Let’s Go Legal was created by Washington Nonprofits and … · 2017. 2. 15. · Let’s Go Legal was created by Washington Nonprofits and Wayfind to provide basic nonprofit legal

Let’sGoLegalwascreatedbyWashingtonNonprofitsandWayfindtoprovidebasicnonprofitlegaleducationtononprofitsinWashington.Thelegalinformationisnotlegaladviceandshouldnotbetreatedassuch.Pleaseconsultanattorneyforinformationrelatedtothecircumstanceofyourorganization.

©2016WashingtonNonprofits.Allrightsreserved.

Let’sGoLegalwasdevelopedthroughacollaborationbetweenWayfindandWashingtonNonprofits,inpartnershipwiththeOfficeoftheSecretaryofStateofWashington.Thesematerialsaccompanyvideosandaresupportedbykeydocuments.VisittheLet’sGoLegalwebpageformore:

www.washingtonnonprofits.org/letsgolegalWayfindAnonprofitwithamissiontoimprovethequalityoflifeinWashingtonbyprovidingfreebusinesslegalservicesfornonprofitsandmicroenterprises.www.wayfindlegal.org

IfLet’sGoLegalleadsyoutothinkyouneedlegalassistance,contactWayfindtolearnmoreabouttheirfreelegalassistancefornonprofits.

WashingtonNonprofitsOurstateassociationforallnonprofits,WashingtonNonprofitsmakessurethatnonprofitshavewhattheyneedtosucceed.www.washingtonnonprofits.org

WashingtonNonprofitscreatesregularlearningopportunitiesfornonprofitsacrossWashington.Wehaveasetoflearningtoolsavailabletoindividualsandboardslookingtoimprovetheirpractice.

Let’sGoLegalisthethirdinaseriesofnonprofitlearningresources.Someofthetopicscoveredhereconnectwithtopicscoveredintheseotherresources.

BoardsinGearUnlockingtheWhy,What,Who,andHowofNonprofitBoardswww.washingtonnonprofits.org/boardsingear

FinanceUnlockedforNonprofitsUnlockingfinancialliteracyfornonprofitboardmemberstodelivermissionandprotectassetswww.washingtonnonprofits.org/fun

Let’sGoLegalwasguidedbyateamoflegaladvisors.Wegreatlyappreciatetheircontributiontotheseresources.Theircontributionshouldnotbeviewedaslegaladvice.

• BrendaTauschLapora,Wayfind• JodiNishioka,Wayfind• JudyAndrews,TheApexLawGroup,LLP• NancyStephens,FosterPepper• TaylorBall,DavisWrightTremaineLLP

OurcreativepartnerwasCatharineGately,CantadoraCommunications.Formoreinformation:NancyBacon-DirectorofLearning,WashingtonNonprofitsnancy@washingtonnonprofits.orgwww.washingtonnonprofits.org(855)299.2922

Introduction 3

Asyoubegin,keepinmindthesefourbigideas:1.Nonprofitlawiscomplicated,andonlyanattorneywithknowledgeofyourspecificsituationcancounselyou.Thesearetrainingmaterialsareintendedtodeepenyourunderstandingandhelpyouknowwhattoask.Thesematerialsarenotintendedtobelegaladvice.Pleaseseeanattorneyforanswerstospecificquestions.Wayfindprovidespro-bonolegalservices.

2.Eventhoughyouareanonprofit,youarerequiredlegallytooperatelikeacorporation.Onceanonprofitbecomesofficialintheeyesofthestate,itisacorporationgovernedbycorporatelaw,andyouneedtoprotectthatstatus.

3.Therearethreelegaljurisdictionsyoumustalwaysconsider:Local,StateandFederal.ThesematerialsreviewWashingtonStateLawandFederalLawrules.Consultyourlocaljurisdiction(city,town,orcounty)formoreinformationaboutbusinesslicensesandotherlocalrequirements.

4.Organizationshavelifecycles,justlikeanylivingthing.Theyarecreated,theygrow,theyplateau,andsometimestheydie.Thelegalneedsofanorganization’sboardandstaffareguidedbywherethatorganizationisinitslifecycleandwhatishappeningaroundit.

Introduction 4

OVERVIEW

Thesematerialscoverthefivemostimportanttopicsrelatedtononprofitcompliance:1. Governance–StateLaw

WebeginwithStateLawbecausethatiswhereanonprofitfirstregisterstobecomeofficial.TheArticlesofIncorporationarefiledtocreatethecorporationandtheboardadoptsBylawsandsetsoutitsplantomonitormoneyandkeeprecords.Itstayscompliantwithstatecorporationlawandotherstatelawrequirements,includingfilingcorporationandcharityreportseveryyear.

2. Governance–FederalTaxLaw

Manynonprofitorganizationswanttheirrevenuetobeexemptfromfederalincometaxationandwanttobeabletoaccepttax-deductiblefundsfromfoundationsorindividuals.ThismeanstheyneedtoapplyforspecialstatusfromtheIRSattheFederalLevel.Wecallsuchtaxexemptstatus,“501(c)(3)tax-exemption”andrefertoorganizationswiththistax-exemptstatus“501(c)(3)organizations”becausethose

Introduction 5

qualitiesforexemptionaredescribedinsection501(c)(3)ofthetaxcode.Tax-exemptorganizationsmustabidebyasetoffederaltaxrulesundersection501(c)(3).3. Fundraising

Whenyouacceptotherpeople’smoneyforacharitablepurpose,youagreetoabidebylawsthatrequirethatyouspendsuchmoneyonthepurposesforwhichitwasintended.Thesestateandfederalrulestellushowweneedtocommunicateaboutmoneyreceived,howweshouldaccountforit,andwhatkindsoffundraisingactivitieswecanconduct.

4. EmploymentLaw

Peopleengagedintheworkofanorganizationhelpitmoveitsmissionforward.Theyalsobringwiththemawholesetofrulesthatgovernhowtheyshouldbehired,paid,deployed,andtreated.

5. IntellectualPropertyLaw

Nonprofitscreateandcommunicateideasthatareintangible.Itisvitalthatorganizationsprotecttheseideasandtheproductsthatsharethem,fromwebsites,toprintmaterials,touniqueresearchontheissuestheyareaddressing.Likewise,itisimportantthatnonprofitsarecarefulabouthowtheyusetheideasofothers.

