The past week was marked by President Obama‘s farewell address, President-Elect Trump‘s denial and denouncement of an unsubstantiated report that said Russia had compromising information about him, Trump’s concession that Russia was probably behind the hacking related to the Presidential election, and Trump’s insistence that he will not divest his business holdings. Have a listen to So Long, Farewell (from The Sound of Music) while perusing our curated nonprofit tweets of the week:
This program will discuss the process of forming a California nonprofit entity, going through the legal considerations involved in each step in detail. We will start with a discussion of some of the appropriate things to consider before beginning the formation process and then turn to the mechanics of formation, including drafting Articles of Incorporation, Bylaws, and a Conflict of Interest Policy. We will also cover other legal considerations that apply to California nonprofits, including registration requirements at the state level.
Most nonprofits are required to separately seek recognition of tax-exemption at the state and federal levels, so we will take a close look at the requirements for exemption and the application process, focusing primarily on 501(c)(3) organizations. Finally, we’ll briefly touch on some alternatives to forming a California nonprofit that may be attractive in certain circumstances.
Throughout the session, Erin Bradrick, Senior Counsel at NEO Law Group, will illustrate concepts through examples and will provide information on how to access additional resources.
Many people are surprised to learn that over 70% of the revenues from reporting public charities comes from the sale of goods and services. And charities are increasingly engaging in earned income (and social enterprise) ventures as they face the simultaneous challenges of uncertainty in public fundraising and the tax benefits associated with charitable giving, undependable philanthropic funding, and increased competition for limited resources. But earned income is an area wrought with misconceptions and misunderstandings.
The rules governing unrelated business taxable income (UBTI) are complex. As a result, many non-profits simply fail to properly report and pay taxes on their UBTI or preclude themselves from starting an earned income venture. As the differences in the activities of non-profit and for-profit organizations continue to blur with the increasing commercialization of charities and the growth of socially-purposed taxable entities (like the benefit corporation), the associated tax issues will only get more complicated. Subsidiaries, joint ventures, and commercial co-ventures may be useful options for some non-profits if entered into with sufficient knowledge and consideration.
This audio-only course, taught by Gene Takagi, the managing attorney of NEO Law Group, a firm specializing in non-profit law, reviews the legal issues that should be considered when reviewing a non-profit’s earned income venture and offers practical guidance on best practices for both in-house and outside counsel.
On January 6, 2016, I joined over 1,000 lawyers and legal professionals attending the How to Be a Good Ally conference in San Francisco. While work called me away in the mid-afternoon, I left tremendously impressed and inspired by those who organized the conference in reaction to the election results, by those who spoke to us, and by our local legal community. And I continued to follow the conference on Twitter.
Join 1,000+ lawyers and legal professionals for this cutting edge conference addressing urgent matters of importance, including rising hate crimes and anti-Semitism; governmental targeting of the Muslim community; deportations and dreamers; the targeting of transgender people and religious exemptions to LGBT civil rights protections; reproductive freedom and saving Roe v. Wade; changes to the Affordable Care Act and health access and impacts on people with disabilities and at-risk populations; criminalization of communities of color; combatting domestic and sexual violence; environmental protections under siege; voting rights and access; economic justice and workers’ rights; and challenges to civil liberties and the civil justice system.
You can follow the Storify here. Also check out the materials provided on Lieff Cabraser’s site relevant to each of the panels described below.
Highlighted Tweets & Resources
(from SFBayAllies, ADL San Francisco, Equal Rights Advocates, Equal Justice Society, Sara Zimmeran, Sally Xiyi Chen, Legal Aid at Work, Alison Elgart, Jeremy Chan, Bryan Parker)
Panel 1: Hate Crimes, Anti-Semitism and Rise of the White Nationalist Right
#HateGroups are emboldened when they feel they have allies in positions of power in gov’t. -@orensegal
Great takeaway from our first panel: protecting one group against hate crimes, is protecting all of us.
Action point: encourage advocates, allies & social media platforms to prevent #onlinehate and encourage positivity & truth
501(c)(3) nonprofits can speak out if elected officials are advocating hate messages or violating civil rights
Reason for optimism: nonprofits are setting aside differences to collaborate on bigger civil rights issues
“Power without love is reckless and abusive, and love without power is sentimental and anemic. Power at its best is love implementing the demands of justice, and justice at its best is power correcting everything that stands against love.” – MLK Jr.
