Articles of Incorporation

The next step of an incorporated nonprofit is drafting the legal incorporation document.  This document may be called the certificate or the articles of incorporation depending on your state.  Call your Secretary of State or Attorney General and request written information on filing for incorporation; ask specifically if it includes an example of your states Articles of Incorporation. This will give you some guidelines to follow while forming your articles.  Once you have completed the document consult an attorney to review them for you.  The IRS is very specific about the wording in your organizations articles and you may be rejected for tax-exempt status if you have not included specific IRS language.

Besides the legal language you will be inserting your specific organization information.  This information includes the name of the organization and where its main office will be located.  You also need to include your organizations primary goals.   Keep your goals very broad so that you do not limit your organizations expansion in the future.

 A couple of decisions need to be made throughout the articles.  The first being what type of organization you will be.  For the purpose of becoming a 501© 3 organization your nonprofit should be established as one of the following:

CHARITABLE
EDUCATIONAL
SCIENTIFIC
RELIGIOUS
LITERARY
PROMOTING AMATEUR ATHLETICS
OR EDUCATIONAL

 (A more thorough list and explanation can be found at:
www.SumptionAndWyland.com - FAQ -General activities of nonprofits
or through www.IRS.gov)

 Next you will need to decide whether your nonprofit will have members, not have members or reserve that decision for later:

 shall have no voting members.
may (but need not) have voting members
shall have a voting membership

There are advantages and disadvantages to each choice.  You need to consider the long-term future of your nonprofit before making this decision.  Although you may start out as the founder and serve on the board of directors, after incorporation these decisions will follow strict voting procedures as laid out in your bylaws.  Voting membership is an opportunity to elect and remove directors as well as vote on changes and amend bylaws.  This prevents the nonprofit from being completely controlled by its board of directors.  This decision also places some liability in protecting member rights and outlining all responsibilities of each member.  Study several different types of membership organizations and ask questions concerning their voting procedures.  This will help you decide if it is the best decision for your nonprofit.

Recommended paperwork for members should include some type of letter of agreement.  This needs to be signed by each potential member and includes the rights allocated to the member through the bylaws.  You will also need some kind of nominating procedure stating who is eligible to become a member and the voting procedures to accept them.  You can have several different classes of members and allow different voting privileges to each class, each with separate dues amounts.  All of this information is established through the nonprofit bylaws and will be discussed more thoroughly at that point.  The only decision to be made here is which type of organization you will be.

The articles of incorporation are not as intimidating as they appear.  They do need to follow certain state and federal guidelines but your Secretary of State will provide those details and then all that is left to do is plug in your own information.  Once your attorney reviews them there may be slight modifications but you will have the basic document ready for them to work with.

Board of Directors

The Purpose of a Board of Directors

Your organizations board of directors will help manage, discuss, implement and maintain your mission and goals. They should be able to attend regular meetings to ensure successful organizational planning and see that all resources are managed effectively.

Directors supervise all aspects of the organizations operations and evaluate its performance and success. Directors need to follow all activities that affect the mission or goals. All directors must be able to set aside any potential conflict between their personal or individual business interests to support the ongoing growth of the organization.

A Board of Directors gets its authority from the articles, which will be discussed in the next lesson. This governing document specifies, for example, its name, the purpose or mission of the organization, place of business, primary officers, etc. 

Duties of a Board of Directors

Several states have statutes adopting duties, which can be used in court to determine whether a board member has acted improperly. These standards are usually described as the duty of care, the duty of loyalty and the duty of obedience.

Duty of Care

The duty of care describes the level of competence that is expected of a board member, and is commonly expressed as the duty of “care that an ordinarily prudent person would exercise in a like position and under similar circumstances.” This means that a board member owes the duty to exercise reasonable care when he or she makes a decision as a steward of the organization.

Duty of Loyalty

The duty of loyalty is a standard of faithfulness; a board member must give undivided allegiance when making decisions affecting the organization. This means that a board member can never use information obtained as a member for personal gain, but must act in the best interests of the organization.

Duty of Obedience

The duty of obedience requires board members to be faithful to the organization’s mission. They are not permitted to act in a way that is inconsistent with the central goals of the organization. A basis for this rule lies in the public’s trust that the organization will manage donated funds to fulfill the organization’s mission.

