An early decision founders of new non-profit organizations must make is where to incorporate. A U.S. charitable, religious, or educational organization has its choice of incorporating in any of the 50 states as well as the District of Columbia. With this many choices, founders may ask if it is advantageous to incorporate in one state over another. When it comes to for-profit companies, it is common for them to incorporate or organize in Delaware due to tax or regulatory issues. We recently ran across an article advising non-profits to incorporate in Delaware. We thought it would be helpful to address if non-profits derive any advantage from incorporating in Delaware or another state in particular.Continue reading “Where to Incorporate?”
Does Your Church Need Both?
Sometimes when we analyze governance issues for our clients, we discover that they have two sets of governing documents: a constitution and bylaws. “Constitution” is the title most commonly associated with the governing document of an unincorporated association, whereas “bylaws” govern a corporation.
One of the main reasons churches have both documents is tradition: “It’s always been that way.” However, it is not legally necessary to have both, and in practice, it can lead to confusion, unclear answers, and unintended outcomes when the organization makes decisions. To prevent these problems, it is best if the organization has one set of governing documents that addresses all of the relevant governance issues. Continue reading “Constitution and Bylaws”
Is Your Church a Religious Corporation or a Not for Profit?
In Illinois there are two corporation laws that can be used to form churches: the Religious Corporation Act of 1872 and the Not for Profit Corporation Act of 1986. Most lawyers practicing in the state of Illinois have probably heard of the latter statute, but relatively few may have heard of the former one.
Churches typically function with little awareness of their underlying corporate structure until they need to engage in some sort of commercial transaction–such as the purchase of real estate or obtaining a commercial loan–then the corporate structure becomes a matter of some attention.
Both kinds of corporations can function in the modern world of commercial transactions, but one type functions more easily than the other. Care to guess which one? Continue reading “The Legal Status of a Church”
How to Properly Use Music and Images During Worship Service
Churches today use a variety of intellectual property during worship services, such as music, photographs, quotes, and video clips. These materials can be important to a worship service by increasing engagement, illustrating a point, or adding extra meaning to the service. However, most materials are protected by copyright laws.
Using intellectual property without the permission of the copyright owner or other legal authority is copyright infringement and can result in significant monetary damages. Churches need to know the legal issues that apply to using intellectual property so they can take steps to get permission when needed and avoid copyright infringement. Continue reading “Avoid Copyright Infringement”
Nonprofit organizations are often surprised that their executive compensation practices can be subjected to Internal Revenue Service (IRS) scrutiny. Executive compensation is more than an executive’s salary, compensation includes an executive’s retirement plan, any deferred compensation, and other fringe benefits. Over the past several years, the IRS has increasingly investigated the executive compensation practices of nonprofit organizations. In addition, nonprofit executive compensation is a common risk-area flagged for audit by the IRS. IRS scrutiny of excessive executive compensation is not just a concern of large nonprofits with substantial resources but for small nonprofits as well. Continue reading “Nonprofits and Executive Compensation”
UPDATE : The Seventh Circuit Court of Appeals avoided the constitutional question posed in Freedom From Religion Foundation, Inc. v. Lew (described in the original story below), by vacating, for lack of standing, a lower court’s ruling that the ministerial housing allowance violates the U.S. Constitution. The case was brought by the Freedom From Religion Foundation, Inc. (“FFRF”) and its co-presidents Annie Laurie Gaylor and Dan Barker. They claimed that the Defendants, the Secretaries of the Treasury Department and Commissioner of the Internal Revenue Service, respectively, violate the Establishment Clause of the First Amendment and the Equal Protection component of the Fifth Amendment. Continue reading “Freedom from Religion Foundation v. Lew: Is the Ministerial Housing Allowance Unconstitutional?”
We have had a number of clients ask about whether it is mandatory to include term limits in their nonprofit bylaws. The arguments for and against term limits are equally valid, and we suggest that each board must make its own decision about whether term limits are essential to the board’s governance function.
Those who argue for term limits typically cite the need to bring “new blood” onto the board. New directors bring a freshness of insight, and changes in the operating climate may require new skill sets. A systematic rotation on and off the board lessens the likelihood that a board becomes tired and loses vitality. Continue reading “Board Term Limits – Pro and Con”
Emergency situations involving churches are making headlines more often than many churchgoers would like to believe. As recently as November 16, 2013, tornados touched down in Illinois on a Sunday evening when many were attending church. Churches were targeted in at least 108 incidents of violence in 2011 and over 135 incidents in 2012. In addition, many churches were affected by technological disasters, such as leaks from industrial plants, roadway spills, and power failure. Continue reading “Churches Should Plan for Disasters and Shooter Situations”
Many states provide sales tax exemptions to non-profit organizations. Exemptions are usually one of two types: a purchaser exemption or a seller exemption. A purchaser exemption exempts the organization from paying sales tax on purchases of goods for the organization’s use, whereas a seller exemption exempts the organization from charging sales tax to those who purchase goods that the organization sells. Seller exemptions are usually narrower than purchaser exemptions and may apply to specific products. A non-profit organization desiring to use either type of exemption should carefully evaluate the exemption to determine if it falls within its parameters. Understanding how exemptions apply may require information that does not appear in the express language of the statute. Thus, it is advisable for a non-profit organization to seek legal advice from counsel experienced in sales tax exemptions before relying upon an exemption. Continue reading “Exercise Caution When Relying on Sales Tax Exemptions”
During the last few election seasons, an effort known as “Pulpit Freedom Sunday” encourages pastors to publicly endorse political candidates in their Sunday sermons. The purpose of Pulpit Freedom Sunday is to challenge the constitutionality of a federal law that restricts the political activities of churches. The law applies not only to churches, but to all organizations that are exempt from federal income tax under section 501(c)(3). The restriction prohibits 501(c)(3) organizations from “directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office.” Continue reading “Should Churches Endorse Candidates?”