Guidebook for directors of nonprofit corporations / Nonprofit Organizations Committee ; William L. Boyd III, Jeannie Carmedelle Frey, editors.
2012
KF1388.7 .G85 2012 (Map It)
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Title
Guidebook for directors of nonprofit corporations / Nonprofit Organizations Committee ; William L. Boyd III, Jeannie Carmedelle Frey, editors.
Published
Chicago, IL : American Bar Association, Business Law Section, [2012]
Copyright
©2012
Call Number
KF1388.7 .G85 2012
Edition
Third edition.
ISBN
9781604420937 (pbk.)
1604420936 (pbk.)
1604420936 (pbk.)
Description
xxiv, 347 pages ; 26 cm
System Control No.
(OCoLC)801996766
Bibliography, etc. Note
Includes bibliographical references and index.
Record Appears in
Added Author
Table of Contents
Preface
xvii
Introduction
xix
ch. 1
The Nonprofit Corporation and Its Directors: What They Do, How They Do It, and for Whom
1
The Zoology of the Nonprofit World
3
Basic Concepts
3
The Director's Role
5
Director Selection
6
Special Categories of Directors
7
The Corporation's Purpose and How It Affects a Director
8
Defining the Corporation's Purpose and the Persons or Interests It Serves
8
Statements of the Corporation's Purpose and Its Constituencies Should Be Consistent with the Corporations Activities
9
Understanding the Corporation's Constituencies and Their Representatives
10
Director Accountability to Defined Classes of Persons or Entities
10
Directors Accountability of Mutual Benefit Corporations is Similar to That of Business Corporation Directors
11
Director Accountability of Public Benefit and Religious Corporations
11
Despite Their Importance, Donors Are Not Considered Part of Nonprofit's Legal Constituency
12
Accountability to Members Responsible for Appointing Directors
13
Constitutional Considerations Limiting Public Accountability of Religious Corporations
13
Endnotes
14
Suggested Questions for Directors Regarding the Nonprofit Corporation and Its Directors
16
Checklist: The Nonprofit Corporation and Its Directors
17
ch. 2
Duties and Rights of Nonprofit Corporation Directors
23
The Duty of Care
26
Elements of the Duty of Care
26
Reliance
30
Delegation
31
Discharging the Duty of Care: Some Practical Suggestions
34
Regular Schedule of Meetings
34
Executive Sessions
34
Meeting Agenda and Committee Reports
35
Action by Written Consent
35
Board Voting Via E-mail
35
Regular Schedule of Information
36
Rules of Procedure and Minutes
37
The Business Judgment Rule
38
Form 990 Governance Focus Areas
39
Internet Discussions by Board Members
42
Satisfying Other Legal Requirements
43
The Duty of Loyalty
43
Conflicts of Interest: General Principles
43
Corporate Opportunity
49
Confidentiality
49
Directors' Rights
50
Management Access
50
Books and Records
50
Notice of Meetings
51
Right to Dissent and to Have Dissent Recorded
51
Minutes
51
When a Special Duty Applies: The Director with Knowledge of Illegal Activities
52
Ethics and Business Conduct Codes
52
The Duty of Obedience
53
When Is a Director of a Nonprofit Corporation Considered to Be a "Trustee" with Duties Beyond Those Normally Attributed to Directors?
