Operating as a nonprofit organization has many benefits, but establishing one requires a lot of paperwork. How nonprofits are regulated also differs by state. So you may have administrative or tax issues if you don’t understand the laws guiding non-profits for the state you operate within.
For instance, sometimes, nonprofits generate revenue that exceeds their expenses, resulting in profits. But how it makes that profit is vitally important. Nonprofits can only avoid paying taxes on earnings by generating income from activities “related” to their cause.
That’s where having legal expertise can help. Lawyers can help nonprofits handle all the paperwork. Thus, they focus on what they do best—further social causes.
Here are seven ways nonprofits can benefit from having access to legal expertise.
1. Setting Up the Non-profit
Before your nonprofit organization becomes operational, you must comply with state and national regulations, submit various forms, and draft multiple documents.
Your foundation will need the expertise of an attorney to comprehend tax exemption classification, filing, and starting a corporate objective statement. You also need assistance dealing with the IRS (Internal Revenue Service).
Besides, obtaining tax-exempt status from the Internal Revenue Service requires filing Form 1023. A lawyer can streamline this process so you can focus on staffing, fundraising, and scheduling the organization.
2. Developing Effective Policies and Procedures
One of the essential tasks for nonprofits and mission-driven organizations is to write official bylaws before they begin fundraising. Having access to legal expertise ensures you draft these bylaws accurately. These laws govern your organization, so they must be effective.
When applying for federal tax exemption, the IRS requires you to include official bylaws. These bylaws typically contain election rules, governance guidelines, and asset allocation after your organization dissolves.
3. An Outside Point of View
Running a non-profit requires you to make many decisions. Having an outside perspective—especially a knowledgeable one can be highly beneficial.
When running a nonprofit organization, many issues may arise, such as conflicts among board members or policy issues. And you will feel more confident knowing a legal expert is advising you.
An experienced lawyer, such as attorney Amir Handjani, becomes an invaluable external source to your organization. The lawyer will offer unbiased opinions and remain objective to the best interests of your organization since they are not a member of your Board.
4. Employment Law Expertise
Your non-profit can also benefit from legal expertise when you’re hiring. Non-profit organizations are most at risk from litigation due to the extent of employment statutes.
Nonprofit employment statute is a complex network of interdependent regulations that vary greatly depending on individual circumstances.
An experienced lawyer can help non-profit organizations make appropriate employment decisions that protect the nonprofit and its employees.
They can assist you in setting up employee insurance, drafting employment contracts, and negotiating salary and severance agreements.
5. Tax Exemption
An expert nonprofit lawyer can help you maintain your tax-exempt status even if you have already obtained it.
An inability to follow sometimes complicated IRS regulations and statutes for tax-exempt nonprofits can result in a nonprofit losing its tax-exempt status.
An attorney at a competent law firm would be able to assist in preventing these unintentional IRS violations.
6. Reliable Risk Management Recommendations
Lastly, access to legal expertise can benefit non-profits when they need to establish a risk management plan. Risk management helps you understand your threats and opportunities and prioritize them accordingly.
Planning with the necessary tools and information will help prevent a potential risk from derailing your organization.
Legal counsel can draft legal documents to protect your charitable organization’s assets, documents, data, finances, reputation, and integrity.
A qualified attorney can help reduce your organization’s risks by helping you find the right kind of liability insurance coverage.
7. Drafting and Reviewing Documents
Most nonprofit organizations deal with the typical legal problems of drafting and reviewing contracts. Even small nonprofits must regularly deal with independent contractors, internet service providers, or suppliers.
It is common for these agreements to be drafted in a difficult-to-understand language, and many nonprofit managers sign them without in-depth analysis.
Unfortunately, this puts nonprofit organizations at risk, resulting in unnecessary corporate waste.
But with legal counsel, nonprofit organizations can analyze contracts and identify potential negotiation problems. This saves the company money and shifts some responsibility to the other party.
Attorneys can also help non-profits draft valid agreements that achieve the organization’s goals.
As nonprofits promote social causes, they also have to comply with the regulations governing their state. Access to legal expertise ensures they do just that.
Lawyers have the expertise and experience to ensure non-profits are compliant. If you have a non-profit and aren’t already collaborating with legal professionals, start today.