Requirements of a good Board of Directors

The people you elect to serve on the board of directors should have:

·        Passion about the mission

·        Knowledge of all the ins and outs of the organization

·        A wide variety of expertise

·        Understanding of the overall mission and vision

·        Commitment to the mission and it’s goals

·        Time available to serve the organization

Job Descriptions of a Board of Directors

Most states require at least 3 members on the board of directors, which constitute the organizations officers.  These must include a president (board chair) and a secretary.  For this lesson I am including the basic job descriptions of the President, Vice President, Treasurer, Secretary and the basic Board Member

PRESIDENT / CHAIR / CHIEF VOLUNTARY OFFICER (CVO)
(adapted from The Board Café)

General: Ensures the effective action of the board in governing and supporting the organization, and oversees board affairs. Acts as the representative of the board as a whole, rather than as an individual supervisor to staff.

Community: Speaks to the media and the community on behalf of the organization (as does the executive director); represents the agency in the community.

Meetings: Develops agendas for meetings in concert with the executive director. Presides at board meetings.

Committees: Recommends to the board, which committees are to be established. Seeks volunteers for committees and coordinates individual board member assignments. Makes sure each committee has a chairperson, and stays in touch with chairpersons to be sure that their work is carried out; identifies committee recommendations that should be presented to the full board. Determines whether executive committee meetings are necessary and convenes the committee accordingly.

Executive Director: Establishes search and selection committee (usually acts as chair) for hiring an executive director. Convenes board discussions on evaluating the executive director and negotiating compensation and benefits package; conveys information to the executive director.

Board Affairs: Ensures that board matters are handled properly, including preparation of pre-meeting materials, committee functioning, and recruitment and orientation of new board members.

VICE PRESIDENT / VICE CHAIR
(adapted from The Board Café)

General: Acts as the president/chair in his or her absence; assists the president/chair on the above or other specified duties.
Special Responsibilities: Frequently assigned to a special area of responsibility, such as membership, media, annual dinner, facility, or personnel.

Some organizations choose to make the vice president, explicitly or implicitly, the president-elect.

TREASURER
(adapted from The Board Café)

General: Manages the board’s review of, and action related to, the board’s financial responsibilities. May work directly with the bookkeeper or other staff in developing and implementing financial procedures and systems.

Reports: Ensures that appropriate financial reports are made available to the board. Regularly reports to board on key financial events, trends, concerns, and assessment of fiscal health.

Finance Committee: Chairs the Finance Committee and prepares agendas for meetings, including a year-long calendar of issues. In larger organizations, a separate Audit Committee may be chaired by a different person.

Auditor: Recommends to the board whether the organization should have an audit. If so, selects and meets annually with the auditor in conjunction with the Finance and/or Audit Committees.

Cash Management and Investments: Ensures, through the Finance Committee, sound management and maximization of cash and investments.

Board Secretary Job Description

The following description was adapted from materials from the National Center for Nonprofit Boards.

1. Is a member of the Board

2. Maintains records of the board and ensures effective management of organization’s records

3. Manages minutes of board meetings

4. Ensures minutes are distributed to members shortly after each meeting

5. Is sufficiently familiar with legal documents (articles, by-laws, IRS letters, etc.) to note applicability during meetings

 Board Member Job Description
(The following description was adapted from materials from BoardSource)

1. Regularly attends board meetings and important related meetings.
2. Makes serious commitment to participate actively in committee work.
3. Volunteers for and willingly accepts assignments and completes them thoroughly and on time.
4. Stays informed about committee matters, prepares themselves well for meetings, and reviews and comments on minutes and reports.
5. Gets to know other committee members and builds a collegial working relationship that contributes to consensus.
6. Is an active participant in the committee’s annual evaluation and planning efforts.
7. Participates in fund raising for the organization.

© 2005 - See Disclaimer 

All information provided is for educational purposes only. If you forward this information please leave copyright and disclaimer intact

FAQ: Trademarks and Service Marks for Not-for-Profit

What Is a Trademark or Service Mark?

The terms “trademark” and “service mark” refer to words, designs or logos that are used to indicate the origin or source of goods or services. 

There is no difference in the legal protections afforded trademarks versus service marks. The distinction is only with respect to what they identify. 

When used to identify a tangible product (such as jewelry or glassware), the word, design or logo is considered a “trademark.” 