Thesematerialsarejustastart.Wehaveprovidedexamplesofpoliciesandadditionalresourcessothatyoucancustomizethisinformationtoyourorganization.

Introduction 6

VOCABULARY1.PERSON:Director,Boardmember,orTrustee?Whiletherearecleardistinctionsinthemeaningofthewordsthemselves,forthesakeofclarity,thisguideusesdirector,boardmemberortrusteeinthecontextofanonprofitboardinterchangeably,orasthesame.Thetermreferstothepeopleonthegovernanceteamofanorganization.2.ORGANIZATION:Nonprofit,Charity,or501(c)(3)?Thisguidecoversarangeoforganizationsservingthepublicgood.Let’sreviewthetypesoforganizationstobeclearwhatwearetalkingabout.Nonprofit(ornonprofitcorporation):Anorganizationcreatedforapublicbenefitwithoutshareholdersoraprofitmotive.CPAsoftencalltheseorganizations“Not-for-profits”tounderscorethattheirpurposeissomethingotherthanprofit;aprofitcanbeearnedandreturnedintotheorganization.Nonprofitstatusisdeterminedunderstatelaw.AnonprofitregisterswiththeWashingtonSecretaryofStateasacorporation,called“incorporation.”Charitablecorporation:AnonprofitmayalsoneedtoregisterwiththeWashingtonSecretaryofStateasa“Charity”whenitisaskingpeoplefordonationstosupportitscharitablepurposes.Itisrequiredtodosoifitiseitherraisingatleast$50,000inanyaccountingyearorpayingsomeonetodotheworkoftheorganization.Tax-exemptorganization:AnonprofitcorporationthathasbeenapprovedbytheInternalRevenueService(IRS)iscalled“taxexempt.”Organizingasanonprofitcorporationatthestateleveldoesnotautomaticallygranttheorganizationexemptionfromfederalincometax.Tax-exemptstatusexemptsanonprofitfrompayingfederalcorporateincometaxandallowscontributionsgiventotheorganizationtobetaxdeductibletothedonors.Therearemanyclassificationsoftax-exemptorganizations,with501(c)(3)beingjustoneofthem.Federaltaxlawappliestoall501c3tax-exemptorganizations.IRS:“IRS”standsfortheInternalRevenueService.TheIRSisthetaxingagencyfortheUnitedStatesFederalGovernment.TheIRSisthefederalagencythatregulatesandmonitors501c3tax-exemptorganizations.Section501c3oftheInternalRevenueCode,isthelawthatappliesto501c3tax-exemptorganizations.

StateLaw 7

1:GOVERNANCE–STATELAW

KNOWTherearefivekeyareasofStateLawfornonprofitstobeawareof:

1. ArticlesofIncorporation:ArticlesofIncorporationarethedocumentthatcreatesthecorporation.Itneedstomeetbothstaterequirementsforanonprofitcorporationaswellasfederaltaxlawrequirementstoqualifyasa501(c)(3)organization.

2. Bylaws:“Bylaws”referstothedocumentthatsetsouttherulesofoperationforyourorganization.

3. FiduciaryDuties:Boardmembershaveasetoflegalobligationstowardsthenonprofitcorporation,calledfiduciaryduties.

4. Recordkeeping:Anonprofitboardkeepsrecordssothatitcanreporttofundersorgovernmentagenciesorthecommunityaboutdecisionsandactionsmade.

5. StateTaxes:Whileatax-exemptorganizationdoesnotpayfederaltaxes,itisresponsibleforapplicablestatetaxes.

KNOWMORE1.ArticlesofIncorporationSinceArticlesaretheoriginaldocumentthatcreatesanorganization,anonprofitshouldkeepacopyofthefiledArticles.Ifitdoesn’thaveone,itcanorderthemfromtheSecretaryofState.TheArticlessettheparametersoftheorganization’scharitablepurposesandmaydescribewhetherornotithasmembers.A. Statelawrequirements

q RegisteredAgent:Anonprofitmusthavearegisteredagentandaregisteredoffice.Thisisthewaythatthestatecontactsthecorporation.Theregisteredagentneedstobeadependableperson,andtheaddressneedstobeastable

StateLaw 8

streetaddressinWashingtonState.TheRegisteredAgentmustsignaconsenttoserveinthatrolewhichisfiledwiththeArticles.

q Name:AnonprofitmusthaveanameforthecorporationthatcannotbethesameasorverysimilartothenameofanyothercorporationorlegalentityinWashingtonandcannothavewordslikeInc.,Co.,Company,Ltd.init.

q InitialDirectors:AnonprofitmustgivethenameandaddressofatleastoneindividualwhowillserveontheBoard.

q Incorporator:Anonprofitmustgivethenameandaddressofatleastonepersonwhowillserveastheincorporator.TheincorporatoristhepersonwhosignstheArticles.

B. FederaltaxlawrequirementsWhilewegointomoredetailonfederallawinthenextsection,let’sreviewtheelementsoftheArticlesofIncorporationthatrelatetofederalrequirements.

q Purpose:Anonprofitmustlistpurposesfortheorganizationthatmeetthedefinitionofcharitablepurposesunderfederaltaxlaw.SeetheSampleArticlesofIncorporationinourKeyDocuments,forspecificlanguage.

q Dissolution:Anonprofitmustprovideforthedistributionofanyremainingassetsintheeventthatthecorporationiscloseddown.Theassetsmustbedistributedtoanother501(c)(3)organizationortothefederalorstategovernmentforapublicpurpose.

q Limitationofliability(recommended):Thisprovisionchangesthestandardfordeterminingliabilityofdirectorsto“grossnegligence,”makingithardertoproveliability.

q Indemnification(recommended):Thisprovisionauthorizesthecorporationtopaycostsofdefendingofficersanddirectorswhoaresuedandinsomecases,anydamagesrequiredtobepaidbyanofficerordirector.

C. RequirementsafterIncorporation

q AnnualReport:AnonprofitneedstofileanannualreportwiththeSecretaryofStatetomaintain“ActiveStatus.”Itisduetobefiledeveryyearonthebirthdateofyourcorporation.Ifthenonprofitdoesn’tfileit,itwillbeadministrativelydissolved.

q InitialMeetingoftheBoardofDirectors:TheindividualslistedintheArticlesastheinitialdirectorsmeettotakeactionsnecessarytostartupthecorporation.ThisincludesadoptingtheBylaws,electingofficersandauthorizingopeningabankaccount.

