There are many laws that govern the proper functioning of nonprofits and regulate the way they collect and use their donations. If nonprofit organizations are unaware of the different legal requirements they have to meet, it will be very difficult for them to continue their operations in the long run.
Given below are some legal tips for nonprofit organizations.
- Seek Professional Help While Applying For Tax Exempt Status
The Internal Revenue Service uses Code section 501(c) to determine if a nonprofit organization is eligible for the tax exempt status. If your nonprofit wants to request the 501(c)(3) status from the IRS, you must make sure you meet all the requirements set by them.
The application process is long and the rules are quite complicated so it is best you seek the help of a lawyer who has experience with nonprofits. He will guide you through the process and review your application to maximize the chances of getting your application approved.
- Register In All The States You Are Planning To Raise Funds
If your nonprofit organization plans to carry out fundraising activities nationwide, you will have to register in all the states.
However, make sure you have a solid fundraising strategy in place because registering in all the 39 states plus the District of Columbia will cost you up to $3000. Unless you are receiving more than $200 in donations every year from other states, it might not be worth it to register.
- Make Sure The Charitable Purposes Of Your Organization Are Evidenced By Your Governing Documents
You will be required to record the exempt purpose statement of your organization in its governing documents like the articles of incorporation and bylaws.
According to the Charitable Trust Doctrine, the mission of your fundraising campaigns must be consistent with this statement. Take care to ensure that your organization’s activities are in accordance with your purpose statement.
- Have A Proper Gift Acceptance Policy In Place
A written gift acceptance policy will help make donors aware of your organization’s expectations. It will also prevent them from giving gifts which cannot be utilized by the organization in accordance with its mission statement.
Acceptance of certain gifts will require your nonprofit organization to deal with complicated legal obligations like taxes and licensing issues.
- Be Careful Of Crowdfunding Platforms
Nonprofits must be careful while receiving funds through crowdfunding websites.
The Charitable Solicitation Registration policy requires you to register in states where donations are made through interactive websites which accept credit card payments and other related payment methods. Make sure you are aware of all the crowdfunding risks and the legal requirements associated with it.
- Determine The Nature Of Donor Pledges
Most charitable pledges are legally enforceable commitments. If your donor fails to fulfil a pledge they have made, it can result in personal liability for the director.
Make sure you thoroughly review donor pledges and obtain proof of where the money will be coming from.
- Carefully Consider Fundraising Requirements
In addition to state registration, some places will require the association of a fundraising consultant with the nonprofit organization. This consultant might be required to register with the state.
- Group Your Donor’s Funds
The FASB states that all the funds received from donors must be grouped as unrestricted, restricted or temporarily restricted. This way your nonprofit organization can track the donations more efficiently and use it for the concerned purposes.
If a donor specifies that he wants the funds to be used for a specific purpose, your organization is under legal obligation to fulfil it accordingly.
- Make Sure Your Organization’s Funding Communications Are Well Written
Your funding communications must be written according to the mission and statement of your organization. Make sure the literature includes all the information which has to be included according to the law like registered charity number and other relevant information.
- Issue Donation Receipts To All Your Donors
Donation receipts help both the organization and the donor to keep track of donations. Go through the different laws which specify the information required to be mentioned in donation receipts.
Conclusion
If you are still confused about the legal requirements and procedures which have to be completed, hire a good attorney who specializes in nonprofits. This will prevent the risk of committing fatal mistakes which will cost you in the long run.
