The legal needs of a nonprofit organization do not cease once it is incorporated as a not-for-profit corporation under state law or is granted federal tax exemption pursuant to section 501(c)(3) of the Internal Revenue Code. Rather, nonprofit corporations confront issues almost on a daily basis with which they could use legal assistance. Many of these issues concern questions of corporate governance.
The boards of directors of nonprofit community-based organizations are frequently comprised of community members who are dedicated to the mission of the organization but are unfamiliar with the laws and procedures governing the operation of the corporation. However, the directors are the ones who are charged as a matter of law with managing and overseeing the management of the corporation's affairs and assets. In carrying out this responsibility, board members and officers may be confused about how to interpret by-laws, take minutes or draft resolutions. The board of directors and the management of the nonprofit corporations may also need advice on defining the proper role and fiduciary obligations of the directors and officers, evaluating what activities the corporation is authorized to engage in and complying with the corporation¹s state and federal reporting obligations. While the answers to these questions may seem intuitive to an attorney, they are often confusing and complicated to lay board members.
Because nonprofit corporations administer charitable assets, both the state and federal governments heavily regulate their activities. Nonprofits must report annually to the New York State Attorney General and the Internal Revenue Service about their finances and operations and must make these reports available to the general public. Moreover, there are strict regulations governing the ability of nonprofits to fundraise, lobby and engage in other political activity. What may seem like a harmless activity, for example, allowing a city councilman to display election literature in the waiting room of a nonprofit health clinic, could jeopardize a nonprofit¹s tax-exempt status. In addition, when a nonprofit organization seeks to undergo a major change involving the disposition of its assets, such as a change in purposes or a transfer of substantial assets, the directors, officers and the corporation must comply with certain legal requirements.
Nonprofit corporations benefit tremendously from expert legal advice on these and other questions of corporate governance and financial accountability. A nonprofit corporation can suffer very severe consequences, including the loss of its 501(c)(3) status as an exempt organization and sanctions for its board members and management, if it fails to act properly or fails to satisfy its reporting requirements.
Lawyers Alliance provides ongoing support to the attorneys who advise organizations on issues of corporate governance. Each case which is placed with a pro bono attorney is also assigned to one of our in-house legal staff experienced in nonprofit issues who serve as co-counsel and are always available to answer questions and to assist in any way possible. Additionally, as a service to the legal community, we have included here a number of model documents and library materials which can be used to assist organizations. We are confident that if you choose to assist a nonprofit corporation address a governance issue, it will not only add to your base of legal knowledge but it will also enable you to give something back to the community.
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