Four Reasons & Six Tips to Get Your Nonprofit in Good Legal Standing
Hands-on animal care can be an exhausting and all-consuming proposition, so getting your organization’s legal house in order might not be at the top of your to-do list. However, there are at least four reasons you should make it a priority and six things you can do to get your organization in good shape.
Having a separately formed legal entity, like a nonprofit corporation, limits your personal liability. Debts that your organization may incur are owed by the corporate entity, which provides protection against your personal assets. Having the legal entity (rather than you) own the horses provides protection, too. If your organization is ever sued because a horse, for example, injures someone visiting your facility, you and your directors, officers, and employees will be more protected if the horse is owned by the entity.
Most funders want to know that you are operating within applicable federal, state, and local laws and regulations. This reassures them that the funds they are investing in you will be put to good use now and in the future.
Having your legal house in order allows you to plan for the future and ensure smooth operations no matter who is in charge of your organization.
In addition to ensuring that your organization is legally recognized as a nonprofit, following all applicable laws and being governed by a professional and independent board, you should also have protocols in place to address any bumps that may come up, which will save you time in the long run.
Here are six tips that will set you on the right path.
1) Register to Be Tax Exempt
The IRS has a helpful guide describing which types of entities qualify for tax exemption under Section 501(c)(3). It also has a guide on applying for your exemption. If you are a governmental entity (i.e. a municipal shelter), this likely does not apply to you.
2) Be in Good Standing with Your Secretary of State
When you form a business entity, you file paperwork with the Secretary of State where you decide to form your business (often the place where you operate). The state imposes requirements on business entities, which often include filing reports and/or forms on time, paying fees and/or taxes, and appointing a registered agent, and you must meet those requirements in order to be in good standing.
The easiest way to find out if you are in good standing is to go to your state’s Secretary of State’s website and look up your organization (assuming their site is up to date). Going online and searching for (1) your state’s name, (2) the phrase “secretary of state” and (3) the phrase “business search” (or alternatively “corporation search” or “entity search”) should bring you to the right place.
3) Register to Solicit Funds
Nonprofits are generally required to register prior to soliciting funds and/or receiving donated funds within a state, although not all states require registration. A web search for your state’s name and the phrase “charitable solicitation registration” will likely take you to the right place to learn more about registration and to begin the registration process, if necessary. This article provides more information regarding charitable solicitation registration.
4) Elect a Majority Independent Board
The majority of your board should be independent both from your organization and from one another. For example, if you have five people on your board of directors, and three are paid employees, your board would not have a majority of independent members. Also, if your five-person board contained a husband, wife, and their child, a majority would not be independent. The U.S. Internal Revenue Service says, “Irrespective of size, a governing board should include independent members and should not be dominated by employees or others who are not, by their very nature, independent individuals because of family or business relationships.”
5) Limit Compensated Board Members
To be considered independent, it’s best practice for your chairman of the board and your treasurer to be uncompensated. This allows them to remain impartial in their decision-making as it relates to matters that affect the organization.
6) Own or Legally Lease Your Land
To ensure continuous care of your animals, it’s critical that you either own the land where they are housed, or you have a valid lease. Otherwise, you are at the mercy of whoever owns the land, which could leave you and your animals vulnerable. Even if a board member or other executive personally owns the land on which the rescue sits, it is still best practices to have a lease in place so that the rescue itself has a legal right to be on the property.
These six to-dos are a great start to ensuring your organization is in good standing, but it’s important to consult with a duly licensed attorney who can advise you on how to make sure your organization is compliant with all federal, state and local laws.