When used to identify services (such as charitable services or educational services), the more appropriate term is “service mark.” 

“Trademark” also may be used broadly to identify both types of marks. For example, we refer to “trademark rights” and the “Trademark Office.”

What Is a Common Law Mark versus a Registered Mark?

In the United States, registration is not a prerequisite for using a mark or protecting a mark against infringement. Trademark rights can accrue simply through actual use of the mark in commerce, although there are significant benefits to registering a mark (see below). Those marks that are not registered but nonetheless are eligible for protection are called common law trademarks or service marks. 

We’ve Discovered Another Entity Using A Similar Name, Who Owns The Trademark?

The determination of whether a trademark is being infringed can be quite fact specific and will often require the advice of trademark counsel. 

Broadly speaking, however, the entity that first uses a mark in connection with a particular good or service has trademark rights that supersede the rights of later users of a similar mark for the same or related goods or services. In other words, the mere fact that another entity is using a similar or identical name does not necessarily mean that there is  a trademark conflict. Highly similar marks and even identical marks can often coexist peacefully so long as they are used on unrelated goods. 

Thus, in determining whether there is a true trademark conflict, one must consider not only whether the marks themselves are similar, but also whether the respective goods or services on which the marks are used are similar or otherwise related.

If your trademark counsel concludes that a genuine conflict exists, then the prescribed course of action will depend on which entity is found to have used the mark first. 

Copyright 2005 Pro Bono Partnership

More info at http://www.probonopartnership.org/publications/trademark.htm 

Running your nonprofit as a business

This post describes the steps necessary to establish yourself as an unincorporated nonprofit.  The steps are almost identical to forming a sole proprietorship business (check your state to make sure they do not require any other special licenses or requirements for your nonprofit as a sole proprietorship).

The first step is visiting your county clerk.  They will have you check the assumed name (sometimes called fictitious name or DBA) and make sure that nobody else is doing business under your preferred name.  Once your name has been established as unique you file a form with them called “Assumed Name Certificate of Ownership for Unincorporated Business”.  This is a very simple form just stating your business name and your contact information (address, phone, etc.)  If you go from being unincorporated to incorporated, you will have to refile your DBA.  The average cost for filing a DBA is $14 but varies by state.

 After obtaining your DBA, you will need to file for an Employer Identification Number (EIN).  You may be able to use your Social Security number as your EIN but I have been advised that it is best to register as a separate legal entity with the IRS.  Do a google search for an example EIN application.  My personal accountant recommended that the DATE BUSINESS STARTED should be December.  Your start-up date is a personal choice and will truly depend upon your bookkeeper/accountant requirements..  I established my organization as a nonprofit from the beginning, but if you already have a business and plan to switch from a for-profit to nonprofit, you will have to refile your EIN to represent your new organization type.  This form can be filed online at www.Tax9er.com for $20.

 The next step is establishing your nonprofit with the state.  In Texas, the Secretary of State has a form called Statement Appointing Agent.  This is the only state requirement in Texas to establish an unincorporated nonprofit, you need to check with your SOS to insure there are no other requirements for your state:

http://www.keytlaw.com/Links/govrecords.htm  This statement appoints you to serve as the receiving agent for your organization.  If any liens or lawsuits (services of process) are issued against your organization, this gives the state a place to send them too.  You will have to list your EIN on this form as well as your physical address, PO Boxes will not be accepted.  This form must be mailed in or delivered personally to the Secretary of State office.  There is a $25 dollar filing fee.

 These steps DO NOT make you tax-exempt. 

Tax exemption is reserved for incorporated nonprofits and you will not be able to apply for state or federal tax-exemption until you incorporate.  Until you file for tax exemption, your business will be viewed as a sole proprietorship and you CANNOT offer tax-deductible donation privileges.  As an unincorporated nonprofit you will be required to file an income tax return on your business (Schedule C) rather than the 990 required of nonprofits.  You can view both of these forms at www.IRS.gov.  If you do not understand these forms, I strongly recommend that you print them out and discuss them in detail with your accountant.

 Once you have taken all these steps **again check with your local and state offices to ensure no extra permits or licenses are required for your particular organization**  You are set up to do business as an unincorporated nonprofit on the county, state and federal level.