53
When a Director May Be Considered a Trustee
53
When a Director or Trustee Is Not a Trustee under the Law
54
The Impact of the Sarbanes-Oxley Act
54
Panel on the Nonprofit Sector
55
Endnotes
55
Suggested Questions for Directors Regarding Director Duties and Rights
60
Checklist: Duties and Rights of Nonprofit Corporation Directors
61
The Board's Record of Service
61
The Board's Procedures
64
ch. 3
Committees, Advisory Bodies, and Officers
69
Board Committees: Introduction
71
Advisory and Auxiliary Bodies: Introduction
72
The Types of Board Committees
72
Special Committees
72
Standing or Permanent Committees
72
Special Committees
73
Purposes of Special Committees
73
Special Committees of Nonboard Members
73
Standing Committees: General Issues
74
Board Use of and Reliance on Committees
74
Committee Creation: Bylaw Description or Board Resolution
74
Committee Exercise of Board Authority
75
Committee Size
75
Conflicts of Interest
75
Descriptions of Common Standing Committees
76
Executive Committee
76
Governance/Nominating Committee
77
Audit Committee
79
Compensation Committee
80
Investment Committee
80
Compliance Committee
81
The Composition of a Committee
81
Committee Procedures, Minutes, and Reports
82
Advisory and Auxiliary Bodies
82
Use of Advisory and Auxiliary Bodies
82
Legal Status of Advisory and Auxiliary Bodies
83
Relationship of Board to Advisory Bodies
84
Relationship of Board to Auxiliary Bodies
84
Scope of Activity of Advisory and Auxiliary Bodies
84
Limitations on Rights of Members of Advisory and Auxiliary Bodies and Liability Protection
85
Designated Bodies
85
Officers: Introduction
86
Officer Responsibilities
86
Officer Positions
87
Chair and Vice Chair
87
Treasurer
87
Secretary
88
Standards of Conduct for Officers
88
Endnotes
89
Suggested Questions for Directors Regarding Committees, Advisory Bodies, and Officers
90
Checklist: Committees and Advisory Bodies
91
ch. 4
Taxation
97
Introduction
99
Qualifying for Exemption from Federal Income Tax
100
Corporations Exempt from Tax under [§] 501(c)(3)
100
Particular Advantages of &sec; 501(c)(3) Status
101
General Requirements
101
Limitations on Unrelated Business Activities
102
Limitations on Private Benefit and Private Inurement
102
Limitations on Lobbying
103
The Absolute Prohibition on Political Campaign Activities
103
Special Rules Relating to Public Charities and Private Foundations
104
Definition of Public Charity
104
Restrictions and Taxes on Private Foundations
106
Section 501(c)(4) Organizations: Civic Leagues and Social Welfare Organizations
107
Definition of Social Welfare
108
Comparison of [§] 501(c)(3) and [§] 501(c)(4) Exemption Status
108
Section 501(c)(6) Organizations
109
Requirements for Exemption
109
Tax Treatment of Contributions or Dues to a [§] 501(c)(6) Corporation
110
Obtaining Tax-Exempt Status
110
Unrelated Business Income (UBI)
111
Definition of Unrelated Trade or Business
111
Types of Income Excluded from UBI
112
Use of a Taxable Subsidiary
112
Advertisements vs. Sponsorship Acknowledgements
113
Special Reporting Requirements
114
Noncharitable Contributions
114
Charitable Contributions
115
Charitable Contributions in Return for Items of Value
115
Disclosure of Annual Returns and Exemption Applications
116
Intermediate Sanctions: Excise Tax on Public Charities* Excess Benefit Transactions
116
Potential for Imposing Intermediate Sanctions
117
Taxes on Directors, Officers, and Other Managers
118
Procedures for Establishing Reasonableness
118
Governance and 1RS Form 990
119
IRS Governance Guidelines
120
Conflict of Interest Disclosures
120
Independence
120
IRS Revocation of Tax-Exempt Status
121
Conclusion
122
Endnotes
122
Suggested Questions for Directors Regarding Taxation
124
Checklist: Taxation
124
ch. 5
Creating For-Profit Subsidiaries and Joint Ventures
129
Engaging in New Activities
131
Furthering Exempt Purposes
132
UBI
132
Substantiality of Nonexempt Activity
132
Advantages of Establishing Separate For-Profit Subsidiaries
133
Type of Organization
134
Directors or Managers
134
Officers
134
Other Oversight Mechanisms
135
Tax Implications
135
Other Organizational Issues
135
Creating Joint Ventures with For-Profits
136
Joint Venture Policy
137
Taxation of Joint Venture Revenue
138
Endnotes
138
Suggested Questions for Directors Regarding For-Profit Subsidiaries and Joint Ventures
139
