let’s go legal was created by washington nonprofits and … · 2019-08-26 · let’s go legal...

Let’sGoLegalwascreatedbyWashingtonNonprofitsandWayfindtoprovidebasicnonprofitlegaleducationtononprofitsinWashington.Thelegalinformationisnotlegaladviceandshouldnotbetreatedassuch.Pleaseconsultanattorneyforinformationrelatedtothecircumstanceofyourorganization.

©2019WashingtonNonprofits.Allrightsreserved.

Let’sGoLegalwasdevelopedthroughacollaborationbetweenWayfindandWashingtonNonprofits,inpartnershipwiththeOfficeoftheSecretaryofStateofWashington.Thesematerialsaccompanyvideosandaresupportedbykeydocuments.VisittheLet’sGoLegalwebpageformore:

www.wanonprofitinstitute.org/legalWayfindAnonprofitwithamissiontoimprovethequalityoflifeinWashingtonbyprovidingfreebusinesslegalservicesfornonprofitsandmicroenterprises.www.wayfindlegal.org

IfLet’sGoLegalleadsyoutothinkyouneedlegalassistance,contactWayfindtolearnmoreabouttheirfreelegalassistancefornonprofits.

WashingtonNonprofitsOurstateassociationforallnonprofits,WashingtonNonprofitsmakessurethatnonprofitshavewhattheyneedtosucceed.www.washingtonnonprofits.org

WashingtonNonprofitscreatesregularlearningopportunitiesfornonprofitsacrossWashington.Wehaveasetoflearningtoolsavailabletoindividualsandboardslookingtoimprovetheirpractice.

Let’sGoLegalisthethirdinaseriesofnonprofitlearningresources.Someofthetopicscoveredhereconnectwithtopicscoveredintheseotherresources.BoardsinGearUnlockingtheWhy,What,Who,andHowofNonprofitBoards

FinanceUnlockedforNonprofitsUnlockingfinancialliteracyfornonprofitboardmemberstodelivermissionandprotectassets

StrategicPlanninginNonprofitsYourstep-by-stepguidetoachieveyourmission

BuildAMovementUsingpublicpolicytoachieveyourmission

www.wanonprofitinstitute.org

Let’sGoLegalwasguidedbyateamoflegaladvisors.Wegreatlyappreciatetheircontributiontotheseresources.Theircontributionshouldnotbeviewedaslegaladvice.

• BrendaTauschLapora,Wayfind• JodiNishioka,Wayfind• JudyAndrews,TheApexLawGroup,LLP• NancyStephens,FosterPepper• TaylorBall,DavisWrightTremaineLLP

Formoreinformation:WashingtonNonprofitslearning@washingtonnonprofits.orgwww.washingtonnonprofits.org(855)299.2922

Introduction 3

Asyoubegin,keepinmindthesefourbigideas:1.Nonprofitlawiscomplicated,andonlyanattorneywithknowledgeofyourspecificsituationcancounselyou.Thesearetrainingmaterialsareintendedtodeepenyourunderstandingandhelpyouknowwhattoask.Thesematerialsarenotintendedtobelegaladvice.Pleaseseeanattorneyforanswerstospecificquestions.Wayfindprovidespro-bonolegalservices.

2.Eventhoughyouareanonprofit,youarerequiredlegallytooperatelikeacorporation.Onceanonprofitbecomesofficialintheeyesofthestate,itisacorporationgovernedbycorporatelaw,andyouneedtoprotectthatstatus.

3.Therearethreelegaljurisdictionsyoumustalwaysconsider:Local,StateandFederal.ThesematerialsreviewWashingtonStateLawandFederalLawrules.Consultyourlocaljurisdiction(city,town,orcounty)formoreinformationaboutbusinesslicensesandotherlocalrequirements.

4.Organizationshavelifecycles,justlikeanylivingthing.Theyarecreated,theygrow,theyplateau,andsometimestheydie.Thelegalneedsofanorganization’sboardandstaffareguidedbywherethatorganizationisinitslifecycleandwhatishappeningaroundit.

Introduction 4

OVERVIEW

Thesematerialscoverthefivemostimportanttopicsrelatedtononprofitcompliance:1. Governance–StateLaw

WebeginwithStateLawbecausethatiswhereanonprofitfirstregisterstobecomeofficial.TheArticlesofIncorporationarefiledtocreatethecorporationandtheboardadoptsBylawsandsetsoutitsplantomonitormoneyandkeeprecords.Itstayscompliantwithstatecorporationlawandotherstatelawrequirements,includingfilingcorporationandcharityreportseveryyear.

2. Governance–FederalTaxLaw

Manynonprofitorganizationswanttheirrevenuetobeexemptfromfederalincometaxationandwanttobeabletoaccepttax-deductiblefundsfromfoundationsorindividuals.ThismeanstheyneedtoapplyforspecialstatusfromtheIRSattheFederalLevel.Wecallsuchtaxexemptstatus,“501(c)(3)tax-exemption”andrefertoorganizationswiththistax-exemptstatus“501(c)(3)organizations”becausethose

Introduction 5

qualitiesforexemptionaredescribedinsection501(c)(3)ofthetaxcode.Tax-exemptorganizationsmustabidebyasetoffederaltaxrulesundersection501(c)(3).3. Fundraising

Whenyouacceptotherpeople’smoneyforacharitablepurpose,youagreetoabidebylawsthatrequirethatyouspendsuchmoneyonthepurposesforwhichitwasintended.Thesestateandfederalrulestellushowweneedtocommunicateaboutmoneyreceived,howweshouldaccountforit,andwhatkindsoffundraisingactivitieswecanconduct.

4. EmploymentLaw

Peopleengagedintheworkofanorganizationhelpitmoveitsmissionforward.Theyalsobringwiththemawholesetofrulesthatgovernhowtheyshouldbehired,paid,deployed,andtreated.

5. IntellectualPropertyLaw

Nonprofitscreateandcommunicateideasthatareintangible.Itisvitalthatorganizationsprotecttheseideasandtheproductsthatsharethem,fromwebsites,toprintmaterials,touniqueresearchontheissuestheyareaddressing.Likewise,itisimportantthatnonprofitsarecarefulabouthowtheyusetheideasofothers.

Thesematerialsarejustastart.Wehaveprovidedexamplesofpoliciesandadditionalresourcessothatyoucancustomizethisinformationtoyourorganization.

Introduction 6

VOCABULARY1.PERSON:Director,Boardmember,orTrustee?Whiletherearecleardistinctionsinthemeaningofthewordsthemselves,forthesakeofclarity,thisguideusesdirector,boardmemberortrusteeinthecontextofanonprofitboardinterchangeably,orasthesame.Thetermreferstothepeopleonthegovernanceteamofanorganization.2.ORGANIZATION:Nonprofit,Charity,or501(c)(3)?Thisguidecoversarangeoforganizationsservingthepublicgood.Let’sreviewthetypesoforganizationstobeclearwhatwearetalkingabout.Nonprofit(ornonprofitcorporation):Anorganizationcreatedforapublicbenefitwithoutshareholdersoraprofitmotive.CPAsoftencalltheseorganizations“Not-for-profits”tounderscorethattheirpurposeissomethingotherthanprofit;aprofitcanbeearnedandreturnedintotheorganization.Nonprofitstatusisdeterminedunderstatelaw.AnonprofitregisterswiththeWashingtonSecretaryofStateasacorporation,called“incorporation.”Charitablecorporation:AnonprofitmayalsoneedtoregisterwiththeWashingtonSecretaryofStateasa“Charity”whenitisaskingpeoplefordonationstosupportitscharitablepurposes.Itisrequiredtodosoifitiseitherraisingatleast$50,000inanyaccountingyearorpayingsomeonetodotheworkoftheorganization.Tax-exemptorganization:AnonprofitcorporationthathasbeenapprovedbytheInternalRevenueService(IRS)iscalled“taxexempt.”Organizingasanonprofitcorporationatthestateleveldoesnotautomaticallygranttheorganizationexemptionfromfederalincometax.Tax-exemptstatusexemptsanonprofitfrompayingfederalcorporateincometaxandallowscontributionsgiventotheorganizationtobetaxdeductibletothedonors.Therearemanyclassificationsoftax-exemptorganizations,with501(c)(3)beingjustoneofthem.Federaltaxlawappliestoall501c3tax-exemptorganizations.IRS:“IRS”standsfortheInternalRevenueService.TheIRSisthetaxingagencyfortheUnitedStatesFederalGovernment.TheIRSisthefederalagencythatregulatesandmonitors501c3tax-exemptorganizations.Section501c3oftheInternalRevenueCode,isthelawthatappliesto501c3tax-exemptorganizations.

