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VOL. 127 | NO. 53 | Friday, March 16, 2012

Pearl and Mel Shaw

What Are Your Legal Responsibilities?

By Mel and Pearl Shaw

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Part one of a three-part series What legal issues should you be aware of regarding your involvement with nonprofit organizations?

Wanting to provide executive directors, board members, employees and volunteers with information, we talked with Memphis’ own Van Turner, a partner in the law firm of Brittenum Bruce PLLC. Turner’s law practice is concentrated in the areas of business and commercial litigation, business transactions, government relations, municipal law and estate planning. He is also an experienced board member.

Understanding that no interview can take the place of legal counsel, we asked Turner to help provide a high-level overview of the types of legal issues that can emerge within the nonprofit sector.

We started at the beginning, asking Turner what it means to be a 501(c)3 organization and what it takes to start one. He shared with us that a nonprofit is a corporation or corporate entity that is not primarily organized to make a profit.

“In fact, nonprofits are organized and operated exclusively for religious, charitable or educational purposes,” Turner said. “The 501(c)3 language comes from the United States Internal Revenue Code and section which defines the types of organizations which are exempt from federal income taxes. In essence, for profit corporations must pay federal income taxes and nonprofit corporations do not have to pay federal income taxes.

“In order to start a nonprofit, an individual must first complete and file a 1023 Form with the IRS. One must also file the Articles of Incorporation with the Secretary of State in which the company will be headquartered, form a board of directors to govern the company and develop by-laws to govern the board of directors.”

Because we put great focus on the role of the board of directors in this column, we asked Turner for his perspective on their legal responsibilities. We asked who runs an organization, the board or the executive director/CEO? Here is what Turner shared.

“The board of directors has a fiduciary obligation to the organization,” he said. “The legal definition of fiduciary is a person or entity entrusted with the duty to act for the benefit of someone else or something else. A person acting in a fiduciary role must exercise a high degree of care and must subordinate his or her own personal interests in the event that there is a conflict.

“While the executive director may handle the day-to-day obligations of the nonprofit, ultimately, the legal responsibility for the organization lies with the board of directors. For example, if the board must decide between what the executive director wants to do and what is in the best interest of the nonprofit, the board has a responsibility to do what is best for the nonprofit.”

You can reach Turner at vturner@brittenumbruce.com or 271-3794.

Mel and Pearl Shaw are the owners of Saad & Shaw. They help nonprofit organizations and institutions rethink revenue sources. They are the authors of “How to Solicit a Gift: Turning Prospects into Donors.” Visit them at www.saadandshaw.com or call 522-8727.

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