Panel 5: Protecting People with Disabilities and Medically at Risk
The new year seems to be more Rogue One than A New Hope with House Republicans temporarily reversing their unconscionable decision on January 2 to gut the independent Office of Congressional Ethics formed to investigate corruption and malfeasance by lawmakers and the Democrats working to ensure certain provisions of the Affordable Care Act remain with any replacement plan developed by the Republicans. Have a listen to the Trailer Music Rogue One while perusing our curated nonprofit tweets of the week:
CalNonprofits: Towards a strategic nonprofit stance under the Trump Administration-do we approach our work differently & if so how? http://bit.ly/NonprofitsandTrump
Ford Foundation: Langston Hughes‘s Let America Be America Again inspired @darrenwalker2017 letter on our current moment
Council of Nonprofits: The six major federal issues that will affect all #nonprofits and #foundations in the next year Chronicle of Philanthropy
Who’s in charge? This is a commonly asked question when structuring the governance and management of a nonprofit corporation. Is it the president or chair of the board? Do nonprofits need to maintain both of these positions? And how does an executive director fit into this equation?
Directors vs. Officers
It’s important to first distinguish between directors (board members) and officers. Generally, directors have no inherent individual authority or power. Their authority and power is exercised collectively as a board. Officers, on the other hand, are delegated with certain authority and power, which may be spelled out in a position or job description.
State laws generally require that a corporation have certain officers. In California, the Nonprofit Public Benefit Corporation Law (the “NPBC Law”) requires such corporations to have the following officers:
A president or a chair of the board;
A secretary; and
A treasurer or a chief financial officer.
The NPBC Law does not explicitly require that any officer be a director, though it may be understood that only a director can serve as chair of the board. Regardless, it is relatively common for all-volunteer organizations to elect officers from among the directors. It is also common for large organizations with employees to hire certain officers (like a CEO and CFO) who are not directors.
Who is the CEO?
The NPBC Law provides that the president, or if there is no president, the chair of the board, is the general manager and chief executive officer of the corporation, unless otherwise provided in the articles or bylaws. Accordingly, if a nonprofit corporation’s articles and bylaws are silent on the issue and assuming the corporation has a president, the president will be the CEO. Similarly, if the corporation’s governing documents are silent on the issue and the corporation doesn’t have a president, the chair of the board will be the CEO. See also Who is the Chief Executive Officer – the Executive Director or the Board Chair?
Duties of the CEO
While the duties of any officer are generally those spelled out in a position description, often contained in the bylaws, the CEO is generally thought to have certain inherent responsibilities and authority associated with an executive in charge of the management of a corporation, subject only to the authority of the board (but not of any individual director) or executive committee.
Should a Nonprofit Have Both a President and Chair of the Board?
As might be expected, there is no one answer that will fit all organizations. However, the following represents my general opinions on how a board might reach an answer specific to its specific circumstances:
For all volunteer organizations, there is probably no need to have both a president and a chair of the board unless there is an intent to select each position independently. If the long-term plan is to have one volunteer lead the organization and the board, it seems unnecessary to provide both titles to the individual. In such case, president may be the preferable position title as it suggests a role beyond presiding over board meetings. Nevertheless, the bylaws might provide for the option of electing a chair of the board should it later become desirable to have a different individual in such role.
For organizations with paid employees, there may be advantages to having a compensated CEO and a separate volunteer chair of the board. In such case, the CEO is often provided the title of president. Because the CEO serves at the pleasure of the board, and typically has their performance reviewed and compensation determined by the board, separating the CEO and chair of the board functions by assigning them to different individuals can help avoid the major conflicts of interest that would otherwise be possessed by someone with both responsibilities. In some cases, however, having one individual serve as both CEO and chair of the board may be desirable despite the conflict of interest. For example, this may be true where a founder being compensated to act as the CEO is also the champion and clear leader of the board, which lacks another director able to fulfill the responsibilities of a chair of the board. Lack of developing additional leadership can, however, lead to the twin problems of founder’s syndrome and a rubber-stamp board. From a legal perspective, this may reflect the other directors’ breach of fiduciary duties due to the lack of exercising independent judgment and reasonable care.
Duties of the President
If the president is the CEO, the position description will be reflective of such authority and its accompanying duties and responsibilities. If the president is not the CEO, the nonprofit should make sure that there is a clear delineation between the positions and relative authority and responsibilities of president and CEO. For purposes of the following sample description of duties (probably more suited to a small to medium-sized nonprofit), I’ll assume that the president is the CEO and does not preside over meetings of the board.
