A couple weeks ago, Gene Takagi of the Non-Profit Law Blog made a post cautioning lawyers about issues to consider when representing a nonprofit.
As you might imagine, every one of his tips were important for members of a non-profit board and leadership to know as well. Some of his traps and tips are frequent points of conversation in the non-profit arts community: don’t write a mission statement that is too restrictive; be sure you have a viable business plan and don’t assume non-profit status is your only option; boards members should be aware they have a very real governance role; non-profit doesn’t mean tax-exempt or no-profit; all overhead is not bad; get board and directors insurance.
There were also some topics that are less frequently discussed:
1. Failing to inform the client at the outset of representation that you represent the organization and not any individual directors or officers.
4. Including “non-voting directors” in the organization’s bylaws (under most states’ laws, there is no such thing as a “non-voting director” and, subject to very limited exceptions, each director has the right to vote on all matters before the board).
5. Providing in the bylaws that the board of directors may combine in-person votes at a meeting with email votes to take board actions.
6. Reinforcing the myth that nonprofits should always minimize overhead expenses (even at the expense of building an appropriate foundation on which to build the organization’s operations).
7. Failing to inform the client about the differences among volunteers, independent contractors, and employees, and the risks of misapplying these classifications.
10. Failing to discuss with the client the benefits of having organizational policies that address the legal and management implications of conflicts of interest, proper gift receipts, misuse of social media, expense reimbursements, acceptance of noncash gifts, document retention/destruction, and whistleblowers.
For me, that first one about the lawyer representing the organization and not you always strikes me as worth repeating. I have never had the ill-fortune of being in a situation where there was a even the whiff of legal action. However, when I am reviewing contract clauses that make me uneasy or am faced with a potentially contentious encounter, I will find myself thinking that the legal department will cover me if worse came to worse. Then I have to remind myself that in fact, they won’t necessarily have my back because they serve the interests of the organization, which may not include protecting me.
Point #5 about mixing in-person and email voting is a reference to a prohibition in California law. However, reading the rationale behind the illegality of such action, it seems reasonable to expect other states would have a similar restrictions.
Since I have heavily summarized his post, it is worth taking a look at everything Takagi cautions and advises for the legal health of a non-profit