StateLaw 7

1:GOVERNANCE–STATELAW

KNOWTherearefivekeyareasofStateLawfornonprofitstobeawareof:

1. ArticlesofIncorporation:ArticlesofIncorporationarethedocumentthatcreatesthecorporation.Itneedstomeetbothstaterequirementsforanonprofitcorporationaswellasfederaltaxlawrequirementstoqualifyasa501(c)(3)organization.

2. Bylaws:“Bylaws”referstothedocumentthatsetsouttherulesofoperationforyourorganization.

3. FiduciaryDuties:Boardmembershaveasetoflegalobligationstowardsthenonprofitcorporation,calledfiduciaryduties.

4. Recordkeeping:Anonprofitboardkeepsrecordssothatitcanreporttofundersorgovernmentagenciesorthecommunityaboutdecisionsandactionsmade.

5. StateTaxes:Whileatax-exemptorganizationdoesnotpayfederaltaxes,itisresponsibleforapplicablestatetaxes.

KNOWMORE1.ArticlesofIncorporationSinceArticlesaretheoriginaldocumentthatcreatesanorganization,anonprofitshouldkeepacopyofthefiledArticles.Ifitdoesn’thaveone,itcanorderthemfromtheSecretaryofState.TheArticlessettheparametersoftheorganization’scharitablepurposesandmaydescribewhetherornotithasmembers.A. Statelawrequirements

q RegisteredAgent:Anonprofitmusthavearegisteredagentandaregisteredoffice.Thisisthewaythatthestatecontactsthecorporation.Theregisteredagentneedstobeadependableperson,andtheaddressneedstobeastable

StateLaw 8

streetaddressinWashingtonState.TheRegisteredAgentmustsignaconsenttoserveinthatrolewhichisfiledwiththeArticles.

q Name:AnonprofitmusthaveanameforthecorporationthatcannotbethesameasorverysimilartothenameofanyothercorporationorlegalentityinWashingtonandcannothavewordslikeInc.,Co.,Company,Ltd.init.

q InitialDirectors:AnonprofitmustgivethenameandaddressofatleastoneindividualwhowillserveontheBoard.

q Incorporator:Anonprofitmustgivethenameandaddressofatleastonepersonwhowillserveastheincorporator.TheincorporatoristhepersonwhosignstheArticles.

B. FederaltaxlawrequirementsWhilewegointomoredetailonfederallawinthenextsection,let’sreviewtheelementsoftheArticlesofIncorporationthatrelatetofederalrequirements.

q Purpose:Anonprofitmustlistpurposesfortheorganizationthatmeetthedefinitionofcharitablepurposesunderfederaltaxlaw.SeetheSampleArticlesofIncorporationinourKeyDocuments,forspecificlanguage.

q Dissolution:Anonprofitmustprovideforthedistributionofanyremainingassetsintheeventthatthecorporationiscloseddown.Theassetsmustbedistributedtoanother501(c)(3)organizationortothefederalorstategovernmentforapublicpurpose.

q Limitationofliability(recommended):Thisprovisionchangesthestandardfordeterminingliabilityofdirectorsto“grossnegligence,”makingithardertoproveliability.

q Indemnification(recommended):Thisprovisionauthorizesthecorporationtopaycostsofdefendingofficersanddirectorswhoaresuedandinsomecases,anydamagesrequiredtobepaidbyanofficerordirector.

C. RequirementsafterIncorporation

q AnnualReport:AnonprofitneedstofileanannualreportwiththeSecretaryofStatetomaintain“ActiveStatus.”Itisduetobefiledeveryyearonthebirthdateofyourcorporation.Ifthenonprofitdoesn’tfileit,itwillbeadministrativelydissolved.

q InitialMeetingoftheBoardofDirectors:TheindividualslistedintheArticlesastheinitialdirectorsmeettotakeactionsnecessarytostartupthecorporation.ThisincludesadoptingtheBylaws,electingofficersandauthorizingopeningabankaccount.

D. ChangestotheArticlesTheArticlescanbechangeduponapprovaloftheBoardofDirectorsbyadocumentcalled“ArticlesofAmendment.”ThemostcommonamendmentstoArticlesaretochangethecorporation’snameortoaddnewpurpose.

StateLaw 9

2.BylawsTheBylawsaretherulesofoperationforthecorporationandarerequiredbyStateLaw.Bylawsarenotfiledwiththestate.ThenonprofitshouldkeepafileoftheBylawsintheoffice,withanyamendments.EachboardmembershouldkeepuptodateBylaws.TheyarefiledwiththeIRSwhenyouapplyfortaxexemption.

q Members:Washingtonnonprofitcorporationlawpermitsnonprofitcorporationstohavemembersasvotingornonvotingmembers.Ifyouhavemembers,itisimportanttobeclearwhyyouhavemembersandwhattheirrightsare.Ifyougivememberstherighttovote,youneedtoclearlystatewhatthosevotingrightsareandprovideappropriateprovisionsforholdingmeetings.

q BoardofDirectors:Understatelaw,onlyonedirectorisneeded;however,youwillneedatleastthreedirectorsifyouareseekingtax-exemptstatus.Usuallythenumberofdirectorsisdescribedasarange,withaminimumnumberandmaximumnumberofdirectorsgiven.TheBylawsalsoprovideforhowthedirectorsareelected,lengthofterm,theirqualifications,resignation,andremoval.Itisimportanttohaveremovalprovision.

q Meetings:TheBylawsprovideforhowtheBoardmeets,howitgivesnoticeof

meetings,howitholdsspecialmeetings,whataquorumis,andthevoteneededfortheBoardtoact.UnderWashingtonlaw,aBoardcanmeetin-person,orbytelephoneorsomeotherformofelectroniccommunication,aslongaseveryonecanheareveryoneelsespeak.Chatroomsonlinearenotpermitted.Youalsocanmeetintheformofwriting,calleda“consentresolution.”Directorsgivetheirconsentinwritingorbyemail.Suchaconsentmustbeunanimous;thatis,everydirectorneedstovote,andeveryonemustvoteinfavoroftheresolutionproposed.

q Committees:Bylawsoftencovertherolesofcommittees.Therearetwokindsof

committees:(1)boardcommittees,composedonlyofdirectorsthatcanactfortheBoard(non-boardmemberscanattendcommitteemeetingsandgiveinput,butcannotvote),and(2)advisorycommitteesthatgiveadviceandrecommendationstotheBoard.

q Officers:Theirdutiesaredescribedinthebylaws.

q Amendments:There’saprovisionthatdescribeshowthebylawsareamended.

UsuallyamendmentstothebylawsrequireasupermajorityvoteoftheBoardandsometimesspecialnotice.Ifthecorporationhasvotingmembers,thisprovisionmayrequirememberapprovalaswell.

StateLaw 10

3.FiduciaryDutiesTheWashingtonNonprofitCorporationActsetsoutthedutiesandprotectionsofthedirectors.A.ThreeDutiesDirectorsmustfulfilldutiesdescribedastheDutyofCare,DutyofLoyalty,andDutyofObedience:

q DutyofCare:Adirectorisexpectedtohavealevelofcompetencedescribedasexercisingthe“careofanordinarilyprudentpersoninlikeposition”undersimilarcircumstances.Thatmeansadirectorhastoexercisereasonablecarewhenmakingadecisionasaboardmember,usingdiligenceandindependentjudgment.

q DutyofLoyalty:Adirectorshouldactinthebestinterestoftheorganization,puttingtheorganizationbeforeself-interest.Thisisparticularlyimportantwherethereisthepotentialforpersonalgainandoftenariseswhenthereisaconflictofinterest.It’sabestpracticeforstaffandboardtosignaConflictofInterestpolicy.

q DutyofObedience:Adirectormustmakesurethattheorganizationisin

compliancewithlocal,state,andfederallawsandisstayingtruetoitsmission.B.ProtectionsWashingtonStatelawprovidesprotectionstomakesurethedirectorsareprotectedintheeventthedirectorsarethreatenedwithlegalaction.Inbothcases,provisionsshouldbewrittenintotheorganization’sArticlesofIncorporation.

q LimitationofLiability:Theseprovisionseliminateorlimitthepersonalliabilityofadirectorincaseswherethedirectordidnotactwithintentionalmisconductorreceiveinappropriatepersonalbenefit.

q Indemnification:Theseprovisionspermitadirectorwhoisapartofalegal

proceedingrelatedtothecorporationtoapplyforindemnification,inotherwords,tobecompensatedforlossordamage,bythenonprofit.Thiswouldcoverreasonableexpensesincurredbythedirectorinconnectionwithalegalcasebeforeacourt.Thisprotectioncanextendtoofficers,employeesoragentsoftheorganization.