The President is the general manager and chief executive officer of this corporation and has, subject to the control of the Board, general supervision, direction and control of the business, activities and officers (other than the chair of the board) of this corporation. The President has the general powers and duties of management usually vested in the office of president and general manager of a corporation and such other powers and duties as may be prescribed by the Board. Among other things, the President shall be responsible for:
Ensuring the organization’s activities are compliant and in furtherance of its mission
Leading, managing, and developing the organization’s employees, volunteers, and organizational culture
Developing, implementing, monitoring, and assessing the organization’s programs (including their impact)
Developing, implementing, monitoring, and assessing sound and compliant financial management practices (including budgeting)
Developing, implementing, monitoring, and assessing sound and compliant fundraising practices
Developing, informing, and supporting the board and the board committees to carry out their governance functions
Partnering with the Chair of the Board to help ensure the Board’s directives, policies, and resolutions are carried out
Working with the development staff and Chair of the Board in cultivating and soliciting major foundation grants and individual gifts
Developing and maintaining beneficial relationships with donors, funders, supporters, collaborators, allies, vendors, and other stakeholders
Ensuring effective external communications about the organization and its mission, priorities, importance, programs, and activities
Championing the organization and advocating its mission to internal and external stakeholders
Keeping informed and the organization’s leadership informed of significant developments and changes in the internal and external environment
Leading the organization’s planning processes
Ensuring legal compliance (including all required filings) and sound risk management practices
Duties of the Chair of the Board
The Chair of the Board (if there be such an officer) shall, if present, preside at all meetings of the Board and the Executive Committee, act as a liaison between the Board and the President to help ensure the Board’s directives and resolutions are carried out, and exercise and perform such other powers and duties as may be from time to time prescribed by the Board. More specifically, the Chair of the Board shall be responsible for:
Leading the Board and Executive Committee to carry out its governance functions
Ensuring the Board has approved policies to help ensure sound and compliant governance and management of the organization
Partnering with the President/CEO to lead the development and refinement of impact metrics
Assessing the performance of the Board and its committees
Assuring ongoing recruitment, development, and contributions of Board members
Partnering with the President/CEO to help ensure the Board’s directives, policies, and resolutions are carried out
Working with the President/CEO in cultivating and soliciting major foundation grants and individual gifts
Coordinating an annual performance review of the President/CEO
Setting priorities and creating agendas for meetings of the Board and Executive Committee
Presiding over meetings of the Board and Executive Committee
Serving as an ambassador of the organization and advocating its mission to internal and external stakeholders
If the chair of the board is the CEO, the position description will be reflective of such authority and its accompanying duties and responsibilities (see Sample Description of President’s duties above). In such case, if the nonprofit also has an executive director, it should make sure that there is a clear delineation between the two positions and their relative authority and responsibilities.
2016 has featured a number of major events that have affected, and will continue to affect, the nonprofit sector. Some might describe 2016 as a difficult year, featuring a long, turbulent election in the United States and unexpected results that have left many groups, including nonprofits themselves and the communities they serve, anxious and uncertain about their futures. Nonprofits such as the ACLU, the Sierra Club, Planned Parenthood, among others, saw record surges in donations following the election. On a judicial front, an empty seat on the Supreme Court resulted in the Court unable to decide on critical and controversial issues like immigration, and even though the Court upheld an affirmative action program at the University of Texas, the future of affirmative action and other major policy issues will likely depend on the next Supreme Court appointment. Abroad, Britons voted to leave the European Union, triggering financial and political uncertainty there as well. Here is a list of our 10 significant news events of 2016 affecting the nonprofit sector in the United States and a few links regarding each:
“The Financial Accounting Standards Board (FASB) has just released the Accounting Standards Update (ASU), Not-for-Profit Entities (Topic 958) – Presentation of Financial Statements of Not-for-Profit Entities, which you can find here. If you’ve been following our blog, you’ll know this marks the biggest change to nonprofit financial reporting in more than two decades.”
The past week was marked by our firm’s holiday celebration, which included watching La La Land, and my trip to La La Land (where each of us has lived for significant parts of our lives). Have a listen to Mia & Sebastian’s Theme (Late For The Date) while perusing our curated nonprofit tweets of the week:
Philip Hackney: White Nationalists Groups are Charitable? Apparently so According to IRS (Cooking the Books Po… Surly Subgroup
Independent Sector: What are 2017 human resource trends to watch for? Check out what @SHRM shared w/ @COF_. http://ow.ly/KQFm3073iHy #2017trends
Ben Painter: Will Trump’s tax plan hurt philanthropy? Fast Co.Exist
Nonprofit Quarterly: TRENDING: NCRP Study Faults Foundations for Underfunding Social Justice Philanthropy http://hubs.ly/H05BXZC0
Michael Foerster: This is an excellent read. Understanding Crowdfunding after a Tragedy | Nonprofit Quarterly [Ed. Mr. Foerster is a Senior Deputy Attorney General in Pennsylvania and President-Elect of the National Association of State Charity Officials.]
Fast Co.Exist: .@GoFundMe’s biggest cause yet is becoming the most powerful force in philanthropy http://buff.ly/2h4SLUa
Omidyar Network: We dispel 4 myths about the relationship between financial returns & social impact Medium … #impinv #ReturnsContinuum
Andy Ho: A New Fund Seeks Both Financial and Social Returns, via NY Times