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