Amending Nonprofit Contracts

Posted by Terry Mosteller | Mar 16, 2022 | 0 Comments

Amending Nonprofit Contracts

Running a nonprofit is no easy feat and nonprofit leaders are often required to wear many hats, and must make key decisions about a variety of issues. As an organization grows, understanding how to go about creating and amending nonprofit contracts becomes increasingly important. Without strong contracts in place, an organization becomes liable to risk and vulnerable to legal issues. This, in turn, often prevents nonprofit organizations from seizing opportunities and achieving their mission.

At Mission Counsel, we are dedicated to the success of nonprofit organizations and their missions. With this goal in mind, we help organizations with drafting strong contracts and amending nonprofit contracts to fit their growing needs and objectives. If you represent a nonprofit organization in the states of Missouri or Kansas, and you wish to implement strategies to see your organization run more smoothly and efficiently, consider contacting Mission Counsel at (816) 368-1181. 

What Is a Nonprofit Contract?

Broadly speaking, a contract is a legally binding agreement between two or more parties. This agreement creates mutual obligations, or responsibilities, that are enforceable by law. In the nonprofit sphere, contracts can include a few different types of agreements, such as:

  • Bylaws
  • Independent contractor and subcontractor agreements
  • Volunteer agreements
  • Liability waivers
  • Resource-sharing agreements
  • Website and trademark license terms
  • Merger documentation

By nature, nonprofits are often involved in a variety of collaborative relationships. While these collaborations represent the heart and soul of a nonprofit, it is key to approach collaborations wisely and exercise reasonable care during the process. Having contracts in place helps ensure that your collaborator is trustworthy and can meet all your obligations. On the other hand, contracts also protect your organization if the collaborator does not fulfill their end of the agreement.

Amending nonprofit contracts is also possible, in the event that your current agreement does not represent current goals, structures, or obligations. Before amending a nonprofit contract, it is important to ensure that all relevant changes are reported and comply with state and federal legislation.

Are Bylaw Considered Contracts?

A nonprofit's bylaws are the foundation of the organization – bylaws are used to define the structure of the nonprofit, govern the organization, and ensure a common understanding among all the board of directors. Bylaws are, by definition, imperative to the success of a nonprofit organization. With this in mind, it is natural to wonder whether bylaws are considered contracts under the law.

The bylaws of a nonprofit are legal documents that form an agreement, or contract, between the organization and its board of directors. As such, nonprofit bylaws are in many ways considered contracts. When they are well-crafted, bylaws are unique to each nonprofit and are tailored to the individual needs of the organization. Oftentimes, bylaws are referenced when an issue arises, and board members must determine how to respond. For this reason, the more organization-specific that bylaws are, the better.

It should also be noted that bylaws are required when forming a 501(c) corporation. This is true in both Missouri as well as Kansas. While there is no explicit requirement in place stating that charitable nonprofits must become incorporated, there are an array of liability and tax benefits associated with doing so. A Mission Counsel attorney can help you navigate whether incorporating would be beneficial for your organization and, if so, how to create strong bylaws for your nonprofit.

Amending Nonprofit Contracts: What You Need to Know

As it pertains to internal contracts such as volunteer agreements or liability waivers, nonprofits have the ability to amend these documents at any time. To mitigate liability and risk, it may be advised to seek professional assistance from an experienced attorney. Regardless, nonprofit organizations are permitted to adjust internal contracts as they see fit.

If you are an incorporated nonprofit organization with tax exempt status, however, there are specific requirements that must be met regarding amending nonprofit contracts, specifically bylaws. Specifically, if any changes were made to governing documents, like bylaws, these changes must be reported to the Internal Revenue Service.

It is not required to submit revised articles or bylaws with Form 990. It is mandated, however, that nonprofit tax filers provide summaries of major changes to the government documents in Schedule O, a supplemental information form. Some examples of major changes that must be reported include:

  • Changes to the mission or overall purpose of the organization
  • The number, composition, qualifications, authority, or duties of the organization's voting members
  • The role of stockholders or members in governance
  • How the organization's assets are distributed upon dissolution
  • Provision to amend the organizing documents
  • Changes to the organization's name

Not only are nonprofits able to amend their contracts, but they are encouraged to review and reassess their agreements on a regular basis. The contracts and bylaws of a nonprofit organization should accurately and comprehensively reflect the mission of a nonprofit and how the organization operates. If they do not, they should be amended to reflect up-to-date information. 

It is also important to note that in the event of dissolution, nonprofits must ensure compliance with federal and state law. A contractual plan of dissolution must be created, agreed upon by the board of directors, and eventually will be filed with the relevant state agency. The IRS must also be notified using Schedule N of the 990 Form.

How Can Mission Counsel Help?

Operating a nonprofit requires time, dedication, and compliance with a range of state and federal legislation. This type of responsibility can easily become overwhelming, even with a board of directors on your side. Especially as it relates to creating or amending nonprofit contracts, seeking professional assistance can be valuable. An experienced attorney can help draft, change, and tailor your organization's contracts to meet your goals and interests.

At Mission Counsel, we leverage our years of experience in the nonprofit sector to provide legal counsel for nonprofit organizations. Through our industry experience and legal know-how, we better understand the barriers that prevent nonprofits from fully achieving their missions. In turn, we help nonprofits put practices and contracts in place to prevent their time, energy, and financial resources. To speak with a passionate and experienced attorney, consider contacting Mission Counsel at (816) 368-1181 today.

About the Author

Terry Mosteller

Hi, I'm Terry Mosteller. I'm the founding attorney at Mission Counsel, where I help nonprofits and small and medium-sized businesses overcome obstacles so that they can focus on what they do best–accomplishing their mission. My goal is to get to know not just the legal challenges...

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