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5 Legal Issues Nonprofit Boards Must Be Aware Of

Corporate Law Report:  ”According to the National Center for Charitable Statistics, there are more than 1.5 million nonprofit and tax-exempt organizations operating in the United States, from charities to industry associations to religious institutions. But whatever their structure or purpose, such organizations need to understand – and respond to – key legal and regulatory issues that are unique to not-for-profits.  For your reference, here are five areas that require ongoing attention (and legal understanding) by nonprofits

The five legal issues discussed in  the article are:

1. Lobbying and Political Campaigning:

2.  Tax Compliance and IRS Activism

3.  Employees, Interns and Volunteers

4.  Privacy and Data Security

5.  Licensing and Intellectual Property Licensing and Intellectual Property

Checklist for Nonprofit Corporation Bylaws

Because I form Arizona nonprofit corporations, people frequently ask me if I will charge less to form their new nonprofit corporation if they give me a copy of Bylaws they found somewhere.  I always answer no because one thing I have learned from practicing law and forming entities since 1980 is that it always takes me more time (translation more expensive) to review and revise a document given to me than it does for me to prepare the document using the form I researched and created.

People may think that one size of Bylaws fits all, but that is not true.  Bylaws are an specially troublesome legal document because the Bylaws are the rules and policies that govern the operation of the members (if any), the officers and the directors.  The Bylaws are the foundational rules of the road for governing the nonprofit corporation.

2016-12-19T21:06:20-07:00Bylaws|0 Comments

Nonprofit Startups and the Value of a Nonprofit Attorney

Nonprofit Law Blog:  “Insightful founders of new ventures understand the value of involving legal counsel in the early stages of planning.  A knowledgeable attorney can identify issues, opportunities, and threats which allows founders to react appropriately as they plan the organizational and operational structures.  As a result, investing in legal assistance at the outset can help to avoid costly reactionary steps in later stages that might otherwise be necessary if the founders had unknowingly or unintentionally built their plan on a foundation of structures that are wrought with problems. “

Arizona Corporation Commission No Longer Mails Annual Reports

Life or Death Announcement for All Arizona Corporations

Beginning October 1, 2009, the Arizona Corporation Commission will no longer mail to an Arizona corporation its annual report.  Arizona law requires that all Arizona corporations, including nonprofit corporations, file an annual report every year with the Arizona Corporation Commission.  If an Arizona corporation fails to file the annual report, the Arizona Corporation Commission will administratively dissolve the corporation, i.e., terminate (kill) the corporation’s existence.

Administrative dissolution of an Arizona corporation could be a disaster for the corporation and its shareholders.  Some of the nightmarish legal consequences of an administrative dissolution are:

  1. The shareholders lose the protection afforded by Arizona law from the debts and liabilities of the corporation.  Creditors don’t have to pierce the corporate veil because the dissolution removed the veil.  A nonexistent corporation cannot shield its shareholders from liabilities.
  2. All of the assets of the corporation become vested in the shareholders in proportion to their ownership.  The IRS views this event as a taxable distribution of the corporation’s assets to its shareholders.
  3. Real property previously owned by the corporation becomes vested in the shareholders, but no deed from the terminated corporation to the shareholders was recorded to evidence the transfer.  The only way the shareholders can sell or transfer the real property previously owned by the dissolved corporation is to file a quiet title lawsuit and get a court order that they are the owners of the land.

The slight good news is that a corporation that is administratively dissolved by the Arizona Corporation Commission may reinstate its charter (existence) by taking the appropriate corrective action within six years of the date of the dissolution.  See Arizona Revised Statutes Sections 10-1422When the reinstatement is effective, it relates back to and takes effect as of the effective date of the administrative dissolution and the corporation resumes carrying on its business as if the administrative dissolution had never occurred.  See also Arizona Revised Statutes Section 10-11422, which allows Arizona nonprofits to reinstate within six years.

Bottom Line:  If you own stock in an Arizona corporation or if you are a member of the board of directors or an officer of an Arizona corporation, you must create a tickler system for the corporation that reminds the appropriate people to obtain the annual report form from the Arizona Corporation Commission and file it on or before the due date.

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