4.RecordkeepingAnonprofitmustkeepclearandcompleterecordstoensurethatitcomplieswithtaxrules.Goodrecordkeepingsystemsalloworganizationstobetter

StateLaw 11

evaluateitsprograms,monitoritsbudget,andpreparefinancialstatementsandreturns.ItisabestpracticetohaveaDocumentRetentionPolicythatdescribeswhatrecordsshouldbekeptonfileandforhowlong.A.FinancialRecordsThelawdoesnotrequireacertainkindofrecordsystembecauseitwillvarybyorganizationalsize.Thesystem,however,shouldincludetheseitems:

q Receipts:Amountreceivedfromallsourcesq Purchases:Itemsbought,includinganyitemsresoldtocustomersq Expenses:Othercoststorunprogramsq Employmenttaxes(forstaffedorganizations)q Assets:Propertythatanorganizationownsandusesinitsactivities

B.BoardMinutesBoardminutesarethewrittenrecordoftheactionsanddecisionstakenataboardmeeting.Oncewrittenandapprovedbytheboard,theyareacceptedasatruerepresentationofthemeetingtheyrecordandcanbeusedaslegalevidence.UsuallytheSecretaryisinchargeofminutes.Anonprofitkeepsthemelectronicallyorinabinder.Theyshouldbekeptforever.C.OtherrecordsOtherkeydocumentsrelatedtotheorganizationshouldbekeptforatleast7years.ADocumentationandRetentionpolicyisconsideredbestpractice.5.StateTaxesTherearethreestatetaxesthatimpactWashingtonnonprofits:

a. Business&OccupationTax:AnonprofitmustfileaMasterBusinessLicensewiththeDepartmentofRevenueifitwillhaveemployeesorarevenuesourceonwhichitmustpayStateBusinessandOccupationTax(B&OTax)orSalesTax.TheB&OTaxtaxesthegrossincomethatyourorganizationbringsin.Donations,grantsandproceedsfromfundraisingeventsareexempt.

b. SalesTax:Organizationsthatsellproductsmustpaysalestax.

c. PropertyTax:Unlessexempt,nonprofitsmustpaypropertytaxesonany

propertythatitowns.

StateLaw 12

KEYDOCUMENTS• ArticlesofIncorporation• Bylaws• ConflictofInterestPolicy• DocumentRetentionPolicy• GiftAcceptancePolicy• Minutes

StateLaw 13

ACTION

IfYes,Datesentorreviewed

No StateLawLegalChecklist OurboardofdirectorsreviewstheArticlesofIncorporationatleastonceayear

tomakesurethatactualpracticeisconsistentwiththesedocuments. OurOrganization’sregisteredagentisstillattheaddressonfilewiththe

SecretaryofState.

TheregisteredagenthassignedaconsentformthatisonfilewiththeSecretaryofState

Wecanrelyonourregisteredagenttogiveusmailthatcomestothecorporation

OurboardofdirectorsreviewstheBylawsatleastonceayeartomakesurethatactualpracticeisconsistentwiththesedocuments.

OurOrganizationpreparesandmaintainsfinancialstatementsandstatementsofaccountonaregularbasis.

Ourboardhasreviewed,andifnecessarysecuredexpertadviceabout,ourfinancialcontrols,andregularlyrevisitsthistopictoassureadequatescopeandcompliance.

OurOrganizationhasadequateseparationoffinancialduties.Inparticular,thepersonwritingandsigningchecksisdifferentthanthepersonreviewingandreconcilingbankstatements.

MorethanonepersonisanauthorizedsigneronourOrganization’sbankaccounts,andthesesignatoriesareup-to-date.

OurOrganizationdoesnotmakeloanstoanyofitsofficersordirectors. OurOrganizationunderstandsandcarefullyobservesanyuseorspending

restrictionsongrantsandothercontributedfunds. OurOrganizationhasOfficerandDirectorinsurance,andtheboardmembers

havereviewedthepolicyandunderstandwhatitcoversandwhatitdoesnotcover.

OurOrganizationfilesanannualreportwiththeWashingtonSecretaryofState.(YoumayalsoneedtoregisterasaCharitableOrganization;see“Fundraising”formore.)

OurOrganizationhasfiledaMasterBusinessApplicationwiththeStateofWashington.

OurOrganizationunderstandsitsobligationtopayanystatesalesorbusinessandoccupationtaxes.

Ourorganizationunderstandswhetheritisentitledtoanyexemptionsfromthesetaxes

LOCAL OurOrganizationhasacurrentlicensetodobusinessfromthecity/county

whereitislocated. OurOrganizationunderstandsitsobligationtopayanylocalbusinessand

occupationorpropertytaxes.

StateLaw 14

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FederalLaw 15

2.GOVERNANCE–FEDERALLAWKNOWTherearefivekeyareasofFederalTaxLawfor501(c)(3)organizationstobeawareof.Ifthenonprofitdoesnothavetax-exemptionasa501(c)(3)organization,theywillnothavetocomplywiththefollowingfederaltaxrules.

1. CharitablePurposeandAssets:Federaltaxlawprovidestaxbenefitsto501(c)(3)organizationsbecausetheyprovideabenefitsocietyinsomeway.Inreturn,theseorganizationsmustfurtheroneormore“charitablepurposes”andprovideassurancethatitsassetswillremaincharitable.

2. Privatebenefit:Individualsororganizationsmaynotbenefitpersonallyfromtheactivitiesofatax-exemptorganization.

3. Lobbying:501(c)(3)organizationsarelimitedintheiradvocacyactivities.Lobbyingconductedby501(c)(3)organizationscannotbea“substantialpart”oftheiractivities.Thereisanimportantdifferencebetweeneducationandlobbying.

4. Politicalcampaigns:501(c)(3)organizationsmaynotparticipateinorinterveneinthecampaignofacandidateforpublicoffice.

5. Publicdocumentation:Tax-exemptorganizationsmaynotoperateinthedark.Theymustmakesomedocumentsavailableforpublicinspection.Theymustfileannualinformationaltaxreturnsandprovidedonorswithappropriatedonationreceipts.

KNOWMORE1.CharitablePurposeandAssetsA. Purpose:A501(c)(3)organizationmustbeorganizedandoperated

FederalLaw 16

exclusivelyforoneormorecharitablepurposes.Thesepurposesmustmeetthedefinitionofcharitablepurposesunderfederaltaxlaw.

B. Dissolution:TheArticlesmustprovidethat,upondissolutionofthe501(c)(3)organization,allassetsmustgotoanother501(c)(3)organizationoragovernmententityforapublicpurpose.

C. Incomeunrelatedtopurpose:501(c)(3)

organizationsmayhavealimitedamountofunrelatedbusinessincome(incomeunrelatedtoitscharitablepurpose),butitmustreportitandpaytaxesonit.Ifthereistoomuchunrelatedbusinessincome,oritisnotreported,itcanjeopardizethenonprofit’stax-exemptstatus.Therearelegalteststodetermineifincomeisunrelatedbusinessincomeandifthereistoomuchunrelatedbusinessincome.Ifthisisanissue,theorganizationshouldconsultanattorney.

2.PrivatebenefitTax-exemptorganizationsarecreatedtoserveapublicgood,notthepeoplecreatingorgoverningtheorganization.Noofficer,directororotherinsidercanthereforereceiveanybenefitforwhichtheyhavenotappropriatelypaid.Loanstoboardmembersarenotpermitted.Ingeneral,aboardneedstopaycloseattentiontocompensation,purchasesandsales,orotherfinancialtransactionswithinsiders.Transactionswithinsiderscannotexceedfairmarketvalue.TheIRScanimposefinancialpenaltiesoninsidersthatviolaterulesaroundprivatebenefit,aswellasondirectorswhoapprovesuchdealings.Theorganizationmayhaveitstax-exemptstatusrevoked.3.LobbyingLobbyingisanyattempttoinfluencelegislationby(1)expressingapositiononspecificlegislationtoalegislatorortheirstaff,or(2)encouragingmembersofthegeneralpublictocontacttheirlegislatorswithapositiononaspecificlegislation(likea“calltoaction”).Contrarytowhatmanypeoplethink,tax-exemptorganizationsmayengageinlobbyingifitisnotasubstantialpartoftheiractivities.Alltax-exemptorganizationsmayengageineducation.