D. ChangestotheArticlesTheArticlescanbechangeduponapprovaloftheBoardofDirectorsbyadocumentcalled“ArticlesofAmendment.”ThemostcommonamendmentstoArticlesaretochangethecorporation’snameortoaddnewpurpose.

StateLaw 9

2.BylawsTheBylawsaretherulesofoperationforthecorporationandarerequiredbyStateLaw.Bylawsarenotfiledwiththestate.ThenonprofitshouldkeepafileoftheBylawsintheoffice,withanyamendments.EachboardmembershouldkeepuptodateBylaws.TheyarefiledwiththeIRSwhenyouapplyfortaxexemption.

q Members:Washingtonnonprofitcorporationlawpermitsnonprofitcorporationstohavemembersasvotingornonvotingmembers.Ifyouhavemembers,itisimportanttobeclearwhyyouhavemembersandwhattheirrightsare.Ifyougivememberstherighttovote,youneedtoclearlystatewhatthosevotingrightsareandprovideappropriateprovisionsforholdingmeetings.

q BoardofDirectors:Understatelaw,onlyonedirectorisneeded;however,youwillneedatleastthreedirectorsifyouareseekingtax-exemptstatus.Usuallythenumberofdirectorsisdescribedasarange,withaminimumnumberandmaximumnumberofdirectorsgiven.TheBylawsalsoprovideforhowthedirectorsareelected,lengthofterm,theirqualifications,resignation,andremoval.Itisimportanttohaveremovalprovision.

q Meetings:TheBylawsprovideforhowtheBoardmeets,howitgivesnoticeof

meetings,howitholdsspecialmeetings,whataquorumis,andthevoteneededfortheBoardtoact.UnderWashingtonlaw,aBoardcanmeetin-person,orbytelephoneorsomeotherformofelectroniccommunication,aslongaseveryonecanheareveryoneelsespeak.Chatroomsonlinearenotpermitted.Youalsocanmeetintheformofwriting,calleda“consentresolution.”Directorsgivetheirconsentinwritingorbyemail.Suchaconsentmustbeunanimous;thatis,everydirectorneedstovote,andeveryonemustvoteinfavoroftheresolutionproposed.

q Committees:Bylawsoftencovertherolesofcommittees.Therearetwokindsof

committees:(1)boardcommittees,composedonlyofdirectorsthatcanactfortheBoard(non-boardmemberscanattendcommitteemeetingsandgiveinput,butcannotvote),and(2)advisorycommitteesthatgiveadviceandrecommendationstotheBoard.

q Officers:Theirdutiesaredescribedinthebylaws.

q Amendments:There’saprovisionthatdescribeshowthebylawsareamended.

UsuallyamendmentstothebylawsrequireasupermajorityvoteoftheBoardandsometimesspecialnotice.Ifthecorporationhasvotingmembers,thisprovisionmayrequirememberapprovalaswell.

StateLaw 10

3.FiduciaryDutiesTheWashingtonNonprofitCorporationActsetsoutthedutiesandprotectionsofthedirectors.A.ThreeDutiesDirectorsmustfulfilldutiesdescribedastheDutyofCare,DutyofLoyalty,andDutyofObedience:

q DutyofCare:Adirectorisexpectedtohavealevelofcompetencedescribedasexercisingthe“careofanordinarilyprudentpersoninlikeposition”undersimilarcircumstances.Thatmeansadirectorhastoexercisereasonablecarewhenmakingadecisionasaboardmember,usingdiligenceandindependentjudgment.

q DutyofLoyalty:Adirectorshouldactinthebestinterestoftheorganization,puttingtheorganizationbeforeself-interest.Thisisparticularlyimportantwherethereisthepotentialforpersonalgainandoftenariseswhenthereisaconflictofinterest.It’sabestpracticeforstaffandboardtosignaConflictofInterestpolicy.

q DutyofObedience:Adirectormustmakesurethattheorganizationisin

compliancewithlocal,state,andfederallawsandisstayingtruetoitsmission.B.ProtectionsWashingtonStatelawprovidesprotectionstomakesurethedirectorsareprotectedintheeventthedirectorsarethreatenedwithlegalaction.Inbothcases,provisionsshouldbewrittenintotheorganization’sArticlesofIncorporation.

q LimitationofLiability:Theseprovisionseliminateorlimitthepersonalliabilityofadirectorincaseswherethedirectordidnotactwithintentionalmisconductorreceiveinappropriatepersonalbenefit.

q Indemnification:Theseprovisionspermitadirectorwhoisapartofalegal

proceedingrelatedtothecorporationtoapplyforindemnification,inotherwords,tobecompensatedforlossordamage,bythenonprofit.Thiswouldcoverreasonableexpensesincurredbythedirectorinconnectionwithalegalcasebeforeacourt.Thisprotectioncanextendtoofficers,employeesoragentsoftheorganization.

4.RecordkeepingAnonprofitmustkeepclearandcompleterecordstoensurethatitcomplieswithtaxrules.Goodrecordkeepingsystemsalloworganizationstobetter

StateLaw 11

evaluateitsprograms,monitoritsbudget,andpreparefinancialstatementsandreturns.ItisabestpracticetohaveaDocumentRetentionPolicythatdescribeswhatrecordsshouldbekeptonfileandforhowlong.A.FinancialRecordsThelawdoesnotrequireacertainkindofrecordsystembecauseitwillvarybyorganizationalsize.Thesystem,however,shouldincludetheseitems:

q Receipts:Amountreceivedfromallsourcesq Purchases:Itemsbought,includinganyitemsresoldtocustomersq Expenses:Othercoststorunprogramsq Employmenttaxes(forstaffedorganizations)q Assets:Propertythatanorganizationownsandusesinitsactivities

B.BoardMinutesBoardminutesarethewrittenrecordoftheactionsanddecisionstakenataboardmeeting.Oncewrittenandapprovedbytheboard,theyareacceptedasatruerepresentationofthemeetingtheyrecordandcanbeusedaslegalevidence.UsuallytheSecretaryisinchargeofminutes.Anonprofitkeepsthemelectronicallyorinabinder.Theyshouldbekeptforever.C.OtherrecordsOtherkeydocumentsrelatedtotheorganizationshouldbekeptforatleast7years.ADocumentationandRetentionpolicyisconsideredbestpractice.5.StateTaxesTherearethreestatetaxesthatimpactWashingtonnonprofits:

a. Business&OccupationTax:AnonprofitmustfileaMasterBusinessLicensewiththeDepartmentofRevenueifitwillhaveemployeesorarevenuesourceonwhichitmustpayStateBusinessandOccupationTax(B&OTax)orSalesTax.TheB&OTaxtaxesthegrossincomethatyourorganizationbringsin.Donations,grantsandproceedsfromfundraisingeventsareexempt.

b. SalesTax:Organizationsthatsellproductsmustpaysalestax.

c. PropertyTax:Unlessexempt,nonprofitsmustpaypropertytaxesonany

propertythatitowns.

