Legal Checkup for Nonprofits ACC Charlotte Chapter August 29, 2017 Presented by: Dianne Chipps Bailey @Dianne_C_Bailey

A Few Introductory Thoughts Limited scope of presentation and legal review Necessarily general Ask questions Share “war stories” Many thanks!!

Taxonomy of Nonprofits

“Required” Governance Policies ALL: Articles of incorporation Bylaws Conflict of interest MOST: Whistleblower Document retention and destruction MANY: Gift acceptance Form 990 review

Articles of Incorporation Filed with North Carolina Secretary of State and available to the public on its website Name? State law required provisions including “optional” limitation of liability for directors “To the fullest extent permitted by the North Carolina Nonprofit Corporation Act as it exists or may hereafter be amended, no person who is serving or who has served as a director of the corporation shall be personally liable for monetary damages for breach of any duty as a director. No amendment or repeal of this article, nor the adoption of any other amendment to these Articles of Incorporation inconsistent with this article, shall eliminate or reduce the protection granted herein with respect to any matter that occurred prior to such amendment, repeal or adoption.”

Articles of Incorporation (cont.) IRS required provisions Members – do you have or need them? Retain in corporate record book, and make available to volunteer leaders with bylaws and other key governance policies Check the NCSOS website to confirm that all amendments have been filed!

North Carolina Secretary of State Updates Principal office Registered office Registered agent No annual report required EXCEPT… S 114 proposed NEW annual report requirement for NC nonprofits: Online filing by November 15 No fee Failure to file, then administrative dissolution and no sales/use tax refunds

Bylaws Link back to articles of incorporation Consistent without unnecessary duplication Term limits (3x3 for directors?) Automatic removal for failing to attend board meetings Board vs. staff titles and roles Chair = volunteer = voting board member Executive director = compensated ≠ voting board member Committees Executive committee with statutory limitations Otherwise zero-based structure

Bylaws (cont.) Advisory councils E-voting Indemnification Expressly permit in unanimous written consent section Practical tip: Use conference calls instead Indemnification Mandatory Broad scope Insurance Always, a good close read!

Conflict of Interest Policy Financial transactions between nonprofit and its insiders Also insiders’ family and “closely associated” businesses Avoid excess benefit transactions and associated penalties: Insider receiving improper benefit Board that willfully and knowingly approved improper benefit

Conflict of Interest Policy (cont.) Manage conflicts to create safe harbor (“rebuttable presumption of reasonableness”) Disclosure Independent board or committee studies comparability data Recusal Advance approval Contemporaneous documentation Advance annual disclosure of potential conflicts – limit for knowledge and materiality Monitor and enforce compliance

Whistleblower Policy Credible information only Illegal practices or violations of policy No retaliation Compliance officer Procedures and promises

Document Retention and Destruction Policy Paper and electronic records Retention periods Appropriate flexibility When to cease destruction Compliance officer

Gift Acceptance Policy When to accept vs. decline gifts Consider: Exposure to liability Carrying costs Ability to liquidate Valuation IRS Forms 8283 (>$5,000, filed by donor) and 8282 (property sold with 3 years, filed by nonprofit, exceptions apply for <$500 and charitable use) N/A to publicly traded securities

Form 990 Review Policy Revocation for failure to file Full board review vs. disclosure Independent audit committee

Who Files a Form 990 and When? Gross Receipts Total Assets 990 $200,000+ $500,000+ 990-EZ <$200,000 <$500,000 990-N <$50,000 N/A Either test triggers filing requirement DUE on the 15th day of the 5th month after your fiscal year ends

Who Does Not File the IRS Form 990? Certain religious organizations Private foundations (Form 990-PF) Governmental units and certain governmental affiliates (Rev. Proc. 95-48) What about … Grant reporting? Solicitation license renewal?

Revocation of Tax-Exempt Status for Failure to File IRS Forms 990 Failure to timely file for 3 consecutive years Automatic revocation of tax-exempt status Revocation date vs. posting date Consequences: Tax liability for nonprofit Loss of charitable deduction for donor Retroactive reinstatement for “reasonable cause” possible (see Rev. Proc. 2014-11)

Mandatory Public Disclosure of IRS Forms 1023, 990 and 990-T “Widely available” by posting on own website or a third party website (such as www.guidestar.org) Alternatively, available for public inspection at the principal place of business and provide copies upon request within 30 days

Board Meeting Minutes Introductory paragraph: Resolutions: Date, time and location of the meeting; Statement that notice of the meeting was given in accordance with the bylaws or, in the alternative, that notice was waived; Names of persons attending the meeting (including, as applicable, if attendance is by telephone); Presence of a quorum; and Who presided at the meeting. Resolutions: Motion Second Approval Dissent!

Board Meeting Minutes (cont.) Less is more, but signal deliberation If privileged, prepare for redaction Assume disclosure related to audit or litigation Executive session Closing paragraph: Time of adjournment, and By whom minutes are submitted. Retain in permanent corporate records Special note re email votes

Do Meeting Minutes Reflect Board Priorities? Employing the chief executive officer Strategic planning Overseeing finances Developing financial and other resources Managing risk

Director Fiduciary Duties & Risk Management Protect organization and leadership! Legal entity Statutory immunity Limitation of liability Indemnification D&O insurance

Insurance Overview Types of coverage Coverage amounts Deductibles General liability Umbrella coverage Social host endorsement D&O insurance with EPL rider Fidelity bond Other? Coverage amounts Deductibles

dbailey@robinsonbradshaw.com | 704-377-8323 | @Dianne_C_Bailey _______________________________________________________________________________________ DIANNE CHIPPS BAILEY Dianne’s practice is dedicated to the representation of nonprofit organizations, their senior management and volunteer leaders. She has extensive experience advising a diverse group of nonprofits in all aspects of their organization, administration and management. For updates on nonprofit law and trends in philanthropy, follow Dianne on Twitter.