Definitionof“Charitable”

Theterm"charitable"isusedintheInternalRevenueCodesection501(c)(3)initsgenerallyacceptedlegalsense.Thatincludesreliefofthepooranddistressedoroftheunderprivileged;advancementofreligion;advancementofeducationorscience;erectionormaintenanceofpublicbuildings,monuments,orworks;lesseningoftheburdensofgovernment;promotionofsocialwelfare.

-irs.gov

FederalLaw 17

A. Lobbyinglimitsq The“substantialpart”test:OrganizationsthatchoosenottoelectintoSection

501(h)ofthetaxcodearestillsubjecttosection501(c)(3)andtherulesdevelopedincommonlaw.Knownasthe“substantialparttest,”theserulesrequirethat“nosubstantialpartofacharity’sactivitiesconsistofcarryingonpropagandaorotherwiseattemptingtoinfluencelegislation.”“Substantial”hasneverbeenclearlydefined.However,itisclearthatthedefinitionoflobbyingunderthe“substantialparttest”isnotrelatedtoanexpenditureofmoneyalone.Forexample,activitiesconductedbyvolunteerstoinfluencelegislationmaybeconsideredlobbying.

q 501(h)expendituretest:Those501(c)(3)organizationsthatchoosetheSection501(h)electionmustapplyan“expendituretest.”Underthisstandard,lobbyingonlyoccurswhenthereisanexpenditureofmoney.Itsetsforthspecificdollarlimits,calculatedasapercentageoftheorganization’stotalexemptpurposeexpenditures.Section501(h)anditsrelatedregulationsalsoprovidehelpfuldefinitionsoflobbyingandseveralexemptions.

B.EducationTobeclear,501(c)(3)organizationsmayengageineducationwithoutlimitation.Theymayeducateanyoneanytimeaboutthepeopletheyserve,theimpactofpoliciesonthesepeople,andwhatideastheyhavetohelptheircommunity.Theymaytellthestoriesofclientsorspeakupwhenabettersolutionispossible.Theymayinviteapolicymakerintotheirfacilitytoseetheirworkinaction.Nonprofitsplayanimportantroleintheeducationoftheircommunity,includingpolicymakers,abouttheirworkandtheissuesrelatedtotheirsuccess.4.PoliticalcampaignsA501(c)(3)organizationisnotallowedtofavororopposeacandidateforpublicoffice.Acandidateincludesadeclaredcandidate,anincumbentuntiltheystatethattheywillnotseekre-election,andapersonsubjecttospeculation.A501(c)(3)organizationmaynotmakeendorsements.Itmaynotuseitsresourcesforacampaignforpublicoffice.Itisimportanttopreventanycampaignactivitybyanemployee,volunteerorBoardmemberfrombeingattributedtotheorganization.5.PublicdocumentationA.AnnualfilingAtax-exemptorganizationmustfileaform990oroneofitsvariationseachyearfourandone-halfmonthsaftertheendofitsfiscalyear.Therearefinancialpenaltiesforfilingtheform990late.Ifanorganizationfailstofileaform990forthreeconsecutiveyears,itstax-exemptstatuswillbeautomaticallyrevoked.

FederalLaw 18

B.PublicDisclosureItisconsideredtobeinthepublic’sbestinterestthattax-exemptorganizationsmakepublickeyinformationabouttheiractivities.Specifically,atax-exemptorganizationmustmakeavailableforpublicinspectionits:

q Applicationfortaxexemption,whichiseitherForm1023orForm1024dependingontheorganization.

q Annualreturn,whichincludesForm990anditsvariationsforthepriorthreeyears.

Itisnotrequiredtodisclosethenameandaddressofanycontributor.

KEYDOCUMENTSInadditiontotheStateLawdocuments,thesearekeyFederalLawdocuments:

• Form1023• Form990N• Form990EZ• Form990

FederalLaw 19

ACTIONIfYes,Datesentorreviewed

No FederalLawLegalChecklistKEEPINGCURRENTWITHIRS-MAINTAININGTAX-EXEMPTSTATUS

OurorganizationfilesaversionoftheIRSForm990everyyear.q OurOrganizationdoesnotnormallyreceivemorethan$50,000inannualgross

receiptsandfilesa990N(e-Postcard).q OurOrganizationnormallyreceivesmorethan$50,000ingrossreceiptseach

yearandfilesannualForm990or990EZwiththeIRS. OurOrganizationunderstandsits501(c)(3)determinationletterfromtheIRS,and

itsstatusaseithera“publiccharity”ora“privatefoundation. OurOrganization’sBoardofDirectorsregularlyreviewstheOrganization’sfinancial

statements,andreviewsandapprovestheannualIRSForm990. IfourOrganizationreceivesfundsfromregularly-conductedbusinessactivitiesthat

areunrelatedtoitsexemptpurpose,itcorrectlyaccountsforthosefundsandunderstandshowtoreportandpaytaxesonthisunrelatedbusinessincome.

KEEPINGCURRENTWITHIRS OurOrganizationhasnotifiedtheIRSofanymaterialchangestoourexempt

purposesoractivities,oramendmentstoourArticlesofIncorporationorBylawssinceweappliedfor501(c)(3)status.

CONFLICTOFINTEREST OurOrganizationhasawrittenconflictofinterestpolicyandfollowsthatpolicy. Anytransactionsourorganizationundertakeswithitsinsiders,knownas

“disqualifiedpersons,”isapprovedbytheboardoranindependentcommittee,nomembersofwhichhaveapersonalorfinancialinterestinthetransaction.

Thesettingofourexecutivedirector’ssalaryisbasedonappropriatecomparabilitydata.

Transactionsareconcurrentlydocumentedbytheboardorcommitteewhichstatesthebasisforitsapprovalinwriting.

OTHERPOLICIES OurOrganizationhasconsideredadoptingawrittenwhistleblowerpolicyandif

adopted,followsthatpolicy. OurOrganizationhasconsideredadoptingawrittendocumentretentionpolicy

andifadopted,followsthatpolicy.ADVOCACY

OurOrganizationdoesnotendorsecandidatesforpoliticalofficeanddoesnotparticipateinanypoliticalcampaignfororagainstacandidateforanypublicoffice.

Ourlobbyingactivities,ifany,areaninsubstantialpartofourOrganization’soverallactivities.Ifweareparticipatinginanylobbyingactivities,wehaveconsideredthetwowaysthatnonprofitscandocumenttheirlobbyingactivities.

Fundraising 20

3.FUNDRAISINGANDDONATIONSKNOWTherearefourkeyareasoflawrelatedtofundraisingfornonprofitstobeawareof:

1. Registration&Reporting:InWashington,nonprofitsthatsolicitmembersofthepublicfordonationsandraiseatleast$50,000annuallyorpayanyonetocarryouttheactivitiesoftheorganizationmust(1)registerasaCharitableOrganizationand(2)fileyearlyreportswiththeState.

2. Writtenacknowledgement:Certaindonationsrequirewrittenacknowledgementforthedonortobeabletotakeadeduction.

3. Restrictedgifts:Insomecases,donorsmayrestricthowtheirgiftcanbeused.Anendowmentisonekindofrestrictedgift.

4. Fundraisingactivities:Anumberoflawsimpacthowanorganizationcanraisemoney,fromholdingaraffletoservingalcohol.Disclosurerequirementsapplytononprofits.

KNOWMORE1.Registration&ReportingInWashington,nonprofitsthatsolicitmembersofthepublicfordonationsandraiseatleast$50,000annuallyorpayanyonetocarryouttheactivitiesoftheorganizationmustregisterasaCharitableOrganizationwiththeSecretaryofState,andfileyearlyreportswiththeState.Thereportisduenolaterthanthelastbusinessdayofthe11thmonthaftertheendoftheorganization’saccountingyear.Registrationisalsorequirediftheorganizationengagesacommercialfundraiser.Churchesarenotrequiredtoregister.2.Writtenacknowledgement(substantiation)Donationsaboveacertainlimitareonlytaxdeductibleifthedonorhasawrittenacknowledgementofthegift.

