Summer is over and we are moving into that dreaded season: time to start your 2011 strategic planning process.  If you’re like most organizations, devoting time to think about your legal strategy won’t be high on the list of priorities.

Although there is no legal or regulatory requirement to have outside or in-house counsel in a nonprofit (or any other business organization for that matter), in today’s litigious world, it is a very wise decision to do so. Because of the altruistic nature of our “business,” many nonprofits think that they are immune from liability or suit; the reality, however, is just not so. A nonprofit is just as likely, if not more so, to be sued as any other legal entity or person.

These days the public expects nonprofits to be managed and held accountable to the same degree as for-profit entities. In fact, the law requires and regulates nonprofits in just as stringent of a manner (some would argue more so) as many for-profit organizations. The onus is certainly on the nonprofit’s managers or board of directors to make sure that they are educated in the legal and ethical requirements of their chosen area. If obtaining legal counsel is just not realistic for your nonprofit or not in the budget, there are many resources available to a nonprofit, both inside and outside the sector, to educate you in the law and ethics of nonprofit organizations. Here are several suggestions:

  • The International Center for Not-for-Profit Law. This organization offers an online library and publications regarding nonprofit law and trends. The website is: www.icnl.org
  • Internal Revenue Service. The IRS’s Charities and Nonprofit Division allows visitors to view nonprofit tax rules and regulations. The website is: www.irs.gov/charities/index.html
  • State Attorney General Offices. These offices maintain divisions that offer publications and regulations for each state’s laws on nonprofit organizations’ registration requirements, among other helpful information. For a list of all state attorneys general, visit: www.naag.org/current-attorneys-general.php 
  • American Bar Association. This organization offers books on nonprofit issues as well other resources for education. The website is: www.abanet.org

Above and beyond a educating yourself on the law and ethics in the sector, below is a list of four tips which may help your organization stay away from litigation and out of the court room:

  1. Read Every Contract Carefully. Although most contracts are confusing and lengthy, make sure to read and understand all the terms that the nonprofit is agreeing to. Although the majority of contracts will be fulfilled without issue, it is best to understand each party’s role and responsibilities in a relationship. Understand especially, which party will be liable for what in the case that the relationship does falls apart.
  2. Most Contracts are Negotiable. Most nonprofits (and too many organizations as a whole) make the mistake of believing that standard agreements are non-negotiable. Nonprofits especially make this mistake because they may be receiving goods or services at a discounted price given their nonprofit status. In fact, most contracts can and will be negotiated, the degree of the negotiation will of course vary on how much leverage the nonprofit has in the relationship.
  3. Have Insurance Coverage. Insurance is one of the strongest ways to protect an organization in case of liability. Insurance will not protect a nonprofit from getting sued or being exposed to liability, but it will protect the organization in case it ever does get sued. Choosing the right coverage and understanding the coverage in place is paramount- look for another blog on this issue coming soon.
  4. Abide by Registration Requirements. In most states, the Attorney General has a charitable organizations arm that regulates nonprofit organizations’ requirements of registration. Above and beyond the Attorney General, the IRS also has reporting requirements that apply to nonprofit organizations. One of the biggest mistakes that nonprofits make, especially the smaller nonprofits, is failure to abide by reporting and remittance requirements under federal and state laws and regulations; these failures, however, have the capacity to carry large fines for the nonprofit.

Although the question of legal liability is not at the top of the list for most nonprofits, organizations should take the time and spend the money, if feasible, to educate themselves on the laws and codes of ethics that govern them. Unfortunately, as many have already learned, legal problems are much more cost efficient when they are handled proactively rather than reactively.

Nothing contained in this article shall be deemed as legal advice. Please consult with an attorney on specific legal issues, as they may be applicable to your specific situation.

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