Once you are doing business, it is highly recommended that you talk to your insurance agent about what kind of extra insurance you may need to cover your activities.  Here is a good link to start off with:

Insurance Guide for Nonprofit Organizations  

If your nonprofit requires heavy volunteer involvement, write down exactly what it is your organization and volunteers do and discuss this in depth with your agent, he or she will be better able to explain what needs your organization will have.

- all articles on this site are written by Tara Deck and provided by Secret-Angels, a nonprofit organization that assists nonprofits with incorporation, management and general business operations.  For more information please see the About Nonprofit Assistance page.

Uniform Unincorporated Nonprofit Association Act

This article is provided for your information as a summary of the UNIFORM UNINCORPORATED NONPROFIT ASSOCIATION ACT (UUNAA) Which is mentioned in TYPES OF NONPROFITS. 

To read about this act in its entirety please visit it’s source at http://www.nccusl.org/

There are thousands of associations of people in the United States that fall into the category of unincorporated nonprofit associations. They range from local neighborhood associations to national associations with large membership. They are all associations that for one reason or another cannot or have not chosen to become not-for-profit corporations. The common law has been loath to give legal status to associations that do not incorporate. They are regarded as pure aggregations with no legal personality. They cannot own or hold real property. Such associations cannot sue or be sued as associations. Individual members may acquire liability simply because of membership in the association, no matter how casual. Acting as officers and directors may provide individuals with serious liability exposure. Finding insurance may be nearly impossible.These disabilities discourage voluntary participation in the activities of such associations. And yet such associations are essential to the well-being of every community, large or small, in the entire United States. There is at last a remedy that abolishes these unnecessary barriers to participation. As a foundation for community, there is no better solution than that proposed in the Uniform Unincorporated Nonprofit Association Act (UUNAA), promulgated by the Uniform Law Commissioners in 1992, with technical amendments made in 1996.

UUNAA defines unincorporated nonprofit associations broadly as unincorporated organizations “consisting of [two] or more members joined by mutual consent for a common, nonprofit purpose.” Members may be individuals, corporations, other associations, and governmental agencies. Having so defined these entities, the Act does five things for such associations and their members. First, it provides them with the legal capacity to receive, hold, and transfer personal and real property. Second, it provides limitations upon the liability of members and functionaries of these associations for tort and contract. Third, it provides them standing to sue and be sued as associations. Fourth, it provides a procedure for disposing of the property of an inactive association. Fifth, it permits designation of an agent for service of process. It does all of these things without requiring any association to conform to a registration statute, to pay fees to the state to qualify for the benefits of UUNAA, or to submit to any mandated form of organization and method of governance.

UUNAA permits a nonprofit association to acquire, hold, encumber, or transfer interests in real or personal property in its own name. An association can receive property from an estate. To facilitate holding and transferring real property, an association may, but is not required, to file a statement of authority in the real property records. Any person dealing with the individual named in the statement of authority and who gives value without notice that conferred authority is invalid, may regard the authority conferred as conclusive.  

UUNAA provides that any association subject to it is a separate legal entity, separate from its members. A person is not vicariously liable for the association’s torts or contracts merely by virtue of being a member, being considered a member, or participating in any way in the management of the association. Members may sue a nonprofit association and may be sued by it, as well.Concomitantly, the association has standing to institute, defend, intervene, or participate in any proceeding, judicial or otherwise, that involves it. It may assert a claim on behalf of members, if one or more members have standing to assert the claim in their own rights. A judgment against an association is not by itself a judgment against any member.

UUNAA provides for disposal of the personal property of an inactive association, first, to anyone entitled to that property in documents of the association. If there is no such document, then a cypres rule applies. The property must be transferred to another association pursuing broadly similar purposes. These transfers apply to associations that have been defunct for at least three years.

Lastly, UUNAA permits, but does not require, a nonprofit association to appoint an agent for service of process. This facilitates the legal rights of the association accorded it in other sections of UUNAA. These are the principal benefits of UUNAA to the many millions of people who aggregate into associations for everything from sport to neighborhood improvement. This Act will make voluntary action by citizens in their communities more secure and happier. It is exactly what is needed for communities, large and small, in the entire United States.