Fundraising 21

q Singlecontributionof$250ormore:

q Singlecontributionof$75ormorewheregoodsorserviceswerereceivedbythedonor(unlessthegoodswereincidental,suchasacoffeemug)

Therearealsospecialrulesarounddonationsofcertaintypesofproperty,suchasvehicles,worksofart,conservationeasementsandpropertyvaluedatmorethat$500.3.RestrictedgiftsContributionsrestrictedbythedonormustbeusedinaccordancewithanydonorrestrictionsonthatgift,whetherthedonorrestrictsagiftastopurposeorexpenditure.Restrictedgiftsrequireadditionaltrackingandaccountingtoensurethattheyarestewardedappropriatelyandusedfortheirintendedpurpose.Onetypeofrestrictedgiftisanendowment.Nonprofitswithincome-producingassetsof$250,000ormoremayneedtoregisterasaCharitableTrustwiththeSecretaryofState.4.FundraisingActivitiesManynonprofitsholdeventsorconductotherfundraisingactivitiesinordertoraisemoney.Someofthoseactivitiesmaybesubjecttootherlaws.

q Raffles:Mayrequirealicense.SeeWAStateGamblingCommission.q Gaming&gambling:Mayrequirealicense.SeeWAStateGamblingCommission.q Auctions:Mayinvolvepayingsalestaxesontangiblepropertyq Alcohol:requiresaliquorlicense

KEYDOCUMENTS

• QuidProQuoLetter(thatmeetsfederalrequirements)• ThankYouLetter(thatmeetsfederalrequirements)

WrittenAcknowledgementshouldinclude:

q Nameoforganizationq Amountofcashcontributionq Description(notvalue)ofnon-cashcontributionq Statementthatnogoodsorserviceswere

provided,ifthatwasthecaseq Descriptionandgoodfaithestimateofthe

valueofgoodsorservices,ifany,thatanorganizationprovidedinreturnforthecontribution

Fundraising 22

ACTION

IfYes,Datesentorreviewed

No Fundraising&DonationsChecklistREGISTRATIONASACHARITY IfourOrganizationsolicitscharitabledonationsfromthegeneralpublic,it

complieswithWashington’sCharitableSolicitationsAct,includingregistrationandannualreportingrequirements.

GIFTACKNOWLEDGEMENT OurOrganizationacknowledges,inwriting,giftsof$250ormore.IN-KIND IfourOrganizationprovidesanygoodsorservicesofmorethananominalvalue

toadonorwhomakesacontributioninexcessof$75.00,ourOrganizationprovidesadisclosurestatementtothedonorwithagoodfaithestimateofthefairmarketvalueofanybenefitthatthedonorreceived.

IfourOrganizationreceivesgiftsofvehiclesorothernoncashgifts,itunderstandsandfollowstheIRSregulationsforsubstantiationofthosegifts.

EmploymentLaw 23

4.EMPLOYMENTLAW

KNOWTherearefivekeyareasofEmploymentLawfornonprofittobeawareof:

1. MinimumWage&Overtime:Federal,State,andinsomecasesLocallawregulatesemployers’paypracticesandpolicies.WashingtonemployersmustcomplywithFederal,State,andLocallaw.

2. HiringProcess:Employersshouldunderstandthebasisforat-willemployment.Employersmustalsoverifytheworkeligibilityofemployees.

3. Non-employees:Interns,Volunteers&IndependentContractors:Nonprofitsneedtomakesuretheyaretreatingthesecategoriesofnon-employeesconsistentwiththelawtoavoidincurringliability.

4. Payroll:Employeesmustbepaidatleastonceamonthonaregularlyscheduledpayday.PayrolltaxesmustbewithheldandpaidtotheIRS.IRSisverystrictonpayrolltaxesandwillholdindividualboardmembersliableforunpaidpayrolltaxes.

5. Anti-discriminationLaws:Federalandstatelawprohibitdiscriminationacrossawidearrayofcharacteristics.

KNOWMORE1.MinimumWage&OvertimeA.MinimumWage.Mostemployeesmustbepaidtheminimumwageforall“hoursworked.”“Hoursworked”meansalltimeduringwhichanemployeeperformsworkforthebenefitoftheemployer.Thisincludestimespentopeningorclosingabusiness,andrequiredmeetingsandtraining.Italsoincludestimespendbyanemployeevoluntarilycontinuingtoworkonanassignedtaskattheendofashiftoronadayoff.Allworktimemustbepaidforbytheemployer.

EmploymentLaw 24

For2017,theWashingtonMinimumWageis$11.00perhour,higherthanthefederalminimumwageof$7.25perhour.Employersarerequiredtopayemployeesthemorefavorable(i.e.,higher)oftheStateandFederalminimumwage.SeveralcountiesandcitiesthroughoutWashingtonstatehaveenactedlocalminimumwageordinances.Employersneedtoknowwhatminimumwageappliestotheiremployees.B.OvertimeMostemployeeswhoworkmorethan40hoursina7-dayworkweekmustbepaidovertimecompensationforallhoursworkedover40.Foreveryovertimehourworked,theemployeemustbepaid1.5timestheemployee’sregularrateofpay.Anemployee’s“regularrate”isnotnecessarilythesameasanemployee’sfixedorstraighttimerate.Theregularrateincludesallcompensationforemploymentpaidtotheemployeedividedbythenumberofhoursworkedintheweekforwhichthecompensationwasintended.Paymentssuchcommissionpayments,premiumpay,andnon-discretionarybonusesareincludedintheregularrate.Discretionarycompensation,expensereimbursements,andpayforunworkedtime(holiday,vacation,sickpay)doesnotneedtobeincludedwhencalculatingtheregularrate.C.ExemptStateandfederallawprovidesexemptionfromovertimepayforemployeesemployedasbonafideexecutive,administrative,professional,oroutsidesalesemployees.Toqualifyfortheexemption,employeesmustmeetcertaintestsregardingtheirjobdutiesandbepaidonasalarybasis.Jobtitlesdonotdetermineexemptstatus.Inorderforanexemptiontoapply,anemployee’sspecificjobdutiesandsalarymustmeetalloftherequirements.Payinganemployeeonasalarybasisrequiresthattheemployeereceiveapredeterminedamountofpayonaweeklybasis,regardlessofthequantityorqualityofthehoursworked.Currentlyfederallawrequiresthatemployeesmustbepaidinanamountequalto$455perweek($23,660peryear)inordertoqualifyforthemanagement,administrativeorprofessionalexemptions.Inadditiontothesalarybasisrequirements,exemptemployeesmustalsomeetdutiesrequirements.Stateandfederaldutiestestsdifferslightlyandemployersmustcomplywithboth.Thethreemostcommonlyappliedexemptionsaretheexecutive,administrative,andprofessionalexemption.SeeChartAonthenextpage.

MinimumWagesAroundWashington(asofJanuary2017)

SeaTac:Certainemployersinthehospitalityandtransportationindustriesmustpay$15.34/hour.

Seattlehasamulti-yearplanforincreasingtheminimumwageto$15perhour.Wageratesdependonanumberoffactors,includingthesizeoftheemployer.

Tacomaisgraduallyincreasingitsminimumwageto$12perhouroveratwo-yearperiod.

EmploymentLaw 25

Stateandfederallawalsoprovideexemptionsforcertainothercategoriesofemployees.Employersshouldconsultwithlegalcounselwhenmakingadecisionwhethertoclassifyanemployeeasexemptfromovertime.Employersarenotrequiredtopayemployeesahigherrateofpaytoworkonholidaysorweekends.Employersarenotrequiredtopayemployeesseverancepay.

CHARTA:COMMONEXEMPTIONS

Executiveexemption

Administrativeexemption

Professionalexemption

Anemployeemust: Anemployee’sprimarydutymust: Anemployeequalifiesiftheemployee:

q Havetheprimarydutyofmanagingtheenterpriseinwhichtheemployeeisemployedorofacustomarilyrecognizeddepartmentorsubdivision.

q Customarilyorregularlydirecttheworkoftwoormorefulltimeemployeesortheirequivalent;and

q Havetheauthoritytohire,fire,promote,ordemoteotheremployeesofhaveparticularweightgiventosuggestionsandrecommendationsastosuchdecisions.

q Involveofficeornon-manualworkdirectlyrelatedtothemanagementorgeneralbusinessoperationsoftheemployeroritscustomers.Examplesprovidedintheregulationsincludeworkinareassuchasfinance,accounting,budgeting,auditing,qualitycontrol,purchasing,marketing,personnelmanagement,publicrelations,anddatabaseadministration;and

q Exercisediscretionandindependentjudgmentwithrespecttosignificantmatters.

q Hasaprimarydutyofperformingofficeornon-manualworkrequiringknowledgeofanadvancedtypeinafieldofscienceorlearningcustomarilyacquiredbyaprolongedcourseofspecializedintellectualinstruction,andwhosedutiesrequireconsistentexerciseofdiscretionandjudgment;or

q Hasaprimarydutyrequiringinvention,imagination,originality,ortalentinarecognizedfieldofartisticorcreativeendeavor.