StateLaw 12

KEYDOCUMENTS• ArticlesofIncorporation• Bylaws• ConflictofInterestPolicy• DocumentRetentionPolicy• GiftAcceptancePolicy• Minutes

StateLaw 13

ACTION

IfYes,Datesentorreviewed

No StateLawLegalChecklist OurboardofdirectorsreviewstheArticlesofIncorporationatleastonceayear

tomakesurethatactualpracticeisconsistentwiththesedocuments. OurOrganization’sregisteredagentisstillattheaddressonfilewiththe

SecretaryofState.

TheregisteredagenthassignedaconsentformthatisonfilewiththeSecretaryofState

Wecanrelyonourregisteredagenttogiveusmailthatcomestothecorporation

OurboardofdirectorsreviewstheBylawsatleastonceayeartomakesurethatactualpracticeisconsistentwiththesedocuments.

OurOrganizationpreparesandmaintainsfinancialstatementsandstatementsofaccountonaregularbasis.

Ourboardhasreviewed,andifnecessarysecuredexpertadviceabout,ourfinancialcontrols,andregularlyrevisitsthistopictoassureadequatescopeandcompliance.

OurOrganizationhasadequateseparationoffinancialduties.Inparticular,thepersonwritingandsigningchecksisdifferentthanthepersonreviewingandreconcilingbankstatements.

MorethanonepersonisanauthorizedsigneronourOrganization’sbankaccounts,andthesesignatoriesareup-to-date.

OurOrganizationdoesnotmakeloanstoanyofitsofficersordirectors. OurOrganizationunderstandsandcarefullyobservesanyuseorspending

restrictionsongrantsandothercontributedfunds. OurOrganizationhasOfficerandDirectorinsurance,andtheboardmembers

havereviewedthepolicyandunderstandwhatitcoversandwhatitdoesnotcover.

OurOrganizationfilesanannualreportwiththeWashingtonSecretaryofState.(YoumayalsoneedtoregisterasaCharitableOrganization;see“Fundraising”formore.)

OurOrganizationhasfiledaMasterBusinessApplicationwiththeStateofWashington.

OurOrganizationunderstandsitsobligationtopayanystatesalesorbusinessandoccupationtaxes.

Ourorganizationunderstandswhetheritisentitledtoanyexemptionsfromthesetaxes

LOCAL OurOrganizationhasacurrentlicensetodobusinessfromthecity/county

whereitislocated. OurOrganizationunderstandsitsobligationtopayanylocalbusinessand

occupationorpropertytaxes.

StateLaw 14

FederalLaw 15

2.GOVERNANCE–FEDERALLAWKNOWTherearefivekeyareasofFederalTaxLawfor501(c)(3)organizationstobeawareof.Ifthenonprofitdoesnothavetax-exemptionasa501(c)(3)organization,theywillnothavetocomplywiththefollowingfederaltaxrules.

1. CharitablePurposeandAssets:Federaltaxlawprovidestaxbenefitsto501(c)(3)organizationsbecausetheyprovideabenefitsocietyinsomeway.Inreturn,theseorganizationsmustfurtheroneormore“charitablepurposes”andprovideassurancethatitsassetswillremaincharitable.

2. Privatebenefit:Individualsororganizationsmaynotbenefitpersonallyfromtheactivitiesofatax-exemptorganization.

3. Lobbying:501(c)(3)organizationsarelimitedintheiradvocacyactivities.Lobbyingconductedby501(c)(3)organizationscannotbea“substantialpart”oftheiractivities.Thereisanimportantdifferencebetweeneducationandlobbying.

4. Politicalcampaigns:501(c)(3)organizationsmaynotparticipateinorinterveneinthecampaignofacandidateforpublicoffice.

5. Publicdocumentation:Tax-exemptorganizationsmaynotoperateinthedark.Theymustmakesomedocumentsavailableforpublicinspection.Theymustfileannualinformationaltaxreturnsandprovidedonorswithappropriatedonationreceipts.

KNOWMORE1.CharitablePurposeandAssetsA. Purpose:A501(c)(3)organizationmustbeorganizedandoperated

FederalLaw 16

exclusivelyforoneormorecharitablepurposes.Thesepurposesmustmeetthedefinitionofcharitablepurposesunderfederaltaxlaw.

B. Dissolution:TheArticlesmustprovidethat,upondissolutionofthe501(c)(3)organization,allassetsmustgotoanother501(c)(3)organizationoragovernmententityforapublicpurpose.

C. Incomeunrelatedtopurpose:501(c)(3)

organizationsmayhavealimitedamountofunrelatedbusinessincome(incomeunrelatedtoitscharitablepurpose),butitmustreportitandpaytaxesonit.Ifthereistoomuchunrelatedbusinessincome,oritisnotreported,itcanjeopardizethenonprofit’stax-exemptstatus.Therearelegalteststodetermineifincomeisunrelatedbusinessincomeandifthereistoomuchunrelatedbusinessincome.Ifthisisanissue,theorganizationshouldconsultanattorney.