Checklist: For-Profit Subsidiaries and Joint Ventures
139
ch. 6
Nonprofits On The Internet: Fundraising, Selling Goods And Services, Lobbying, And Other Activities
143
Potential Hazards and Benefits of Using the Internet
146
Fundraising
146
Charitable Solicitation Registration Requirements
146
Acknowledging Donors' Contributions
148
Allowing Other Organizations to Raise Money for the Corporation
149
Corporate Sponsorship vs. Advertising
152
General Rules
152
Internet Applications
152
Association (Links) with Taxable Entities
154
General Rule
154
Internet Applications
154
Lobbying
155
General Rule
155
Internet Applications
155
Political Activity
157
General Rule
157
Internet Applications
157
Avoiding Copyright and Trademark Infringement
157
Internet Applications
158
Sales of Goods and Services
158
General Rules
158
Internet Applications
160
Posting Information Returns and Exemption Applications on the Internet
164
General Rule
164
Internet Application
164
Implications of Serving as an Information Exchange
165
Defamation and Other Torts
165
Liability Protection Available by Registration as an Internet Service Provider
165
Tax Consequences of Providing Internet Access to Others
166
Protecting Electronic Records Information
167
Identity Theft
168
Endnotes
168
Suggested Questions for Directors Regarding Supervision of Internet Activities
170
Checklist: Internet Activities: Fundraising, Selling Goods and Services, Lobbying, and Other Activities
171
ch. 7
Volunteers
179
Risks Associated with Using Volunteers
181
Minimizing the Corporation's Liability
182
Protecting the Volunteer from Individual Liability
183
Statutes Protecting Volunteers
183
Insurance for Volunteers
184
Indemnification of Volunteers
184
Claims by Volunteers against the Corporation
185
Volunteer or Employee?
185
Employment Laws and the Volunteer
186
Obtaining a Waiver and Release of Liability
186
Workers' Compensation Insurance
187
Ownership of Materials Created by a Volunteer
187
Endnotes
188
Suggested Questions for Directors Regarding Volunteers
188
Checklist: Volunteers
189
ch. 8
Employees
193
Executive Employment Relationships
196
Chief Executives and Other Management Employees
196
Executive Employment Agreements
196
Evaluation of Chief Executive
196
Employment Laws Applicable to Nonprofit Corporations
197
Federal Equal Employment Opportunity Laws
197
Reasonable Accommodation for Disabilities
198
State and Local Equal Opportunity Laws
199
Equal Opportunity Policies
199
Antiharassment Policies
199
Family and Medical Leave
199
Wage and Hour Issues: Fair Labor Standards Act
200
State Wage and Hour Laws
201
Employee Handbooks and Personnel Policies
202
Grievance Procedures
202
Workplace Violence
202
Employee Benefits
203
Reasonable Compensation
203
ERISA Requirements
204
Plan Documents
204
Special Rules for Nonprofits
204
Other Laws Relating to Employees
205
Background Checks
205
Employee E-mail Monitoring
205
Identity Theft Protection
206
Tax Withholding and Payroll Taxes
206
Workers' Compensation and Unemployment Insurance
206
Immigration Laws
207
Work for Hire
207
Confidential Information
207
Liability to Others for Acts of Employees
208
Negligent Hiring and Supervision Claims
208
Liability to Employees
208
Wrongful Discharge in Violation of Public Policy
208
Right to Privacy: Disclosure and E-mail Review
208
Lifestyle Discrimination
209
Collective Bargaining
209
Endnotes
209
Suggested Questions for Directors Regarding Employees
210
Checklist: Employees
211
ch. 9
Duties of Directors under Special Circumstances: Change in Control, Sale of Unique Assets; and Bankruptcy
215
Mergers, Sales, and Other Change of Control Events
217
Application of Duties of Care and Loyalty to Change of Control Decisions
218
Role of State Attorney General
221
Other Regulatory Approvals
221
Other Interest Groups Affected by a Change of Control
222
Summary
222
Disposition of Unique Assets
223
Circumstances in Which Disposition Issues May Arise
223
Board Considerations in the Sale of Unique Assets
223
Insolvency and Bankruptcy
224
The "Zone of Insolvency"
224
Interests of Creditors vs. the Charitable Mission
225
Loan/Bond Defaults and Out-of-Court Restructurings
226
Bankruptcies
227
Role of State Attorney General in Bankruptcy
228
General Bankruptcy Process
229
Summary
231
Endnotes
232
Suggested Questions for Directors Regarding Duties of Directors under Special Circumstances