2.HiringProcessA.At-WillEmploymentWashingtonStaterecognizesthedoctrineofat-willemployment.At-willemploymentmeansthatemployeescanquitwhenevertheywantandtheemployermayterminatethemwheneveritwants,providestherenocontractoragreementtothecontrary.Allemployeesareat-willemployeesunlesstheemployerhastakenaffirmativestepstochangethestatus.Themajorityofemployeesshouldbeemployedonanat-willbasistoprovidetheemployerwithflexibilityandtominimizecost.EmployersshouldhaveapolicyconfirmingAt-WillEmployment.SeeKeyDocumentsforasamplepolicy.

EmploymentLaw 26

B.EmploymentVerificationEmployersmusthaveallemployeeshiredonorafterNovember6,1986completeFormI-9.SeeKeyDocumentsforaBlankandCompletedForm.3.Non-employees:Interns,Volunteers,andIndependentContractorsA.UnpaidInternsThelawnarrowlylimitsanemployer’sabilitytouseunpaidinterns.TheUnitedStatesDepartmentofLaborlooksatsixcriteriaforevaluatingwhetheranunpaidinternsstatusisvalid:

1. Theinternship,eventhoughitincludesactualoperationofthefacilitiesoftheemployer,issimilartotrainingwhichwouldbegiveninaneducationalenvironment;

2. Theinternshipexperienceisforthebenefitoftheintern;3. Theinterndoesnotdisplaceregularemployees,butworksunderclose

supervisionofexistingstaff;4. Theemployerthatprovidesthetrainingderivesnoimmediateadvantagefrom

theactivitiesoftheinternandonoccasionitsoperationsmayactuallybeimpeded;

5. Theinternisnotnecessarilyentitledtoajobattheconclusionoftheinternship;and

6. Theemployerandtheinternunderstandthattheinternisnotentitledtowagesforthetimespentintheinternship.

B.VolunteersIndividualswhovolunteerordonatetheirservices,usuallyonapart-timebasis,forpublicservice,religiousorhumanitarianobjectives,notasemployeesandwithoutcontemplationofpay,arenotconsideredemployeesofthereligious,charitableorsimilarnon-profitorganizationsthatreceivetheirservice.Eachvolunteershouldsignadocumentconfirmingvolunteerstatus,includingacknowledgmentofnopay.C.IndependentContractorsAn“IndependentContractor”isapersonorbusinessthatperformsservicesforanorganizationunderacontractbetweenthem,withthetermsspelledoutsuchasduties,pay,theamountandtypeofwork,andothermatters.AnIndependentContractorpaystheirownSocialSecurity,taxes,anditnoteligibleforretirementorhealthbenefits.Individualworkershiredtoperformfunctionsessentialtoyourorganization’sprimarypurpose,whoworkfullorparttimeundertheemployer’scontrol,andwhodonot

EmploymentLaw 27

providesimilarservicesforotherorganizationsarenotlikelytoqualifyasindependentcontractors.TheU.S.DepartmentofLaborevaluatesindependentcontractorstatusbasedonthefollowingfactors:

1. Extenttowhichtheworker'sservicesareanintegralpartoftheemployer'sbusiness;

2. Permanencyoftherelationship;3. Amountoftheworker'sinvestmentinfacilitiesandequipment;4. Natureanddegreeofcontrolbytheprincipal;5. Worker'sopportunitiesforprofitandloss;and6. Levelofskillrequiredinperformingthejobandtheamountofinitiative,

judgment,orforesightinopenmarketcompetitionwithothersrequiredforthesuccessoftheclaimedindependententerprise.

Nosinglefactorisregardedasmoreimportantthananother.Misclassifyingemployeesasindependentcontractorscanexposeanemployertoliabilityforunpaidminimumwageandovertime,sickandvacationpay,workers’compensationpremiums,Federal,StateandLocalincometaxwithholdings,SocialSecurityandMedicarecontributions,unemployment,insurance,taxes,andbenefits.Theremaybepenaltiesunderstateandfederallawformisclassification.4.PayrollAnemployermustestablishregularlyscheduledpaydaysatleastonceamonth.Whenanemployeehasceasedworkingforanemployer,theemployermustpaythefinalwagesdueattheendoftheestablishedpayperiod.Paymentmustbemadebymidnightonthepayday.Ifpaychecksaremailed,theymustbepostmarkedonthepayday.Ifpaymentismadeusingdirectdeposit,fundsmustbeavailableontheestablishedpayday.5.Anti-DiscriminationLawsFederallawprohibitsemploymentdiscriminationbasedonthefollowingcoveredbases:race,color,creed,religion,sex(includingpregnancy-relateddiscrimination),nationalorigin,age,disability,geneticinformation,andmilitaryorveteranstatus.Washington’santi-discriminationlawsprotectthesamecharacteristicsasfederallawandalsoextendprotectionsbasedonveteranandmaritalstatus,sexualorientation,andpoliticalactivities.Federallaw(TitleVII)appliestoemployerswith15ormoreemployees.Washington’sLawAgainstDiscriminationappliestoemployeeswitheightormorepersons.

EmploymentLaw 28

KEYDOCUMENTS• Anti-discriminationPolicy/EqualEmploymentOpportunity(EEO)Policy• At-willPolicy• ConfidentialityPolicy• I-9Form:Blank• IndependentContractorchecklist(http://www.lni.wa.gov/IPUB/101-063-

000.pdf)• WhistleblowerPolicy

EmploymentLaw 29

ACTION

IfYes,Datesentorreviewed

No EmploymentLawChecklist

EQUALOPPORTUNITY Ourorganizationdoesnotdiscriminateinemploymentonthebasisofrace,age,

sex,disability,maritalstatus,nationaloriginorcreed,orsexualorientation.WORKERSCOMPENSATION OurOrganizationhasevaluatedwhetheritwishestoprovideworkerscompensation

coverageforvolunteers.Ifithaselectedtoprovidethiscoverage,ithastimelynotifiedtheDirectoroftheDepartmentofLaborandindustriesofitsintenttodosoandismakingtherequiredcontributions.

TYPESOFWORKERS OurOrganizationisconfidentthatithasproperlycategorizedvolunteers,

independentcontractors,employees,andinterns,andistreatingthemappropriatelyfortheircategory.

OurOrganizationisconfidentithasproperlyclassifiedemployeesaseitherexemptornonexempt,andistreatingthemappropriatelyfortheircategory.

ORGANIZATIONSWITHSTAFFLABORPRACTICE IfourOrganization’sstaffmembersworkovertimeorhaveunusualhours,weare

complyingwithwageandhourstandardsthatgovernovertime. OurOrganizationhasconsideredwhetheritshouldadoptwrittenpersonnel

policiesthatinclude,forexample,adescriptionofemployeebenefits,aprocessforhandlingaharassmentcomplaintorothergrievances,terminationprocedures,theprocessforperformancemanagementoremployeereviewsandotheremploymentpractices.

WORKELIGIBILITY OurOrganizationverifiesthatallemployeesareeligibletoworkintheUnited

StatesbyhavingallemployeescompleteformI-9whichtheorganizationretainsonfileforthreeyearsafterthedateofhireoroneyearafterthedateofterminationofemployment,whicheverislater.

FEDERALREQUIREMENTS OurOrganizationwithholdsfederalincomeandFICAtaxesfromemployees’

paychecks,depositsthesewithheldfunds,alongwiththeemployer’sshareorFICAtaxes,withtheIRSonaregularbasis,andfilesaForm941quarterlywiththeIRS.

OurOrganizationpreparesFormW-2foremployeesandForm1099foranyindependentcontractors.

STATEREQUIREMENTS OurOrganizationhasregisteredwiththeWashingtonStateDepartmentsof

LaborandIndustriesandEmploymentSecurity.OurorganizationmakesquarterlypaymentstoESDforunemploymentinsurance,andmakesquarterlypaymentstoL&Iforworkerscompensationinsurance.

EmploymentLaw 30

Staffagories: A Nonprofit People Sorting Game

Created by Washington Nonprofits & Wayfind as a part of Let’s Go Legal For more visit www.wanonprofitinsititute.org

STAFF Non-exempt Exempt

Executive Administrative Professional

NON-STAFF Interns Volunteers Independent Contractors

1. Find a partner. 2. Ask your partner to read the name of anyone on your Staffagories game. 3. Tell your partner at least one reason why this person is properly categorized. 4. Refer to the Let’s Go Legal kit for more information if needed.