2.PrivatebenefitTax-exemptorganizationsarecreatedtoserveapublicgood,notthepeoplecreatingorgoverningtheorganization.Noofficer,directororotherinsidercanthereforereceiveanybenefitforwhichtheyhavenotappropriatelypaid.Loanstoboardmembersarenotpermitted.Ingeneral,aboardneedstopaycloseattentiontocompensation,purchasesandsales,orotherfinancialtransactionswithinsiders.Transactionswithinsiderscannotexceedfairmarketvalue.TheIRScanimposefinancialpenaltiesoninsidersthatviolaterulesaroundprivatebenefit,aswellasondirectorswhoapprovesuchdealings.Theorganizationmayhaveitstax-exemptstatusrevoked.3.LobbyingLobbyingisanyattempttoinfluencelegislationby(1)expressingapositiononspecificlegislationtoalegislatorortheirstaff,or(2)encouragingmembersofthegeneralpublictocontacttheirlegislatorswithapositiononaspecificlegislation(likea“calltoaction”).Contrarytowhatmanypeoplethink,tax-exemptorganizationsmayengageinlobbyingifitisnotasubstantialpartoftheiractivities.Alltax-exemptorganizationsmayengageineducation.

Definitionof“Charitable”

Theterm"charitable"isusedintheInternalRevenueCodesection501(c)(3)initsgenerallyacceptedlegalsense.Thatincludesreliefofthepooranddistressedoroftheunderprivileged;advancementofreligion;advancementofeducationorscience;erectionormaintenanceofpublicbuildings,monuments,orworks;lesseningoftheburdensofgovernment;promotionofsocialwelfare.

-irs.gov

FederalLaw 17

A. Lobbyinglimitsq The“substantialpart”test:OrganizationsthatchoosenottoelectintoSection

501(h)ofthetaxcodearestillsubjecttosection501(c)(3)andtherulesdevelopedincommonlaw.Knownasthe“substantialparttest,”theserulesrequirethat“nosubstantialpartofacharity’sactivitiesconsistofcarryingonpropagandaorotherwiseattemptingtoinfluencelegislation.”“Substantial”hasneverbeenclearlydefined.However,itisclearthatthedefinitionoflobbyingunderthe“substantialparttest”isnotrelatedtoanexpenditureofmoneyalone.Forexample,activitiesconductedbyvolunteerstoinfluencelegislationmaybeconsideredlobbying.

q 501(h)expendituretest:Those501(c)(3)organizationsthatchoosetheSection501(h)electionmustapplyan“expendituretest.”Underthisstandard,lobbyingonlyoccurswhenthereisanexpenditureofmoney.Itsetsforthspecificdollarlimits,calculatedasapercentageoftheorganization’stotalexemptpurposeexpenditures.Section501(h)anditsrelatedregulationsalsoprovidehelpfuldefinitionsoflobbyingandseveralexemptions.

B.EducationTobeclear,501(c)(3)organizationsmayengageineducationwithoutlimitation.Theymayeducateanyoneanytimeaboutthepeopletheyserve,theimpactofpoliciesonthesepeople,andwhatideastheyhavetohelptheircommunity.Theymaytellthestoriesofclientsorspeakupwhenabettersolutionispossible.Theymayinviteapolicymakerintotheirfacilitytoseetheirworkinaction.Nonprofitsplayanimportantroleintheeducationoftheircommunity,includingpolicymakers,abouttheirworkandtheissuesrelatedtotheirsuccess.4.PoliticalcampaignsA501(c)(3)organizationisnotallowedtofavororopposeacandidateforpublicoffice.Acandidateincludesadeclaredcandidate,anincumbentuntiltheystatethattheywillnotseekre-election,andapersonsubjecttospeculation.A501(c)(3)organizationmaynotmakeendorsements.Itmaynotuseitsresourcesforacampaignforpublicoffice.Itisimportanttopreventanycampaignactivitybyanemployee,volunteerorBoardmemberfrombeingattributedtotheorganization.5.PublicdocumentationA.AnnualfilingAtax-exemptorganizationmustfileaform990oroneofitsvariationseachyearfourandone-halfmonthsaftertheendofitsfiscalyear.Therearefinancialpenaltiesforfilingtheform990late.Ifanorganizationfailstofileaform990forthreeconsecutiveyears,itstax-exemptstatuswillbeautomaticallyrevoked.

FederalLaw 18

B.PublicDisclosureItisconsideredtobeinthepublic’sbestinterestthattax-exemptorganizationsmakepublickeyinformationabouttheiractivities.Specifically,atax-exemptorganizationmustmakeavailableforpublicinspectionits:

q Applicationfortaxexemption,whichiseitherForm1023orForm1024dependingontheorganization.

q Annualreturn,whichincludesForm990anditsvariationsforthepriorthreeyears.

Itisnotrequiredtodisclosethenameandaddressofanycontributor.

KEYDOCUMENTSInadditiontotheStateLawdocuments,thesearekeyFederalLawdocuments:

• Form1023• Form990N• Form990EZ• Form990

FederalLaw 19

ACTIONIfYes,Datesentorreviewed

No FederalLawLegalChecklistKEEPINGCURRENTWITHIRS-MAINTAININGTAX-EXEMPTSTATUS

OurorganizationfilesaversionoftheIRSForm990everyyear.q OurOrganizationdoesnotnormallyreceivemorethan$50,000inannualgross

receiptsandfilesa990N(e-Postcard).q OurOrganizationnormallyreceivesmorethan$50,000ingrossreceiptseach

yearandfilesannualForm990or990EZwiththeIRS. OurOrganizationunderstandsits501(c)(3)determinationletterfromtheIRS,and

itsstatusaseithera“publiccharity”ora“privatefoundation. OurOrganization’sBoardofDirectorsregularlyreviewstheOrganization’sfinancial

statements,andreviewsandapprovestheannualIRSForm990. IfourOrganizationreceivesfundsfromregularly-conductedbusinessactivitiesthat

areunrelatedtoitsexemptpurpose,itcorrectlyaccountsforthosefundsandunderstandshowtoreportandpaytaxesonthisunrelatedbusinessincome.

KEEPINGCURRENTWITHIRS OurOrganizationhasnotifiedtheIRSofanymaterialchangestoourexempt

purposesoractivities,oramendmentstoourArticlesofIncorporationorBylawssinceweappliedfor501(c)(3)status.

CONFLICTOFINTEREST OurOrganizationhasawrittenconflictofinterestpolicyandfollowsthatpolicy. Anytransactionsourorganizationundertakeswithitsinsiders,knownas

“disqualifiedpersons,”isapprovedbytheboardoranindependentcommittee,nomembersofwhichhaveapersonalorfinancialinterestinthetransaction.

Thesettingofourexecutivedirector’ssalaryisbasedonappropriatecomparabilitydata.

