Category: Nonprofit Posted on Dec 09, 2016

10 Times Your Nonprofit Needs a Lawyer

When Does My Nonprofit Need a Lawyer?

  • You want to hire a member of the Board of Directors as an employee or buy goods or services from a director.

Executive compensation and conflicts of interest are “hot” issues with the IRS and state attorneys general. Many nonprofits underestimate the risks of doing it wrong and don’t know how to do it right.

  • You want to go into business with a for-profit company.

“Joint Ventures” with for-profits are another area of IRS scrutiny. Any business agreement with a for-profit must be at fair-market value, and the nonprofit must exercise sufficient control to ensure that its charitable mission remains the primary objective.

  • You are considering a merger, sale, spin-off, conversion to for-profit, liquidation or any transformation of organization’s structure.

An experienced lawyer can anticipate, negotiate and prevent problems that might appear late in the deal. Don’t wait until the end and then ask the lawyer to just “draw up the papers.”

  • You want to revise your by-laws.

Don’t grab a form off the internet or make changes to one section without checking the impact of those changes on the rest of the by-laws – you will end up with a messy soup, impossible to understand, or put into practice. By-laws should be clear and unambiguous – when there is a dispute on the Board the by-laws will be the road map to resolution; but if the by-laws are impenetrable, resolution is more difficult. A lawyer can help you draft clear by-laws that reflect current law and the organization’s practice. And, don’t forget that the certificate of incorporation must work seamlessly with the by-laws.

  • Your organization is about to enter into a major contract.

While you can probably handle a copier lease on your own, any material contract should be negotiated and reviewed by a lawyer. Whether a contract is “material” depends on the size and sophistication of the organization— a material contract can be any one that is significant for the organization, based on its subject matter, cost or time commitment, type of work to be done, or terms of payment or performance.

  • Your organization plans to engage in lobbying or political activity.

Nonprofit organizations are prohibited from engaging in any political campaigning activity; violating this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise taxes. Lobbying and certain issue-education activities are permitted, but must be structured carefully to avoid running afoul of IRS regulations.

  • Your organization is about to receive a major endowed gift or has questions about or wants to modify the terms of an endowment.

Investment, management, and expenditure of endowments are all governed by the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”). As its name suggests, the law raises more questions than in answers. Seek legal advice before taking action involving an endowment.

  • Your organization wants to scale up a nifty idea, program or technology that it has developed by licensing it to others.

Licensing intellectual property can be a good source of income for a nonprofit organization, but the license agreement should be drafted by an attorney familiar with the issues these agreements present.

  • You need help with employee issues.

Particular problem areas include new federal overtime rules, worker classification, fringe benefits, officer compensation, employee expense reimbursements, unhappy employees, unpaid interns, employment discrimination.

  • Any time a suit is threatened (or filed) against the organization or its Board of Directors.

This should go without saying, but you’d be surprised how many organizations try to go it alone. In some cases insurance (General Commercial, Directors and Officers, Employment Practices…) should cover defense costs.

If you need a nonprofit lawyer to help with these or any other legal issues, call us. We can help.

Bruce Stanger

My litigation experience includes family law, divorce, product liability, construction law, professional negligence, shareholder disputes, medical malpractice, legal malpractice, and general commercial litigation.