IntellectualPropertyLaw 31

5.INTELLECTUALPROPERTYLAW

KNOWTherearefivekeyareasofIntellectualPropertyLawfornonprofittobeawareof:

1. IntellectualProperty(IP)Defined:IntellectualPropertyareassetsofanindividualorenterprisethatareintangible.TherearefourkindsofIP:Trademarks,Patents,Copyright,andTradeSecrets.

2. Ownership:KnowingwhoownstheIntellectualPropertyofthekeyelementsofyourorganizationisagoodplacetostartintheprocessofprotectingyourIPrights.

3. Respect:Justaswewantotherstohonorourrights,weneedtorespecttheintellectualpropertyrightsofothers.IntellectualPropertylitigationisexpensive.AdoptingapolicyofrespectingtheIntellectualPropertyrightsofothersinvolvessearchingtoseeifothershaveadoptedIPsimilartoyourspriortoyouradoption.

4. PrivacyPolicy:Thegeneralpublicwantstoknowhowyouaregoingtousetheinformationitgivesyou,particularlyifgatheredthroughawebsite.Aprivacypolicykeepswebcommunicationhonestbytellingvisitorswhatyouwilldowiththeirinformation.

5. Website&OnlineUsage:YouronlinepresenceopensthedoorforIntellectualPropertychallenges,bothinhowyouusetheinformationfromothersandhowothersmakeuseofyourinformation.

KNOWMORE1.IntellectualProperty(IP)DefinedUnlikerealpropertyorpersonal(material)property,IntellectualPropertyistheassetsofanindividualorenterprisethatareintangible.Intellectualpropertyistheownershipinterestapersonorcompanymayhaveincreationsofthemind.Intellectualpropertylawgrantsthecreatorofintellectualpropertyexclusiverightsforexploitingandbenefitingfromtheircreation.TherearefourmaintypesofIntellectualPropertyprotections:A. Trademarks:Protectswords,symbolsandother“marks”thatarecapableof

identifyingitsowner.Atrademarkisanameorsymbolorotherindicatorthatidentifiesyourenterprisetothepublic.Withcontinuoususe,rightscanlastforever.

IntellectualPropertyLaw 32

Trademarkrightsareacquiredbyusingthetrademark.Usethe™markinconnectionwithanunregisteredtrademarkandthe®toindicatearegisteredtrademark.Trademarksdonotcreatemonopolyrights.Theyareacquiredinconnectionwithparticulargoodsandservices.Forthisreason,therecouldbemorethanonepartywiththesamemarkfordifferent,unrelatedservices.Trademarksarealsonotallcreatedequally.Somearestrongerthanotherswithstrongerrightsattachingtoarbitraryormadeupwordsthantowordsthatarehighlysuggestiveofthegoodsorservicestheycoverorevendescriptiveofsuchgoodsorservices.Registration:RegistrationisavailableattheStateandFederallevel.(Note:yourcorporatenameregisteredwiththestateisnotthesameasatrademarkanddoesnotgiveyouproprietaryrightstoaname.)Federalregistrationisonlyavailableifthemarkisusedin“interstate”commerce.Theownerofafederallyregisteredmarkacquiresadditionalstatutoryrightsandenforcementsbythecourts.AFederalregistrationgrantsnationwiderightseventhoughthetrademarkmayonlybeusedinasfewastwostates.Corporatename:Yourcorporatenameisnotautomaticallyatrademark,butitcanbeatrademarkifyouregisterit.Thefirsttouseatrademarkinconnectionwithparticulargoodsand/orserviceshaspriorrights.Domainnames:Adomainnameisalsonotatrademark,thoughtheyarguablyserveanidentifyingfunction.Domainnamesarenotacquiredinthesamewayasatrademarknoraretreatedasatrademark.However,itispossiblethataportionofatrademarkmaybeincorporatedintoadomainnameandthedomainnameitselfmaybeusedorregisteredasatrademark.Use:Atrademarkshouldbeusedconsistentlythroughouttheorganization.Improperuseofatrademarkcouldleadtoerosionorweakeningofthemarkandsometimesloss.

B. Copyright:Protectsrightsintheexpressionofanideaor“artisticworks.”Oncethe

copyrighttermends,worksfalltothePublicDomainandmaybeusedbyanyone,butitissometimesdifficulttoconfirmwhatisinthePublicDomain.Copyrightholdershavetheexclusiverightstoreproduce,createderivativeworksbasedonthework,distributecopies,performordisplaythework.Therightsattachatthetimeofcreationbutinordertohavingstandingtosueincourt,theownerwillneedtoregistertheworkwiththeUSCopyrightOffice.Thesymbol©isusedinconnectionwithcopyrightedmaterial.

IntellectualPropertyLaw 33

Ifyourorganizationproducesmaterials,itownsthecopyrighttothosematerials.Itisagoodideatoobtainawrittenassignmentfromthoseindividualsinvolvedincreatingthematerialsifthereisanyuncertaintyregardingownership.Ifthematerialswillbemarketedorused,itisworthwhiletofiletoregisterthecopyrightinthenameoftheorganization.Thefeeisinexpensive,andtheCopyrightRegistrationCertificateisapowerfulattachmenttoaceaseanddesistlettershouldtheneedarise.

C. Patents:Protectsnew,non-obvioususefulinventions.Utilitypatentslast20years.

Patentsmustberegisteredforrightstoattach.Apatentattorneyshouldbeconsultedifyoubelieveyouhaveaninventionthatqualifiesforprotection.

D. TradeSecrets:A“TradeSecret”isinformationthatisconfidentialtothebusiness

andheldinsecret.ThereisnoregistrationprocessandTradeSecretsremainprotectedsolongastheinformationisheldinconfidence.IntellectualPropertycounselshouldbeconsultedregardingbestpracticestoensureinformationisprotectedasaTradeSecret.

2.OwnershipIntellectualPropertyisgenerallyownedbyitscreator.Ifcreatedbyanemployee,theworksaregenerallyassignedtotheemployereitherbylaworbycontractualagreement.Likeanyothercorporateassets,anonprofitshouldholditsIntellectualPropertyinitsownnameorthenameofsomeotherentityitfullycontrols.HoldingIPinthenameofanindividualputsthecompanyatriskthatthatindividualmightabscondwiththeIntellectualPropertyoruseitforhis/herownbenefit.Importantnote:ThoughnottechnicallyIntellectualProperty,yourdomainnameshouldalsoberetainedbyyourcorporation–inthenameofthecorporation.Donotallowawebmastertoregisterormaintainyourdomainname–itisacorporateasset.3.RespectItisimportanttorespecttheIntellectualPropertyrightsofothers.Beforeyouuseawordorsymbolinyourmarketingmaterialoronyourwebsite,searchforitonline.Someonewithasimilartrademarkcouldchallengeyouruse,evenifyouruseisnotconsideredtrademarkuse.Beforeadoptinganame,searchthenameon(1)theUnitedStatesPatentandTrademarkOfficewebsite,(2)thecorporatedatabasewiththeSecretaryofState’sOffice,and(3)theInternetingeneral.Whilethesesearcheswillnotprovidealegalanalysisofyourrights,theymayalertyoutosomepossibleissuesyoumayencounter.Requestingasearchbyatrademarkprofessionalwillgivethebestresults,buteventhen,commonlawrightsmaybemissed.Thecosttodefendunauthorizeduseatrademarkheldbysomeoneelseortocompensatetheownerforyourunauthorizedusecanbehigh.

IntellectualPropertyLaw 34

Ideally,anymaterialusedbytheorganizationonitswebsiteorotherwiseshouldbeoriginalmaterialcreatedbytheorganization.Othermaterialshouldonlybeusedwithpermissionoftheownerandcreditshouldbegiventotheowner.(SeeSection5belowonWebsite&OnlineUsage.)Justbecausea“work”isolderorthecreatorisdeceased,donotassumetheworkisinthePublicDomainandfreelyavailableforuse.Rightsmayberetainedbythecreator’sestate.4.PrivacyPolicyAwebsitethatcollectspersonalinformationshouldhaveaprivacypolicy.Aprivacypolicytellsyourwebsitevisitorswhatyouwilldowithinformationgatheredfromthem,howyouaregatheringthatinformation,andhowtheinformationwillbestored.Onceyouhaveapolicyinplace,besureyouadheretowhatisinyourprivacypolicyregardingcollection,storageanduseofinformation.Somespecialconsiderationsrelatedtoprivacypolicies:• Linkstoothersites:Ifyourwebsiteprovideslinkstowebsitesofothers,youmay

needtoincludethirdpartyprivacyrequirementsintoyourpolicy.• Usebychildren:Ifyourwebsitewillbeusedorvisitedbythoseundertheageof13,

therearespecificrequirementsundertheChildren’sOnlinePrivacyProtectionActof1998(COPPA).ThestateofCaliforniahasthe“CaliforniaOfficeofPrivacyProtection”withcertainPrivacyPolicyprovisionsthatapplytoanywebsitecollectingdatafromCaliforniaresidents.

