unrelated to their tax-exempt purpose. Unfortunately the term “insubstantial” is undefined. Based on court cases, it appears that gross unrelated business income receipts of 5 percent or less is always safe while over 20% is probably too much.
When unrelated business endeavors take off, the success of the business can threaten a 501(c)(3) organization’s tax-exempt status. To protect their tax-exempt status, many tax-exempt organizations with successful unrelated business ventures move their unrelated business activities into a taxable for-profit subsidiary.
In light of the heightened interest of the I.R.S., Congress, state regulators, and the media in executive compensation, as well as heightened penalties, exempt organizations should strongly consider increasing the amount of time and attention they devote to investigating, deliberating, documenting, and reporting executive compensation. To facilitate the careful review that is demanded, tax-exempt organizations that employ an executive staff should consider implementing the following practices and procedures:
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.
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.
Generally, a commercial co-venturer is a person regularly and primarily engaged in commerce (other than in connection with raising funds for charities) who conducts a “charitable sales promotion.” Co-venturers are typically for-profit companies who engage in charitable sales promotions. Approximately twenty-one jurisdictions regulate commercial co venturerers.
We are thrilled to be out of the office tower and back downtown in a historic building and a walkable neighborhood known as the Roosevelt Historic District.
Successful nonprofits looking for ways to make their programs more widely available often look to grow by creating chapters and affiliates in other geographic areas. Nonprofit organizations that are organized geographically into chapters that are share a name, trademarks and mission are frequently referred to as “federated organizations.”
The IRS has announced new inflation-adjusted rates for 2011. The following highlights the adjusted rates which are of particular interest to nonprofits.
In 2009, the IRS published proposed guidance for to help employers determine how to treat employees’ personal use of cell phones (IRS Notice 2009-46). Shulman’s statements are evidence that the IRS halted development of final rules in anticipation that H.R. 390/S. 144, the Modernize Our Bookkeeping in the Law for Employees (MOBILE) Cell Phone Act of 2009 will pass. While the bills have broad support in both the House and Senate, it is unlikely that they will pass as stand-alone bills.
Critically, a Certified B Corporation (hereinafter referred to as B Corps or a B Corporation) is a label given by B Lab to businesses that pass a socially responsible certification process. B Corps is not a legal form and has no legal significance. A benefit corporation, on the other hand, is a new legal form, that became law in Maryland on October 1, 2010. Legislation similar to that in Maryland will become law in Vermont in July and was recently passed by the New Jersey legislature.
The IRS today issued guidance (Revenue Procedure 2011-15) that will allow more tax-exempt organizations to file the simplified e-Postcard rather than the Form 990-EZ or the standard Form 990.
For tax years beginning on or after January 1, 2010, most tax-exempt organizations whose gross annual receipts are normally $50,000 or less will be eligible to file the e-Postcard. Previously, the threshold was set at $25,000 or less. Supporting organizations of any size are still not eligible to file the Form 990-N. So, for the 2010 tax year, the new filing requirements are as follows:
Dissolution is something no nonprofit board member or CEO wants to face, however, it does not have to mean failure of the nonprofit’s mission. With the right strategic partner and a will to collaborate, there is nearly always a way to save the programs that provide the greatest benefit to the community.
The Pension Protection Act of 2006 (“Act”) offered the first definition of a donor-advised fund. According to the Act, a fund must have the following three characteristics to be a donor-advised fund, and if any of these characteristics is missing, the fund is not a donor-advised fund.
Public disclosure requirements applicable to tax-exempt organizations.
Since Charity Lawyer’s last blog post on the Low-Profit Limited Liability Company, there has continued to be significant legislative activity across the country in support of the L3C though no corresponding uptick in foundation support. Louisiana, Maine, and North Carolina have signed L3C legislation into law. These three states join the following jurisdictions in recognizing the L3C: Illinois, Michigan, Utah, Vermont, Wyoming, the Oglala Sioux Tribe, and the Crow Indian Nation of Montana. In the following states, legislators have formally introduced L3C legislation: Arkansas, Colorado, Kentucky, Maryland, Massachusetts, Missouri, Montana, New York, North Dakota, Tennessee, and Virginia.
The IRS’ continuing delays in launching the CyberAssistant program have left many would be nonprofit founders struggling with the question of whether CyberAssistant and its promise of significantly lower filing fees is worth the wait. Due to the ongoing delays and lack of information regarding an expected launch date, we think not.
Finding support and funding in the nonprofit world is often more challenging than finding funding for a for-profit venture. In addition, contrary to the belief of many nonprofit founders, foundation grant dollars do not grow on trees and are, in fact, the most competitive and scarce source of funding available.