Governing a Tax-Exempt Nonprofit Corporation The Basics MPCC December 16, 2010

Governing Law Michigan Nonprofit Corporation Act – Defines structure of nonprofit corporations, requirements, types, duties, etc Michigan Charitable Trust Act – "Charitable organization" means a benevolent, educational, philanthropic, humane, patriotic, or eleemosynary organization of persons that solicits or obtains contributions solicited from the public for charitable purposes.

Governing Law (cont.) Internal Revenue Code – Provides exemption from federal income tax and requirements – State law extends exemption to state and local taxes (e.g. property tax, sales tax, etc.) – Reporting requirements All other laws applicable to a business entity apply (e.g. employment, contract, antitrust, etc.)

Governing Documents Articles of Incorporation & associated filings – Define the name, purposes, structure, registered agent, etc. of the corporation – Must provide that none of the earnings of the corporation Inure to the private benefit of an private individual – Nonprofit does not mean no profit – MPCC is structured as a membership corporation Bylaws – Often repeats corporate Purposes – Define the way the organization will be governed and operated Members, Board, Officers, committees, meetings, etc.

Governing Documents MPCC’s Purposes – Improve delivery, quality & safety of primary health services in Michigan by rebuilding workforce & transforming primary care practices to provide safe & efficient patient- centered care – Improve & eliminate system-level problems by educating and fostering collaboration – Lessen the burden of government by assisting in the improvement of primary care services in Michigan – Engage in scientific & educational activities within the meaning of Section 501(c)(3) – Do anything else that a Michigan nonprofit corporation can do that is not inconsistent with Section 501(c)(3), including owning property, making contracts, employing personnel, apply for and receive funds, grants, gifts, & bequeaths

Governing Documents Tax exemption letter – Established by the Purposes of the corporation as defined in the Articles of Incorporation Must meet the requirements of “exempt purposes” – Operate exclusively for charitable purposes – Not all nonprofits are tax-exempt, but all tax- exempt organizations are nonprofit

Basic Roles & Responsibilities Members – Like Shareholders – Elect Board – Approve changes to Articles of Incorporation & Bylaws – Must approve certain major actions (e.g. merger, disposal of assets, dissolution, etc.) – Conduct (at least) an annual meeting

Basic Roles & Responsibilities Board – Responsible for management of the business and affairs of the corporation Strategic planning Financial matters, including bank resolutions, investments Hiring, setting compensation, evaluating, and firing of CEO/Executive Director Approval of policies Legal and reporting compliance Maintain records – Subject to Roles & Responsibilities of membership

Fiduciary Duties of the Board Duty of Care – “Care that an ordinary prudent person would exercise in a like position and under similar circumstances” – Means, for example: Ask probing questions Do your homework Use data and information when available Seek out competent advice when necessary (e.g. accounting/audit, legal) Invite different views and opinions Obey the law Don’t take unreasonable risks

Fiduciary Duties of the Board Duty of Loyalty – Give undivided allegiance when making decisions affecting the organization – Means, for example: Disclose/avoid conflicts of interest Protect confidential and private information Don‘t use information for personal gain Avoid self-dealing

Fiduciary Duties of the Board Duty of Obedience – Be faithful to the organization’s Mission and purposes (especially exempt purposes) and maintain the public trust – Means, for example: Develop strategic plans, operating plans & budgets that are consistent with Mission & purposes Don’t stray from what gave the privilege of tax- exemption Avoid taking the organization in a direction that isn’t part of the Mission & purposes

Other Legal Issues Prohibition on direct or indirect participation in political campaigns on behalf of, or in opposition to, candidates Limitation on attempts to influence legislation (lobbying) – No substantial part – 501(h) election Excess benefit transactions (generally re compensation of board & executives)

Other Legal Issues Policies not (currently) required, but strongly encouraged – and reportable on IRS Form 990 – Conflict of interest – Fundraising – Ethics & whistleblower – Investment – Document retention/destruction