One of the questions that we have been asked most often over the years by nonprofit leaders is, “Why should my nonprofit or church hire a lawyer?" While we are (obviously) biased in our answer, we can confidently elaborate on numerous reasons why a nonprofit should have an active relationship with a lawyer knowledgeable about nonprofit matters.
Far too many nonprofit organizations and churches simply ignore legal issues altogether or at best attempt to rely on a board member who happens to be an attorney (even if that attorney practices in an area wholly unrelated to nonprofit law). Too often, nonprofits and churches forgo reaching out to qualified legal counsel for fear of the cost involved. This inevitably leads to unresolved legal issues that end up costing the organization more time and even more money later on, thus taking away from the organization's overall ability to achieve its mission. Here a just a few reasons why your nonprofit or church should consider hiring a lawyer:
FORMATION. When starting any nonprofit organization, there are a combination of state and federal laws to be followed, many forms that need to be submitted, and several documents that must be drafted, all before your organization is operational. Your new nonprofit may want guidance with filing, understanding categories of tax exemption, creating a corporate purpose statement, drafting a budget, and dealing with the IRS. Applying for tax exempt status with the IRS via Form 1023 is a long and complicated process. A knowledgeable lawyer can make this process smoother and allow the founders to focus on the important tasks of building the organization's programs, fundraising, and staffing.
REORGANIZATION. If your nonprofit or church is considering restructuring or using an alternative entity structure, you may be tempted to do this yourself. After all, creating corporation online is super easy, right? That is certainly true, but a tax exempt organization's use of partnerships, corporations, and LLCs can sometimes create unintended consequences and unforeseen problems. Likewise, mergers, acquisitions, and dissolutions can present surprising complications.
REINSTATEMENT. Most states, including Washington and Idaho, require annual reports to be filed with the state in order to remain in good standing. If your nonprofit has lost its active status, reinstatement is required. This requires paperwork and payment of fees. Similarly, if an organization fails to file its annual Form 990 with the IRS for three consecutive years, that organization's 501(c)(3) status will be automatically revoked. When that occurs, the clock starts ticking and the organization has a relatively narrow window to get its tax exempt status reinstated retroactively.
TAX EXEMPTION. Even once you have obtained tax exempt status, a knowledgeable lawyer can help you maintain that status. Few organizations lose their tax exempt status because of something they intentionally did—quite the opposite, most organizations that lose their status do so because of an unintentional failure to follow the sometimes complex rules and regulations the IRS has in place for tax exempt organizations. Counsel from a competent lawyer can help prevent these inadvertent violations of IRS compliance.
BOARD GOVERNANCE. A nonprofit's Board of Directors or Board of Trustees is tasked by the state and the federal government with the authority and responsibility to oversee and govern the organization, ensuring that its assets are used exclusively to further the organization's tax exempt purposes. This governance responsibility is multi-faceted and is comprised of compliance with laws at both the state and federal level. An experienced lawyer can help the Board navigate these issues, while also serving as a strategic advisor on other non-legal questions facing the Board. A lawyer can also serve as a mediator in times of conflict between Board members or between the Board and the Executive Director.
EMPLOYMENT ISSUES. Perhaps the most significant litigation risk to nonprofits is in the area of employment law. Whether it is compliance with state labor laws or federal antidiscrimination statutes, employment law for nonprofits is a complex web of interrelated laws that are highly dependent upon individual circumstances. From hiring to firing, a knowledgeable lawyer can help nonprofits make appropriate employment decisions that protect the organization and its employees.
DOCUMENT DRAFTING AND REVIEW. Nonprofits of all sizes deal virtually daily with what may be the most common legal issues they face: contracts and other formal documents. Even small organizations have to regularly deal with contracts from internet service providers, independent contractors, or other vendors. These contracts are often poorly written in difficult to understand language, so many nonprofit leaders often sign the documents without an in-depth review. Similarly, when a nonprofit needs to draft some sort of contract, it often resorts to searching the internet for a template. Both of these situations put the organization at a disadvantage and potentially cause an unnecessary expenditure or waste of organizational resources. A lawyer can review contracts presented to the organization and highlight areas of concern as well as areas for potential negotiation, often saving the organization money or shifting some of the liability to the other party. Likewise, a lawyer can draft an accurate contract that best accomplishes the organization's goals.
INTELLECTUAL PROPERTY. Though intellectual property often permeates throughout even small nonprofits, including in logos, websites, music, film, software, graphic design, and more, intellectual property is often one of the most neglected legal issues in the nonprofit sector. Many nonprofit leaders are shocked to learn just how much IP their organization has created, and often even more shocked at some of the default rules that govern that IP, such as the work-for-hire doctrine in copyright law. Establishing a relationship with a lawyer knowledgeable about the peculiar aspects of IP law that apply to nonprofits is a critical step in protecting one of the most important assets a modern nonprofit organization has.
OUTSIDE GENERAL COUNSEL. Finally, nonprofits and churches face all kinds of random legal questions on a regular basis. Having an active relationship with a lawyer allows an organization to effectively handle those questions and ensure the organization's tax exempt purpose is not threatened by the legal issues that arise.
LET US HELP. While having a full-time in-house attorney may not be realistic for your organization, getting the occasional outside counsel from a lawyer is much more realistic than you might think. At our law firm, we focus on the success of nonprofits and their missions. Our experience in the nonprofit sector gives us a unique insight into the challenges you face, and we are committed to assisting nonprofits in a way that is sustainable and approachable for organizations of all sizes. Whether you need legal counsel daily or just have a legal question a few times a year, we can advise you on the law and best practices for nonprofits.
If we can be of service to you, your nonprofit organization, or church, give us a call at 253.858.5434 to set up an appointment today. We represent clients throughout Washington and Idaho and are available to meet in person, by phone, or via video conference.