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

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

3. Taxonomy of Nonprofits

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

5. 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.”

6. 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!

7. 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

8. 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

9. 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!

10. 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

11. 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

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

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

14. 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

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

16. 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

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

18. 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 )

19. 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
Alternatively, available for public inspection at the principal place of business and provide copies upon request within 30 days

20. 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!

21. 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 votes

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

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

24. 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

25. 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.