Transactionsareconcurrentlydocumentedbytheboardorcommitteewhichstatesthebasisforitsapprovalinwriting.

OTHERPOLICIES OurOrganizationhasconsideredadoptingawrittenwhistleblowerpolicyandif

adopted,followsthatpolicy. OurOrganizationhasconsideredadoptingawrittendocumentretentionpolicy

andifadopted,followsthatpolicy.ADVOCACY

OurOrganizationdoesnotendorsecandidatesforpoliticalofficeanddoesnotparticipateinanypoliticalcampaignfororagainstacandidateforanypublicoffice.

Ourlobbyingactivities,ifany,areaninsubstantialpartofourOrganization’soverallactivities.Ifweareparticipatinginanylobbyingactivities,wehaveconsideredthetwowaysthatnonprofitscandocumenttheirlobbyingactivities.

Fundraising 20

3.FUNDRAISINGANDDONATIONSKNOWTherearefourkeyareasoflawrelatedtofundraisingfornonprofitstobeawareof:

1. Registration&Reporting:InWashington,nonprofitsthatsolicitmembersofthepublicfordonationsandraiseatleast$50,000annuallyorpayanyonetocarryouttheactivitiesoftheorganizationmust(1)registerasaCharitableOrganizationand(2)fileyearlyreportswiththeState.

2. Writtenacknowledgement:Certaindonationsrequirewrittenacknowledgementforthedonortobeabletotakeadeduction.

3. Restrictedgifts:Insomecases,donorsmayrestricthowtheirgiftcanbeused.Anendowmentisonekindofrestrictedgift.

4. Fundraisingactivities:Anumberoflawsimpacthowanorganizationcanraisemoney,fromholdingaraffletoservingalcohol.Disclosurerequirementsapplytononprofits.

KNOWMORE1.Registration&ReportingInWashington,nonprofitsthatsolicitmembersofthepublicfordonationsandraiseatleast$50,000annuallyorpayanyonetocarryouttheactivitiesoftheorganizationmustregisterasaCharitableOrganizationwiththeSecretaryofState,andfileyearlyreportswiththeState.Thereportisduenolaterthanthelastbusinessdayofthe11thmonthaftertheendoftheorganization’saccountingyear.Registrationisalsorequirediftheorganizationengagesacommercialfundraiser.Churchesarenotrequiredtoregister.2.Writtenacknowledgement(substantiation)Donationsaboveacertainlimitareonlytaxdeductibleifthedonorhasawrittenacknowledgementofthegift.

Fundraising 21

q Singlecontributionof$250ormore:

q Singlecontributionof$75ormorewheregoodsorserviceswerereceivedbythedonor(unlessthegoodswereincidental,suchasacoffeemug)

Therearealsospecialrulesarounddonationsofcertaintypesofproperty,suchasvehicles,worksofart,conservationeasementsandpropertyvaluedatmorethat$500.3.RestrictedgiftsContributionsrestrictedbythedonormustbeusedinaccordancewithanydonorrestrictionsonthatgift,whetherthedonorrestrictsagiftastopurposeorexpenditure.Restrictedgiftsrequireadditionaltrackingandaccountingtoensurethattheyarestewardedappropriatelyandusedfortheirintendedpurpose.Onetypeofrestrictedgiftisanendowment.Nonprofitswithincome-producingassetsof$250,000ormoremayneedtoregisterasaCharitableTrustwiththeSecretaryofState.4.FundraisingActivitiesManynonprofitsholdeventsorconductotherfundraisingactivitiesinordertoraisemoney.Someofthoseactivitiesmaybesubjecttootherlaws.

q Raffles:Mayrequirealicense.SeeWAStateGamblingCommission.q Gaming&gambling:Mayrequirealicense.SeeWAStateGamblingCommission.q Auctions:Mayinvolvepayingsalestaxesontangiblepropertyq Alcohol:requiresaliquorlicense

KEYDOCUMENTS

• QuidProQuoLetter(thatmeetsfederalrequirements)• ThankYouLetter(thatmeetsfederalrequirements)

WrittenAcknowledgementshouldinclude:

q Nameoforganizationq Amountofcashcontributionq Description(notvalue)ofnon-cashcontributionq Statementthatnogoodsorserviceswere

provided,ifthatwasthecaseq Descriptionandgoodfaithestimateofthe

valueofgoodsorservices,ifany,thatanorganizationprovidedinreturnforthecontribution

Fundraising 22

ACTION


No Fundraising&DonationsChecklistREGISTRATIONASACHARITY IfourOrganizationsolicitscharitabledonationsfromthegeneralpublic,it

complieswithWashington’sCharitableSolicitationsAct,includingregistrationandannualreportingrequirements.

GIFTACKNOWLEDGEMENT OurOrganizationacknowledges,inwriting,giftsof$250ormore.IN-KIND IfourOrganizationprovidesanygoodsorservicesofmorethananominalvalue

toadonorwhomakesacontributioninexcessof$75.00,ourOrganizationprovidesadisclosurestatementtothedonorwithagoodfaithestimateofthefairmarketvalueofanybenefitthatthedonorreceived.

IfourOrganizationreceivesgiftsofvehiclesorothernoncashgifts,itunderstandsandfollowstheIRSregulationsforsubstantiationofthosegifts.

EmploymentLaw 23

4.EMPLOYMENTLAW

KNOWTherearefivekeyareasofEmploymentLawfornonprofittobeawareof:

1. MinimumWage&Overtime:Federal,State,andinsomecasesLocallawregulatesemployers’paypracticesandpolicies.WashingtonemployersmustcomplywithFederal,State,andLocallaw.

2. HiringProcess:Employersshouldunderstandthebasisforat-willemployment.Employersmustalsoverifytheworkeligibilityofemployees.

3. Non-employees:Interns,Volunteers&IndependentContractors:Nonprofitsneedtomakesuretheyaretreatingthesecategoriesofnon-employeesconsistentwiththelawtoavoidincurringliability.

4. Payroll:Employeesmustbepaidatleastonceamonthonaregularlyscheduledpayday.PayrolltaxesmustbewithheldandpaidtotheIRS.IRSisverystrictonpayrolltaxesandwillholdindividualboardmembersliableforunpaidpayrolltaxes.

