Why should nonprofits hire an attorney?

Posted by Heidi Forland-Fetty | Mar 13, 2021 | 0 Comments

Why should nonprofits hire an attorney?

One of the questions that we have been asked most often over the years by nonprofit leaders is, “Why should my nonprofit hire an attorney?”. While we are (quite obviously) biased in our answer, we can confidently elaborate on a plethora of reasons why a nonprofit should have an active relationship with an attorney knowledgeable about nonprofit matters.

Our Founding Attorney witnessed firsthand during his time working in the nonprofit sector that far too many nonprofits simply ignore legal issues altogether or at best attempt to rely on a board member who happens to be an attorney (even if that attorney practices in an area wholly unrelated to nonprofit law). In fact, addressing the widespread lack of access to justice for so nonprofits is one of the primary reasons that Mission Counsel exists.

Far too often, nonprofits forgo reaching out to qualified legal counsel for fear of the cost involved. This inevitably leads to unresolved legal issues that end up costing the organization more time, and money later on, thus taking away from the organization's overall ability to achieve its mission. Here a just a few reasons why your nonprofit should consider hiring an attorney:

Formation

When starting a nonprofit there are a combination of state and federal laws to be followed, many forms that need to be submitted, and several documents that must be drafted, all before your organization is operational. Your new nonprofit may want guidance with filing, understanding categories of tax-exemption, creating a corporate purpose statement, drafting a budget, and dealing with the IRS.  Applying for tax-exempt status with the IRS via Form 1023 is a long and complicated process.  A knowledgeable nonprofit attorney can make this process smoother and allow the founder to focus on the important tasks of building the organization's programs, fundraising, and staffing.

Reorganization

If your nonprofit is considering restructuring or using an alternative entity structure, you may be tempted to do this yourself. After all, creating an LLC online is super easy, right? That is certainly true, but a tax-exempt organization's use of partnerships, corporations, and LLCs can sometimes create unintended consequences and unforeseen problems. Likewise, mergers, acquisitions, and dissolutions can present surprising complications.

Reinstatement

Most states, including Kansas and Missouri, require annual reports to be filed with the state in order to remain in good standing. If your nonprofit has lost its active status, reinstatement is required. This requires paperwork and payment of state fees. Similarly, if an organization fails to file its annual Form 990 with the IRS for three consecutive years, that organization's 501(c)(3) status will be automatically revoked. When that occurs, the clock starts ticking and the organization has a relatively narrow window to get its tax-exempt status reinstated retroactively.

Tax-Exemption

Even once you have obtained tax-exempt status, a knowledgeable nonprofit attorney can help you maintain that status. Few organizations lose their tax-exempt status because of something they intentionally did—quite the opposite, most organizations that lose their status do so because of an unintentional failure to follow the sometimes complex rules and regulations the IRS has in place for tax-exempt organizations. Counsel from a competent nonprofit law firm can help prevent these inadvertent violations of IRS compliance.

Board Governance

A nonprofit's Board of Directors is tasked by the state and the federal government with the authority and responsibility to oversee and govern the organization, ensuring that its assets are used exclusively to further the organization's tax-exempt purposes. This governance responsibility is multi-faceted and is comprised of compliance with laws at both the state and federal level. A nonprofit attorney can help the Board navigate these issues, while also serving as a strategic advisor on other non-legal questions facing the Board. A nonprofit attorney can also serve as a mediator in times of conflict between Board members or between the Board and the CEO.

Employment Issues

Perhaps the most significant litigation risk to nonprofits is in the area of employment law. Whether it is compliance with state labor laws or federal anti-discrimination statutes, employment law for nonprofits is a complex web of interrelated laws that are highly dependent upon individual circumstances. From hiring to firing, a knowledgeable nonprofit attorney can help nonprofits make appropriate employment decisions that protect the organization and its employees.

Document Drafting and Review

Nonprofits of all sizes deal virtually daily with what may be the most common legal issues they face: contracts and other formal documents. Even small organizations have to regularly deal with contracts from internet service providers, independent contractors, or other vendors. These contracts are often poorly written in difficult to understand language, so many nonprofit leaders often sign the documents without an in-depth review. Similarly, when a nonprofit needs to draft some sort of contract, the nonprofit often resorts to searching the internet for a template. Both of these situations put the organization at a disadvantage and potentially cause an unnecessary expenditure or waste of organizational resources. A nonprofit attorney can review contracts presented to the organization and highlight areas of concern as well as areas for potential negotiation, often saving the organization money or shifting some of the liability to the other party. Likewise, an attorney can draft an accurate contract that best accomplishes the organization's goals.

Intellectual Property

Though intellectual property often permeates throughout even small nonprofits, including in logos, websites, music, film, software, graphic design, and more, intellectual property is often one of the most neglected legal issues in the nonprofit sector. Many nonprofit leaders are shocked to learn just how much IP their organization has created, and often even more shocked at some of the default rules that govern that IP, such as the work-for-hire doctrine in copyright law. Establishing a relationship with a nonprofit attorney knowledgeable about the peculiar aspects of IP law that apply to nonprofits is a critical step in protecting one of the most important assets a modern nonprofit organization has.

Outside General Counsel

Finally, nonprofits face all kinds of random legal questions on a regular basis. Having an active relationship with a nonprofit attorney allows an organization to effectively handle those questions and ensure the organization's tax-exempt purpose is not threatened by the legal issues that arise. The American Bar Association even recommends that nonprofits hire attorneys who have specific experience working with nonprofits.

Have Us Help

While having a full-time in-house attorney may not be realistic for your organization, getting the occasional outside counsel from a nonprofit law firm is much more realistic than you might think. At Mission Counsel, we focus on the success of nonprofits and their missions. Our background in the nonprofit sector gives us a unique insight into the challenges you face, and we are committed to assisting nonprofits in a way that is sustainable and approachable for organizations of all sizes. Whether you need legal counsel daily or just have a legal question a few times a year, Mission Counsel can advise you on the law and best practices for nonprofits.

About the Author

Heidi Forland-Fetty

Hi, I am Heidi Forland-Fetty. I am the head paralegal for Mission Counsel. I joined Terry in June 2020 and am excited to help expand the firm. I have strong interests in nonprofit, contract, business, real estate, and intellectual property law. CONTACT US My Story Growing up in the Greate...

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