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Compliance for Nonprofit Organizations: An Overview
Introduction
Operating a Not-for-Profit Organization
1. Board of Directors
i) Role and composition of the Board
ii) Duties of the Board
(1) Loyalty
(2) Care
(3) Obedience
2. Compensation Issues
i) Excess Benefit Transactions
ii) Compensating Directors and Key Employees
3. Employment issues
i) Classification of Employees
ii) Employee Documentation
Compliance Issues for Exempt Organizations
I. Registration
A. Secretary of State
B. Illinois Attorney General
C. States' Attorneys General
D. Internet Solicitation
E. Registrations required when organization has employees
1. Illinois
2. IRS
II. On-going reporting requirements and Reporting Changes
A. Secretary of State
B. Attorney General
C. Illinois Department of Revenue
D. Illinois Department of Employment Security
E. IRS
1. 990 series
2. Employees
3. Independent Contractors
4. Unrelated business income tax
E. Changes
III. Recordkeeping
IV. Documents available to the Public
V. Documenting Donations
A. Proper acknowledgment
B. Cash donations
C. Quid pro quo
D. Time and services
E. Noncash donations
VI. Unrelated Business Income Tax
VII. Risk
A. Governance Policies
B. Best Practices
VIII. Political Activity and Lobbying
A. Political Activity
B. Lobbying
Director Protections from Personal Liability
1. Personal Liability can be found when:
a. Loans to Directors
b. Excess Benefits transactions
c. Payroll Taxes
d. Distribution of assets if insolvent
e. Personal Guarantees
f. Actions not taken in good faith
2. Protections from Personal Liability
a. Business Judgment Rule
b. Immunity Statutes
i. Illinois Volunteer Director Liability Act
ii. Volunteer Protection Act (federal)
c. Indemnification
i. May vs. Must
ii. D & O insurance
Issues for Attorney-Directors to Consider
1. Serving as a Director Only
a. Expectations of Counsel
2. Serving as Director and Counsel to the Nonprofit
a. Role Confusion and related insurance coverage issues
b. Competent Representation
c. Loss of Independent Professional Judgment
d. Loss of Attorney-Client Privilege
e. Conflicts of Interest
3. Tips to Navigate Your Role
a. Ask Employer/Firm
b.
c.
d.
e.
Questions
Be consistent!
Educate fellow board members
Define role in writing
Be fashionable: Wear only one hat at a time.