234
Mergers, Sales, or Other Change of Control Events
234
Disposition of Unique Assets
234
Insolvency or Bankruptcy
235
Checklist: Duties of Directors Under Special Circumstances
235
ch. 10
Investments and Expenditure of Endowment Funds
241
Gifts
243
Potential Liability and Other Issues
244
Standards for Investment of Institutional Funds
244
Investment Committee
245
Investment Policy
245
Delegation of Duties
246
Standards for Expenditure of Endowment Funds
247
Out-of-Date or Impractical Restrictions on Gifts
248
Accounting Treatment of Institutional Funds
249
Donor-Advised Funds
249
Endnotes
250
Suggested Questions for Directors Regarding Investments and Expenditure of Endowment Funds
251
Checklist: Investments and Expenditure of Endowment Funds
251
ch. 11
Director Liability Risks and Protections
255
The Director's Exposure to Liability
257
Avoiding Liability Risks
258
Director Indemnification
259
Discretionary Indemnification
259
Mandatory Indemnification
260
Advancement of Expenses
260
Third-Party Indemnification
261
Attorney General Notice
262
Protecting Directors through Insurance
262
Directors and Officers (D&O) Insurance
262
D&O Policy Coverage Review to Determine Who and What is Covered
263
Impact of Dual Roles of a Director on D&O Coverage
263
The Nature of "Claims-Made" Policies
264
Policy Coverage
264
Types of Coverage
265
Losses Covered
265
Policy Exclusions
266
The Application
266
Statutory Protections for Directors
267
Eliminating Liability to Third Parties
267
Eliminating Liability for Monetary Damages to the Corporation or Its Members
268
Limitations of Liability Protection Statutes
268
Protection against Certain Kinds of Claims
269
Conflicting Interests: The Director and Legal Counsel
269
Summary
270
Endnotes
270
Suggested Questions for Directors Regarding Director Liability
273
Checklist: Director Liability
274
ch. 12
The Legal Environment of the Nonprofit Corporation
277
The Board's Responsibility
279
Understanding the Corporations Legal Environment
279
Role of Legal Counsel
280
What We Mean by Law
280
Predictable Acts by Authorities
281
Private Acts (Contracts) That Bind the Corporation
281
Litigation
281
Analysis of the Corporation's Legal Environment
282
Identifying Potential Areas of Legal Exposure
282
Annual Review
282
The Corporation's Contractual Environment
283
The Litigation Environment
283
The Corporation's Political/Legal Environment
285
Restrictions on Involvement in Political Arena
285
How Nonprofits Are Affected by the Legal/Political Environment
285
Keeping the Board and Others Aware of the Impact of Proposed Legal Changes
286
Choice of Counsel
286
Differences among Kinds of Nonprofit Corporations
286
Budgeting for Predictable and Recurrent Legal Needs
287
Selecting Counsel
288
Understanding the Corporation's Rights and Obligations vis a vis Its Legal Counsel
289
Use of Volunteer Lawyers
290
Responsibility for Monitoring the Corporation's Tax Environment
291
Special Issues of the Board Member As Counsel
291
Who Is the Client?
293
Endnotes
293
Suggested Questions for Directors Regarding the Corporation's Legal Environment and Selection of Counsel
294
Legal Environment
294
Selection of Counsel
295
Checklist: The Legal Environment of the Nonprofit Corporation
296
ch. 13
Director Orientation and Revitalization
299
New Director Orientation and Materials
301
Orientation
301
Directors' Manuals or Websites
302
New Director Review of Information
304
Board Revitalization: Retreats, Strategic Planning, and Self-Evaluation
305
Board Retreats
305
Reviewing the Board Decision-Making Process
306
Evaluating Whether the Board Needs to Be Restructured
306
Information-Gathering for Strategic Planning and Mission Measurement
308
Quantifying Success for a Nonprofit Corporation
309
Other Sources of Information, Inspiration, and Guidance
311
Endnotes
312
Suggested Questions for Directors Regarding Director Orientation and Revitalization
312
Checklist: Director Orientation and Revitalization
313
Appendices
315
Appendix A
Tax-Exempt Organization Reference Chart
317
Organization Reference Chart from; Tax-Exempt Status for Your Organization; Internal Revenue Service Publication 557 (Rev. October 2011)
317
Appendix B
Suggested Publications, Periodicals, and Websites
323
Publications
323
Periodicals
324
Useful websites and organizations
325
Index
329