general legal issues for nonprofits legal services of eastern missouri community economic...
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General LegalIssues For Nonprofits
Legal Services of Eastern MissouriCommunity Economic Development Program
Basic Nonprofit Requirements
I-990 with IRSAnnual report with Secretary of StatePermits or licensesMaintain corporate records
And make them available to publicAdhere to own policies and procedures
IRS Requirements
File I-990 annuallyBased on close of your tax year
Generally 4 and ½ months after year endForm depends on organization’s revenueMust notify IRS of any major changesConsequences of failing to file – lose tax
exempt status if fail file 3 consecutive years
IRS requirements cont.
Must not operate for benefit of private interests Executive compensationLoans to disqualified personsOrganization’s constituents
No private inurement -- must not distribute earnings for personal gain
IRS requirements cont.
Must limit lobbying
Must not engage in political activity
Must pay taxes on income earned from activities unrelated to your exempt purpose (UBIT)
State Requirements
Must file annual report every other yearBy August 31st of that year
Must apply with Dept of Revenue to obtain sales tax exemption
Any business licenses or permits needed to operate?
Governance
Board dutiesDuty of careDuty of loyalty
Conflict of interest
Importance of functional bylaws
Ensure an effective board
Duty of careHold regular meetingsDistribute meeting agenda and minutes,
committee reportsRegular communication/updatesFollow set procedures at meetingsHold annual electionsFollow bylaws!!
Ensure an effective board …
Duty of loyaltyEstablish and follow conflict of interest
policyWritten expectations to all board membersFollow and periodically review policies and
procedures
Conflict of Interest
Insider has a material interest in a transaction involving the organization
Presence of potential conflict does not prohibit the transactionDisclosure and evaluationProcess and documentation critical
Conflict of Interest (cont.)
Transactions involving a conflict must beFair to the corporationApproved by a majority vote of the
uninterested board of directors If involves director, cannot participate in
discussions or voteConsider perception of conflict
Bylaws – how they help
Prevent disputesHelp ensure efficient operationsMaintain institutional knowledgeAnticipate growth
Bylaws – important reminders
Adhere to bylaws to avoid decisions being challenged
Periodically review to ensure continued relevance
• Written consent in lieu of meeting• Must indemnify directors
Contracts
May be oral or writtenAdvisable to put agreements in writingNeed not be a formal agreementSome types of agreements must be
written to be enforceable
Contracts (con’t)
Why Make a Contract?Written Agreement: Less room for
misunderstandingClearly articulate each side’s
understandingLegally enforceable: Protect yourself
from unfair business practicesProvides mechanism for settling disputes
Contracts (con’t)
Contracts should describe the nature of the transactions
Who is getting what? Doing what? Payment and costs Delivery terms and conditions Start/End Dates What constitutes a breach of the agreement Warranties, if applicable Ownership of intellectual property, if applicable Mechanism for resolving disputes
Contract -- Signature
Sign with nonprofit name, not your name
ABC Nonprofit Corp.