© 2001 National Conference of Commissioners on Uniform State Laws 211 E. Ontario Street, Suite 1300 Chicago, Illinois 60611 (312) 915-0195 ~ fax (312)915-0187

Basic Startup

Steps to Form an Unincorporated Nonprofit

1.     Develop vision and mission statements

2.    File articles of association if required by your state

3.    Obtain an employer identification number (EIN)

4.    Open a bank account and establish check signing procedures

5.    Establish an accounting system

6.    Develop an overall fundraising plan

Steps to Form an Incorporated Nonprofit

1.     Develop vision and mission statements

2.    Establish bylaws and board policies

3.    Select individuals to serve on the board of directors

4.    File the certificate of incorporation 

5.    File for federal tax exemption

6.    Follow state and local nonprofit regulations

7.    Procure necessary insurance coverage

8.    Establish an accounting system

9.    Develop an overall fundraising plan

Types of nonprofits

Types of nonprofits:

·         Unincorporated associations
·         charitable trusts
·         corporations

Advantages and disadvantages:

Unincorporated associations require less paperwork and are not as closely regulated or monitored by the IRS.  Laws have recently (1999) changed (see the UUNA Act) to protect unincorporated nonprofit founders from being personally sued as well as allowing them to hold assets such as property.  Before this law went into effect liability was one of the greatest disadvantages of not incorporating. It is difficult to receive tax-exemption without incorporation and nonprofits without exemption are not eligible for most grants. Charitable trusts can be recognized as tax-exempt, but they are at greater risk from personal liability Corporations require much more time, money, planning and organization.  Your organization will be completely under the control of an elected board of directors (or board of Trustees).  Founders are covered from personal liability.

Five Reasons to Incorporate – (source www.nolo.com)

1.     Your Association Makes a Profit From Its Activities
2.     You Want to Solicit Tax-Deductible Contributions (tax-deductible being the key word)
3.    You Want to Apply for Public or Private Grant Money
4.    You Want Protection From Personal Liability for the Group’s Activities
5.     Your Advocacy Efforts Might Provoke Legal Quarrels

Goals and Projects

The best way that I have found to start any new project is to start writing it down!  Go buy yourself two small spiral notebooks that you can carry with you everywhere.  The first notebook is a CREATIVE JOURNAL.  Start your creative journal with a question…  What PROBLEM do I want my mission to ANSWER? With that question, start a running list of notes, ideas, goals, projects and similar organizations.  ANYTHING relevant to your idea, the problem, or the solution.  This will help you develop a broad mission statement.  Any changes to your articles of incorporation or your mission will cost you money in the future, so it’s best to be as broad as possible to consider the twists and turns your organization might eventually take.Take another page and imagine that you have ALL THE MONEY IN THE WORLD.  Start listing projects that you think would help solve your problem, no matter how far-fetched.  DO NOT question, evaluate or criticize these ideas.  Keep this journal with you at all times!  You would be amazed how many ideas come to you while sitting in traffic!  This journal should be on-going.  Reread it often to refresh your mind during lulls of inspiration.The other notebook will be your GOALS & PROJECTS.  Pick at least three projects/goals that you believe will be the easiest to implement or the most beneficial.  Prioritize according to the values you MOST want to establish through your organization.  For each project ask yourself these questions:

1.  What makes this idea original?
2.  What needs am I answering?
3.  Who do I want to reach?
4.  When do I want to reach this goal?
5.  How do I plan to reach this goal?
6.  Define the biggest roadblocks and obstacles between you and your goal.

Then write AT LEAST one daily goal per day (Monday - Friday) to accomplish this project and overcome the roadblocks ( you can be as brave here as you want to -  I personally get more satisfaction from going above and beyond my daily goal rather than having a list of goals I never get completed).  I try to do all my goals for the week on Sunday and lay them out in order of importance.  Day-to-day issues come up, they are and always will be unavoidable.  Try not to lose site of what you are trying to accomplish but remember that YOU are the master, the DEADLINE is not.  All things in God’s time not ours ;o)

Disclaimer

This blog is meant to to assist emerging nonprofits with important information such as steps for incorporation and filing for tax exemption. 

© 2005 Tara Deck, Secret-Angels.Org

All information provided is for educational purposes only. Secret-Angels and/or Tara Deck do not imply or intend to represent legal council in any way. Thorough legal review is recommended before filing any paperwork with your local state and government.