5. Anti-discriminationLaws:Federalandstatelawprohibitdiscriminationacrossawidearrayofcharacteristics.

KNOWMORE1.MinimumWage&OvertimeA.MinimumWage.Mostemployeesmustbepaidtheminimumwageforall“hoursworked.”“Hoursworked”meansalltimeduringwhichanemployeeperformsworkforthebenefitoftheemployer.Thisincludestimespentopeningorclosingabusiness,andrequiredmeetingsandtraining.Italsoincludestimespendbyanemployeevoluntarilycontinuingtoworkonanassignedtaskattheendofashiftoronadayoff.Allworktimemustbepaidforbytheemployer.

EmploymentLaw 24

For2017,theWashingtonMinimumWageis$11.00perhour,higherthanthefederalminimumwageof$7.25perhour.Employersarerequiredtopayemployeesthemorefavorable(i.e.,higher)oftheStateandFederalminimumwage.SeveralcountiesandcitiesthroughoutWashingtonstatehaveenactedlocalminimumwageordinances.Employersneedtoknowwhatminimumwageappliestotheiremployees.B.OvertimeMostemployeeswhoworkmorethan40hoursina7-dayworkweekmustbepaidovertimecompensationforallhoursworkedover40.Foreveryovertimehourworked,theemployeemustbepaid1.5timestheemployee’sregularrateofpay.Anemployee’s“regularrate”isnotnecessarilythesameasanemployee’sfixedorstraighttimerate.Theregularrateincludesallcompensationforemploymentpaidtotheemployeedividedbythenumberofhoursworkedintheweekforwhichthecompensationwasintended.Paymentssuchcommissionpayments,premiumpay,andnon-discretionarybonusesareincludedintheregularrate.Discretionarycompensation,expensereimbursements,andpayforunworkedtime(holiday,vacation,sickpay)doesnotneedtobeincludedwhencalculatingtheregularrate.C.ExemptStateandfederallawprovidesexemptionfromovertimepayforemployeesemployedasbonafideexecutive,administrative,professional,oroutsidesalesemployees.Toqualifyfortheexemption,employeesmustmeetcertaintestsregardingtheirjobdutiesandbepaidonasalarybasis.Jobtitlesdonotdetermineexemptstatus.Inorderforanexemptiontoapply,anemployee’sspecificjobdutiesandsalarymustmeetalloftherequirements.Payinganemployeeonasalarybasisrequiresthattheemployeereceiveapredeterminedamountofpayonaweeklybasis,regardlessofthequantityorqualityofthehoursworked.Currentlyfederallawrequiresthatemployeesmustbepaidinanamountequalto$455perweek($23,660peryear)inordertoqualifyforthemanagement,administrativeorprofessionalexemptions.Inadditiontothesalarybasisrequirements,exemptemployeesmustalsomeetdutiesrequirements.Stateandfederaldutiestestsdifferslightlyandemployersmustcomplywithboth.Thethreemostcommonlyappliedexemptionsaretheexecutive,administrative,andprofessionalexemption.SeeChartAonthenextpage.

MinimumWagesAroundWashington(asofJanuary2017)

SeaTac:Certainemployersinthehospitalityandtransportationindustriesmustpay$15.34/hour.

Seattlehasamulti-yearplanforincreasingtheminimumwageto$15perhour.Wageratesdependonanumberoffactors,includingthesizeoftheemployer.

Tacomaisgraduallyincreasingitsminimumwageto$12perhouroveratwo-yearperiod.

EmploymentLaw 25

Stateandfederallawalsoprovideexemptionsforcertainothercategoriesofemployees.Employersshouldconsultwithlegalcounselwhenmakingadecisionwhethertoclassifyanemployeeasexemptfromovertime.Employersarenotrequiredtopayemployeesahigherrateofpaytoworkonholidaysorweekends.Employersarenotrequiredtopayemployeesseverancepay.

CHARTA:COMMONEXEMPTIONS

Executiveexemption

Administrativeexemption

Professionalexemption

Anemployeemust: Anemployee’sprimarydutymust: Anemployeequalifiesiftheemployee:

q Havetheprimarydutyofmanagingtheenterpriseinwhichtheemployeeisemployedorofacustomarilyrecognizeddepartmentorsubdivision.

q Customarilyorregularlydirecttheworkoftwoormorefulltimeemployeesortheirequivalent;and

q Havetheauthoritytohire,fire,promote,ordemoteotheremployeesofhaveparticularweightgiventosuggestionsandrecommendationsastosuchdecisions.

q Involveofficeornon-manualworkdirectlyrelatedtothemanagementorgeneralbusinessoperationsoftheemployeroritscustomers.Examplesprovidedintheregulationsincludeworkinareassuchasfinance,accounting,budgeting,auditing,qualitycontrol,purchasing,marketing,personnelmanagement,publicrelations,anddatabaseadministration;and

q Exercisediscretionandindependentjudgmentwithrespecttosignificantmatters.

q Hasaprimarydutyofperformingofficeornon-manualworkrequiringknowledgeofanadvancedtypeinafieldofscienceorlearningcustomarilyacquiredbyaprolongedcourseofspecializedintellectualinstruction,andwhosedutiesrequireconsistentexerciseofdiscretionandjudgment;or

q Hasaprimarydutyrequiringinvention,imagination,originality,ortalentinarecognizedfieldofartisticorcreativeendeavor.

2.HiringProcessA.At-WillEmploymentWashingtonStaterecognizesthedoctrineofat-willemployment.At-willemploymentmeansthatemployeescanquitwhenevertheywantandtheemployermayterminatethemwheneveritwants,providestherenocontractoragreementtothecontrary.Allemployeesareat-willemployeesunlesstheemployerhastakenaffirmativestepstochangethestatus.Themajorityofemployeesshouldbeemployedonanat-willbasistoprovidetheemployerwithflexibilityandtominimizecost.EmployersshouldhaveapolicyconfirmingAt-WillEmployment.SeeKeyDocumentsforasamplepolicy.