By: _________________Name: [Tom Jones]
Title: [Executive Director]
Contract Disputes
One party fails to do what was promised under the contract
Remedies if other party breachesEncourage other party to cure their breachStop performanceMediation or arbitrationSmall claims court or lawsuit
Trademark
Trademarks are the distinctive marks that distinguish the product or services of a particular non profit from those of another
Must not be genericExamples:
Trademark (cont)Avoiding Infringement on Other’s Marks
Do not duplicate existing trademarks Legal standard for infringement is “likelihood of
confusion”
In deciding on a name, search the US Patent Office web site (www.uspto.gov) and the internet to determine if there are existing trademarks in that name
Letters from other organizations claiming trademark infringement must be taken seriously
Trade secret
Information that has independent economic value because it is not generally known by other people
Examples: client lists, recipes, business information
Non-disclosure agreement
Copyright
Original artistic expressions (e.g., curriculum, books, computer programs, databases)
Give nonprofit/individual exclusive right to control the use, distribution, adaptation, display and performance of the work
Distinguish: Generic homeownership readiness program (no
copyright)/ Homeownership program tailored for non profits’ constituents (copyright)
Copyright (con’t)
Copyright is created automatically upon creation of work
Formalities: Less involved than trademark protection Copyright notice, e.g., © 2009 Jane Smith Registering with U.S. Copyright Office may be
advisable Registration allows you to clearly document the date
of creation $35 filing fee Unlike a trademark, ongoing use need not be shown
Copyright (con’t)Practical Tips
Avoid infringing on others’ rights:Generate your own pictures, images and
marketing materials (Note: copyrighted materials may not have a © symbol)
Do not copy softwareIf contractor prepares materials, have
him/her assign to organization ownership of materials created
Copyright (cont)
For more information on copyright see:http://www.publiccounsel.org/tools/
publications/files/fairuse.pdf
Websites
• Have a written contract with web designer/host
If possible, obtain exclusive rights to web design
Understand liability for violating web host or designer licensing terms
Websites (con’t)
Do not use pictures or material found on other websites without consent
Make sure domain name connects to name of organization
Disclaimer on site content may be advisable but may also be subject to legal limitations
Can put links to other websites on your site
Work for hire
Who owns intellectual property crated for the organization?Organization if created by employee Individual if created by independent
contractor or volunteerCan change these default rules by
written agreement
Employment --Anti discrimination laws: Federal
Title VII of the Civil Rights Act of 1964Applies if have 15 or more employeesIllegal to discriminate against employees
or applicants on the basis of:national origin; race; religion; sex; color
Anti discrimination laws: Federal
Age Discrimination in Employment Act Protects employees and applicants at least 40
years of age
Americans with Disabilities Act Prohibits discrimination against individuals with
a disability and requires employers to make reasonable accommodations
Anti discrimination laws: Missouri
The Missouri Human Rights ActApplies to employers with 6 or more
employeesUnlike Federal law, individuals may be
personally liable
Anti discrimination laws cont.
All non profits, regardless of size, should comply Anticipate growthStill can be liable for discriminatory
practicesSome funders may expect to see policies in
place
Employee v. Indep. Contractor
Pivotal Question: Who has the right to control when, where and how work is completed?Employer has right to control how the work
is performed Independent contractors choose method of
completing work
Employee v. Indep. Contractor (con’t)
Major Factors to Determine:Who supplies equipment?Who determines when person works?Method of paymentDuration of employmentRight to discharge
See Missouri and IRS 20 factor test at:http://labor.mo.gov/DES/Employers/
reportable.asp#notreport
Employment Policies and Procedures
Have employees sign employee handbook Include policy on discrimination and
harassment Discipline
Determine most suitable form for situationDocument measures takenState corrective action and consequences
for failure to perform such actionHave employee sign
Regular performance evaluations
Employment - Terminations
“At will” relationship: can fire anyone for any reason as long as it is not an illegal reason
BUT…
Employment - Terminations
Before termination, consider:Prior notice for unacceptable behaviorReasonableness of policy and fair
applicationAdequate investigation Proof of policy violationProgressive discipline
3rd person present in termination meeting
Volunteers
Volunteers should sign basic volunteer liability waiver
Releases nonprofit if something happens to volunteer while working with organization
Could also include medical release and/or Photographic release Consider property ownership rights
Federal Volunteer Protection Act
Volunteer not liable for harm caused by his/her acts on behalf of an organization, providedHarm was caused by negligent behavior,
not reckless or willfulLaw protects volunteers from lawsuits by
third partiesOrganization still may bring a suit
against the volunteer
Commercial leases
Total economic costsOther essential terms that could impact
organizationDo not rely on landlord’s attorney
Contact information
Laurie Hauber, Staff AttorneyLegal Services of Eastern Missouri, Inc.Community Economic Development Program4232 Forest Park Ave.St. Louis, MO [email protected]