• E-commerce:Ifyouoperateane-commercesite,therearecertainprovisionsyoushouldinclude.

SeeKeyDocumentsforsampleprivacypolicies.Donotjustcopyandpasteoneontoyourwebsite.Itmustfactuallystateyouractualpracticesitisagoodideatohavethefinalformreviewedbycounsel.5.Website&OnlineUsageYourwebsiteisyourorganization’sfrontdoortoyourcommunityandtheworldbeyond.Itcanbeeasilyviewed—andcontenteasilytaken—thusitisimportanttopayattentiontohowyouuseothers’contentandhowyouprotectyourowncontent.A.Useofnon-originalcontent

IntellectualPropertyLaw 35

Youshouldobtainpermissionforanynon-originalcontentusedonyourwebsiteandalwaysgivecredittotheowner.Whencreatingyourwebsite,rememberyoucannotclipinformationfromanotherwebsiteandposttoyourownwithoutriskinginfringingthatthirdpartycontent.Evenifyoupayforstockartorclipart,commercialusemaybeexcludedinthefineprintassociatedwithyourlicensetouse.Whiletherearesomeexceptionsforusebynon-profitsthatcouldqualifyas“fairuse”anexceptiontotherightsgranttotheCopyrightholderbytheCopyrightAct,usebyanonprofitcorporationisoftenconsideredcommercialuse.B.PhotoReleaseItisconsideredbestpracticestohaveasignedreleaseforanyphotographofapersonusedonyourwebsiteoranydescriptionorstoryassociatedwithaparticularindividual.Ifyoueverreceiveacomplaintfromsomeoneregardinguseofhis/herimageorlikeness,removeitimmediatelywithyourapology.C.TermsofUseIfyouacceptthirdpartypostsorcontent,considera“TermsofUse”pageinadditiontoaprivacypolicy.Itisagoodideatoincludeacopyrightnoticeatthebottomofthehomepage.Whilethisisnotalegalrequirement,itmightactasadeterrentagainstcopyingyoursiteandcontentcontainedthereon.Thenoticecanbeinmostanyformbutthegeneralformatisasfollows:©Name,date.Allrightsreserved.Itisalsoagoodideatoincludeatrademarkattributionlinesomewhereonthewebsite.Itcouldbeinthe“TermsofUse”pageoratthebottomofthehomepage.Youshouldlistunregisteredtrademarksas“___________isatrademarkofCompanyA.”Federallyregisteredtrademarksarelistedas“___________isaregisteredtrademarkofCompanyA.”Ifyouanticipateyourmarkswillbeusedbyothers,youmaywishtoconsiderincludingguidelinesforproper,acceptableusageofyourtrademarks.

KEYDOCUMENTS• PhotoReleases/StoryReleases• PrivacyPolicytemplate• Take-downRequest–DMCA• DisclaimerTemplate

IntellectualPropertyLaw 36

ACTION

IfYes,Datesentorreviewed

No IntellectualPropertyLawChecklistOWNERSHIP OurOrganizationhasproperlicensesorpermissiontouseallphotosandwritten

informationcreatedbyotherpersonsororganizations. OurOrganizationhasconsideredwhetheritshouldregisterorobtainother

protectionforanyofitsuniquelogos,designs,trademarks,orservices. WeareconfidentthatourOrganization’snamedoesnotinfringeontherights

ofanyotherorganization. OurOrganizationhasconsideredwhetheritwouldbeappropriatetolicenseany

writtenmaterials,photographs,recordings,art,policymanuals,seminarmaterials,etc,thatmaybeavailableforusebyothers.

Whencontractingwiththirdpartiestoperformservices,ourOrganizationusesanemploymentorindependentcontractoragreementthatassignsownershiptotheOrganizationofintellectualpropertycreatedbytheemployeeorcontractorwithinthescopeofhisorherworkfortheOrganization.

PRIVACYPOLICY OurOrganizationhasconsideredimplementingawrittenprivacypolicythat

describeshowtheOrganizationusesanddisclosespersonalinformation. Ifaprivacypolicyhasbeenadopted,theOrganizationperiodicallyconfirms

thatitisincompliancewiththecommitmentsitmakesinthatpolicy.WEBSITE IfourOrganizationoperatesawebsite,theOrganizationhaspostedwrittenterms

ofuseortermsofservicethatlimitstheOrganization’sliabilityanddisclaimswarranties.ThesetermsofserviceareprominentlylocatedontheOrganization’swebsite.

IfourOrganizationallowsthirdpartiestopostinformationontheOrganization’swebsite,theOrganizationhasimplementedaDigitalMillenniumCopyrightActcompliantnoticeandtakedownprovisionaspartofitstermsofuseortermsofservice.TheorganizationhasalsoregisteredanagentwiththeU.S.CopyrightOfficetoreceivenoticesofcopyrightinfringementundertheDMCA.

IntellectualPropertyLaw 37

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Resources 38

RESOURCESLet’sGoLegaliscomplementedbythesetoolkits.Allareavailableforfreeatwww.wanonprofitinstitute.org.BOARDSINGEAR:UnlockingtheWhy,What,Who,andHowofNonprofitBoardsFINANCEUNLOCKEDFORNONPROFITS:Unlockingfinancialliteracyfornonprofitboards.STRATEGICPLANNINGINNONPROFITS:Yourstep-by-stepguidetoachieveyourmission.BUILDAMOVEMENT!:Toolstousepublicpolicytoachieveyour501(c)3mission.

GovernanceWashingtonStateBusinessandOccupationTax(B&OTax):https://dor.wa.gov

WashingtonSecretaryofStateNonprofitCorporations:http://www.sos.wa.gov/corps/nonprofitinformation.aspx

WashingtonSecretaryofStateNonprofitCharity:http://www.sos.wa.gov/charities/Charitable-Organizations.aspx

IRSForm1023andInstructionshttp://www.irs.gov/pub/irs-pdf/f1023.pdf

IRSForm1023EZinformationhttp://www.irs.gov/uac/About-Form-1023EZ

WashingtonStateGamblingCommissionhttps://www.wsgc.wa.gov/licensing/training-requirements/nonprofit-organization-training

Tax-exemptinformationhttp://leg.wa.gov/Senate/Committees/WM/documents/Publications/2006/NonprofitsMay2006.pdfRecordkeepinghttps://www.irs.gov/pub/irs-pdf/p4221pc.pdf

EmploymentLawWashingtonStateDepartmentofLabor&IndustriesIndependentContractinformationhttp://www.lni.wa.gov/FormPub/Detail.asp?DocID=2134

CityofSeattleOfficeofLaborStandards–MinimumWage(Seattle)http://www.seattle.gov/laborstandards/minimum-wageIntellectualPropertyUnitedStatesPatentandTrademarkOfficehttp://www.uspto.gov

OtherResources501CommonsNonprofitLegalResourceshttp://www.501commons.org/resources/tools-and-best-practices/legal-resources

NationalCouncilofNonprofitsTools&Resourceshttps://www.councilofnonprofits.org/tools-resources

Resources 39

KEYDOCUMENTSREVIEW

1:STATEArticlesofIncorporation(sample)Bylaws(sample)ConflictofInterestandCertificationDocumentRetentionPolicyGiftAcceptancePolicyMinutes(sample)2:FEDERALForm1023Form990Form990EZForm990N3:FUNDRAISING&DONATIONSQuidProQuoLetter(thatmeetsFederalrequirements)ThankYouLetter(thatmeetsFederalrequirements)4:EMPLOYMENTAnti-discriminationPolicy/EqualEmploymentOpportunity(EEO)PolicyAt-willPolicyConfidentialityPolicyI-9Form:BlankIndependentContractorchecklist(http://www.lni.wa.gov/IPUB/101-063-000.pdf)WhistleblowerPolicy5:INTELLECTUALPROPERTYDisclaimerTemplatePhotoReleases/StoryReleasesPrivacyPolicytemplateTake-downRequest–DMCA

Reflection

40

AfteryouhaveworkedthroughLet’sGoLegal…Whatactionsdoyouneedtotaketomoveforward?Notethemhere.Makesuretoaddthemtoyourworkplan,calendar,ormeetingagendas.

STATELAW

FEDERALLAW

FUNDRAISING

EMPLOYMENT

INTELLECTUALPROPERTY