Shared Flashcard Set


NP Legal Issues- Class #1
Final Notes

Additional Law Flashcards




Questions to ask if you are interested in starting a nonprofit
Is a nonprofit entity needed?
What will it do?
Is there a need for this service in your community?
What community of clients or segment of the population will you serve?
Are there other organizations doing the same thing?
Why will yours be different?
Questions to ask if you establish there is a need for your nonprofit
How are you going to do this?
How will you deliver these services?
How are you going to fund this?
What money is available?
How will you sustain this over the long haul?
Questions to ask to establish whether nonprofit is appropriate entity
Do the organizers (people whose vision it is) have the humility to be directed by a board?
Typically whoever’s brainchild it is becomes the ED
A board has the power to fire the ED, or perhaps take the organization in a different direction
Do the people have the intestinal fortitude to stick this out?

Will NP status be important to run it in the long haul?
Will the organization be dependent on grants, gov’t funding, private donations, etc?
Is it going to be important to offer tax deductible donations?
Will you rely upon unpaid staff?

Does everyone involved understand that it isn’t making money for the founders?
Does everyone understand that the assets will never be yours/theirs?
Because, unlike a private business, this is not your money
Does everyone involved in the process understand that they are prohibited from benefiting from the resources?
There will be no company credit card for dinner with friends
No bid contract will not go to the son-in-law

Will you hire or contract vendors for taxes and contracts?
There is a lot of interplay between for-profit and nonprofit in today’s marketplace
EX: corporations that form foundations, social enterprises

When might you want to look at social enterprise instead of nonprofit?
If you make or provide a service you may want to be affiliated as for profit at some point

Who is going to run the org on a day-to-day basis?
Who has the time?
Many times people have a day job and then they have to run the NP
Civil Litigation
Prosecuted by individuals
Object is to get money from one individual or org to another that has been civilly wronged
Includes things like prohibiting things to engage in conduct
Typically about money
Prosecuted by person (Civilians) to person
Criminal Prosecution
from DA, City Attorney

to punish someone has broken a law we believe is criminal in nature

object is to punish and deter further conduct again and other people from doing the same thing

Offense prosecuted by government

People found guilty are:
sent to jail

restitution (paying back money)

Have to pay back for criminal conduct

Theoretically, we all benefit...not just 1 person since it stops that conduct of that in the future for all
Contract Liability
Document stating private agreement: conditions of the job, specifics of the project, terms of payment, etc
Tort Liability
Society has decided what is acceptable or unacceptable conduct

Not always contract based
Reasons to Seek Corporate Status
Provides you the most legal protection for personal assets

Allows you as an ED at NP, to avoid where your personal assets are at risk

Unincorporated association would be this status

Most insurance says observe corporate structures

You may still be liable
Advocacy and NonProfits
501c3 can engage in lobbying to limited extent

Must be aligned to goals and mission statement

NP ONLY can give 10% to 20% of your org’s resources for these activities

Cannot campaign for particular candidate..OR you’ll lose 501c3
Advantages of Tax Exempt Status
exempt from federal, state, or local income tax; this opens up income

to further own philanthropic work in community

qualified to receive grants, gov’t funding and discounts/special rates (i.e. postage)

allows donors to deduct contributions from their own personal income

if donor gives to public charity they can write off 50% of their income

donations to private foundations are 30% max
Disadvantages of Tax Exempt Status
Time consuming to apply for 501c3 status (avg. 6 mos)

Periodic filings and reports to authorities

Unlike FP...your books and records for public inspection

Subject to audit by public authorities

Restrictions on activities and how you manage your company

Control of company and assets and income regulations
Public Charities 501c3
actually run programs: edu events, shelters, food bank etc.

Board of Directors must not be related by blood, marriage or business connection….less than 50%

receive contributions from large number of unrelated people

Receive at least 33% from small donors

Each of whom give less than 2% of your annual income
Charitable Trusts
Designated ‘thing’

It is a chunk of money or property

Proceeds go to a charity or a foundation

It is its own legal entity

The profits or interest from the trust is what is donated

EX: Gates Charitable Trust funds the Bill and Melinda Gates Foundation
Lead Trust
After the death of the founder, or 50 years of operation, the assets go back to the owner’s designee

Designee are usually the children of the founder
Remainder Trust
After death of the founder, the rest of the money goes to the charity

EX: When Bill Gates dies, the money in the trust goes to the foundation for charitable purposes
Nonprofit Religious Organizations
Formed primarily or exclusively for religious purposes

No assets given to individuals at any point in time if dissolves the assets must go to other religious affiliation

Must go to particular denomination
Articles of Incorporation MUST Include
Name of org; legal name

Statement of statutory authority of entity

Name and address for state to process (on file w/ state) you know how to be reached

This information is made public

IE: don’t give your personal address...get a freakin PO box

Statement of public purpose: what you will provide, not necessarily the mission, what’s the charitable purpose?

Statement of what is fiscal year: i.e. Jan 1 to Dec 31

Be loose enough so that you don’t have to expand mission and vision

Not a living document...should be stagnant outline any subsidiary relationships, if under a parent org then that should be in art of incorporation (fiscal sponsorship)

if are public charity or private foundation then say so, differentiate

what you’ll do w/ assets upon dissolution of corp (“provision of distribution”)

Typically goes to another organization but CAN’T COME BACK TO YOU SQUEEZEPLAY
provide a road map; rules and matters not covered by law; ready reference

MUST include:
If accident happens w/ exec director use bylaws to figure out next step actions

Provide action behind what is listed in bylaws

Provide a source of reference for attorneys

Required to include a statement of # of persons that can serve on BOD

Statement of bylaws typically a range of people

Statement of time place and method of calling board meetings

Statement of duties and powers of your BOD

Something to fall back on if rogue board member tries to do something that they’re not supposed to do

Use bylaws to figure out what they should have limits on/provisions

How you elect board members and what tenure is?

How they renew or are reelected?

What requirements are background or memberships or expertise?

Rules of admitting new BOD or getting rid of bad BOD

What is required for quorum?
NP Board of Directors
NP have board pre, sec, and chief financial officer/treasurer

Should be 3 different persons MINIMUM

In religious org this can just be 1 person

Size and rules are subject to discretion. Each BOD is different:

Boards will grow w/ new members


People who support events and mission

Have ODD number of BOD so has tiebreakers

Term limits should be listed

Focus also on board size
larger number is good for diversification and stops cliques;

Diversity matters

Large boards are hard to work w/ and get a large board to agree on items

Small board is easier
Business Judgement Rule
a member of a Board or committee will not face personal legal liability if they can show they acted in the best fulfillment of their business judgement.

You can show you took everything into consideration and made the decision you thought was best for the organization using your best judgement.
If a Board member gets sued as an individual, nonprofit can indemnify an individual (defend them) because they were acting on behalf of our organization when they did whatever they're being sued for.
Fiduciary Duty
you owe a higher duty to the org than you owe to yourself. You can't put your own interests first, you must operate in the best interest of the organization.
Conflict of Interest
doesn't mean you can't work w/ agency/org that board member may support or be on; Just means you have to follow protocol to approve these actions.
Workman’s Comp
In CA, you can get insurance for volunteers as they may serve same purposes as employees; you can get worker's compensation insurance for them. So you can do it under law if you want to, but orgs rarely do because it is very cost prohibitive.

Don’t treat volunteers like employees
Broad form D&O insurance gives you broader protection, covers more people.

Covers Directors and Officers
Claims Made Policy
that's what D&O is called because what triggers this policy is someone making a claim against you. Want to make sure you don't have any gaps in your coverage.
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