#ASAE14 Association Law Review for Aspiring CAEs Monday, August 11, :00-3:00 p.m.

#ASAE14 Todays’ Program Introduction About the Exam Legal Issues –Governance –Tax –Antitrust –Labor/Employment –Others Conclusion

#ASAE14 George E. Constantine, III Counsel to tax-exempt trade associations, professional societies Former staff counsel for American Society of Association Executives Concentrates practice on tax, contracts, antitrust, governance and other legal issues affecting associations ASAE Legal Section Council Chair

#ASAE14 About the Exam Legal issues implicate much of association management; exam questions reflect this Be familiar with the concepts—look for red flags and issues Immersion course, other prep courses

#ASAE14 Governance Tax-exempt status—federal Corporate status—state –Protection from individual liability –Obligation to abide by state laws on governance and related matters

#ASAE14 Governance Hierarchy of Authority –State nonprofit corporate law Requirements on indemnification, membership rights, manners of acting, etc. –Articles of Incorporation –Bylaws –Board Policies and Procedures

#ASAE14 Governance Governance Legal Issues Generally –Board is only permitted to act at a meeting But—exception for UWC, telephone meetings –State of incorporation governs, even if based elsewhere But—note foreign corporation filing obligations

#ASAE14 Governance Association Governance Structure –Board of Directors –Executive Committee –Other Committees “of the Board” –Other Committees (Advisory) –Staff

#ASAE14 Governance Fiduciary Duties –Duty of Care –Duty of Loyalty –Duty of Obedience

#ASAE14 Governance—Duty of Care Duty of care standard is that of “ordinary and reasonable care,” or what would an ordinarily prudent person do in the same or similar circumstances? –Very subjective –Tied to reasonableness Business judgment rule—bad decisions are more easily defended than ignorance

#ASAE14 Governance—Duty of Care Compliance tips –Review all materials provided in advance of meetings –Ask questions –Avoid actions/discussions outside the formal meeting setting –Be familiar with organizational documents (policies, bylaws, articles) –Maintain confidentiality

#ASAE14 Governance—Duty of Care Compliance tips (continued) –Directors may rely on experts when appropriate (but understand such reliance cannot be absolute) –Directors should ascertain that all minutes (particularly recorded votes, attendance) are accurate –Encourage directors to attend meetings regularly, read publications, be involved –Work with chief elected officer to encourage best practices/compliance with duty of care

#ASAE14 Governance—Duty of Loyalty Duty of “undivided allegiance” Duty to avoid conflicts of interest –Types of conflicts Business dealings with association Business dealings with competitors Corporate opportunities doctrine Representational conflicts –Remedies—DISCLOSE FIRST No action needed Recusal Resignation

#ASAE14 Governance—Duty of Loyalty Compliance –Keep in mind that organization’s interests come first –Adhere to conflict of interest policy Disclose actual, apparent, and potential conflicts of interest through regular disclosure statements (and at each meeting as appropriate) Deliberate as a board or through a committee to determine whether conflict exists

#ASAE14 Governance—Duty of Obedience Obedience to nonprofit mission Follow terms of articles of incorporation, bylaws, policies and procedures Applicable laws and regulations must be followed

#ASAE14 Governance—Final Points –Roles of board members are defined by governing documents, common law fiduciary duties, state statute, IRS requirements –Board sets the policy and mission of the organization; staff is charged with carrying out the mission –Members have some powers, but generally board’s authority is paramount

#ASAE14 Tax The Basics –Most organizations are exempt under either section 501(c)(6) or 501(c)(3) –Exam emphasizes 501(c)(6), but not solely 501(c)(6) –Tax-exempt status means exemption from federal income tax, but not from all taxes (e.g., property, sales)

#ASAE14 Tax 501(c)(6) Requirements –Not organized for profit –Membership organization with meaningful membership support –Advance an entire line of business or profession –No private inurement –No provision of particular services

#ASAE14 Tax 501(c)(3) Requirements –Must benefit the public—religious, charitable, educational, etc. –No private inurement –No substantial part is “carrying on of propaganda” (e.g., lobbying) –No political activities

#ASAE14 Tax Considerations for both 501(c)(6) and 501(c)(3) –Unrelated Business Income Tax Trade or business Regularly carried on Not substantially related –Exceptions Royalty Sponsorship Qualified conventions and trade shows Investment income

#ASAE14 Tax Considerations for both 501(c)(6) and 501(c)(3) –Form 990 Disclosure of employees’ salaries Policies –Conflicts of interest –Whistleblower protection –Record retention –Review of Form 990 –Executive compensation –Joint ventures

#ASAE14 Antitrust Relevant Statutes –Sherman Anti-Trust Act –Federal Trade Commission Act –Clayton Act –Robinson-Patman Act –State antitrust laws

#ASAE14 Antitrust Any contract, combination, or conspiracy that is illegally in restraint of trade Must be some form of agreement to unlawfully restrain trade—agreement need not be formal or in writing

#ASAE14 Antitrust Concept of “per se” illegal and “rule of reason” –“Per se” reserved for actions so pernicious that a court or enforcement agency will not look to see if the actions had any anticompetitive effects—price fixing, market allocation, bid-rigging –“Rule of reason” analysis means a court will look to relevant facts—effect on competition, procompetitive benefits Most association activities viewed under rule of reason

#ASAE14 Antitrust Association Activities and Antitrust –Membership restrictions –Membership termination –Certification and accreditation –Information reporting Past data Aggregated/Anonymous Voluntary Handled by third-party (like an association) Results generally available

#ASAE14 Antitrust Association Activities and Antitrust –Apparent Authority –Meetings—Board, Committees, Membership Compliance policy and reminder Work with Chair Counsel or staff monitor discussion When to step in What to do when they don’t listen

#ASAE14 Antitrust General Risk Management –Membership services to nonmembers –Member-only services –Issues in the supply chain (e.g., retailers angry about Internet sales)

#ASAE14 Antitrust General Risk Management –Clearly define rules and restrictions in membership documents (bylaws, policies and procedures) –Restrictions should be reasonably designed to pursue a procompetitive result (avoid arbitrary restrictions or restrictions related to price) –Enforcement should be uniform and fair

#ASAE14 Labor and Employment General Legal Issues –Wage and hour compliance Not everyone is a “professional” Time-keeping and overtime –Written policies Sexual harassment Discrimination Working from home –Performance review and counseling –Terminations Consistency/progressive discipline Grievances Internal interviews

#ASAE14 Other Legal Issues Contracts –Offer, consideration, acceptance –Apparent authority –One key tip on negotiating Intellectual Property –Copyright –Trademark

#ASAE14 Questions/Conclusion

#ASAE14 Contact us George E. Constantine, III Partner Venable LLP