EmploymentLaw 26

B.EmploymentVerificationEmployersmusthaveallemployeeshiredonorafterNovember6,1986completeFormI-9.SeeKeyDocumentsforaBlankandCompletedForm.3.Non-employees:Interns,Volunteers,andIndependentContractorsA.UnpaidInternsThelawnarrowlylimitsanemployer’sabilitytouseunpaidinterns.TheUnitedStatesDepartmentofLaborlooksatsixcriteriaforevaluatingwhetheranunpaidinternsstatusisvalid:

1. Theinternship,eventhoughitincludesactualoperationofthefacilitiesoftheemployer,issimilartotrainingwhichwouldbegiveninaneducationalenvironment;

2. Theinternshipexperienceisforthebenefitoftheintern;3. Theinterndoesnotdisplaceregularemployees,butworksunderclose

supervisionofexistingstaff;4. Theemployerthatprovidesthetrainingderivesnoimmediateadvantagefrom

theactivitiesoftheinternandonoccasionitsoperationsmayactuallybeimpeded;

5. Theinternisnotnecessarilyentitledtoajobattheconclusionoftheinternship;and

6. Theemployerandtheinternunderstandthattheinternisnotentitledtowagesforthetimespentintheinternship.

B.VolunteersIndividualswhovolunteerordonatetheirservices,usuallyonapart-timebasis,forpublicservice,religiousorhumanitarianobjectives,notasemployeesandwithoutcontemplationofpay,arenotconsideredemployeesofthereligious,charitableorsimilarnon-profitorganizationsthatreceivetheirservice.Eachvolunteershouldsignadocumentconfirmingvolunteerstatus,includingacknowledgmentofnopay.C.IndependentContractorsAn“IndependentContractor”isapersonorbusinessthatperformsservicesforanorganizationunderacontractbetweenthem,withthetermsspelledoutsuchasduties,pay,theamountandtypeofwork,andothermatters.AnIndependentContractorpaystheirownSocialSecurity,taxes,anditnoteligibleforretirementorhealthbenefits.Individualworkershiredtoperformfunctionsessentialtoyourorganization’sprimarypurpose,whoworkfullorparttimeundertheemployer’scontrol,andwhodonot

EmploymentLaw 27

providesimilarservicesforotherorganizationsarenotlikelytoqualifyasindependentcontractors.TheU.S.DepartmentofLaborevaluatesindependentcontractorstatusbasedonthefollowingfactors:

1. Extenttowhichtheworker'sservicesareanintegralpartoftheemployer'sbusiness;

2. Permanencyoftherelationship;3. Amountoftheworker'sinvestmentinfacilitiesandequipment;4. Natureanddegreeofcontrolbytheprincipal;5. Worker'sopportunitiesforprofitandloss;and6. Levelofskillrequiredinperformingthejobandtheamountofinitiative,

judgment,orforesightinopenmarketcompetitionwithothersrequiredforthesuccessoftheclaimedindependententerprise.

Nosinglefactorisregardedasmoreimportantthananother.Misclassifyingemployeesasindependentcontractorscanexposeanemployertoliabilityforunpaidminimumwageandovertime,sickandvacationpay,workers’compensationpremiums,Federal,StateandLocalincometaxwithholdings,SocialSecurityandMedicarecontributions,unemployment,insurance,taxes,andbenefits.Theremaybepenaltiesunderstateandfederallawformisclassification.4.PayrollAnemployermustestablishregularlyscheduledpaydaysatleastonceamonth.Whenanemployeehasceasedworkingforanemployer,theemployermustpaythefinalwagesdueattheendoftheestablishedpayperiod.Paymentmustbemadebymidnightonthepayday.Ifpaychecksaremailed,theymustbepostmarkedonthepayday.Ifpaymentismadeusingdirectdeposit,fundsmustbeavailableontheestablishedpayday.5.Anti-DiscriminationLawsFederallawprohibitsemploymentdiscriminationbasedonthefollowingcoveredbases:race,color,creed,religion,sex(includingpregnancy-relateddiscrimination),nationalorigin,age,disability,geneticinformation,andmilitaryorveteranstatus.Washington’santi-discriminationlawsprotectthesamecharacteristicsasfederallawandalsoextendprotectionsbasedonveteranandmaritalstatus,sexualorientation,andpoliticalactivities.Federallaw(TitleVII)appliestoemployerswith15ormoreemployees.Washington’sLawAgainstDiscriminationappliestoemployeeswitheightormorepersons.

EmploymentLaw 28

KEYDOCUMENTS• Anti-discriminationPolicy/EqualEmploymentOpportunity(EEO)Policy• At-willPolicy• ConfidentialityPolicy• I-9Form:Blank• IndependentContractorchecklist(http://www.lni.wa.gov/IPUB/101-063-

000.pdf)• WhistleblowerPolicy

EmploymentLaw 29

ACTION


No EmploymentLawChecklist

EQUALOPPORTUNITY Ourorganizationdoesnotdiscriminateinemploymentonthebasisofrace,age,

sex,disability,maritalstatus,nationaloriginorcreed,orsexualorientation.WORKERSCOMPENSATION OurOrganizationhasevaluatedwhetheritwishestoprovideworkerscompensation

coverageforvolunteers.Ifithaselectedtoprovidethiscoverage,ithastimelynotifiedtheDirectoroftheDepartmentofLaborandindustriesofitsintenttodosoandismakingtherequiredcontributions.

TYPESOFWORKERS OurOrganizationisconfidentthatithasproperlycategorizedvolunteers,

independentcontractors,employees,andinterns,andistreatingthemappropriatelyfortheircategory.

OurOrganizationisconfidentithasproperlyclassifiedemployeesaseitherexemptornonexempt,andistreatingthemappropriatelyfortheircategory.

ORGANIZATIONSWITHSTAFFLABORPRACTICE IfourOrganization’sstaffmembersworkovertimeorhaveunusualhours,weare

complyingwithwageandhourstandardsthatgovernovertime. OurOrganizationhasconsideredwhetheritshouldadoptwrittenpersonnel

policiesthatinclude,forexample,adescriptionofemployeebenefits,aprocessforhandlingaharassmentcomplaintorothergrievances,terminationprocedures,theprocessforperformancemanagementoremployeereviewsandotheremploymentpractices.

WORKELIGIBILITY OurOrganizationverifiesthatallemployeesareeligibletoworkintheUnited

StatesbyhavingallemployeescompleteformI-9whichtheorganizationretainsonfileforthreeyearsafterthedateofhireoroneyearafterthedateofterminationofemployment,whicheverislater.

FEDERALREQUIREMENTS OurOrganizationwithholdsfederalincomeandFICAtaxesfromemployees’

paychecks,depositsthesewithheldfunds,alongwiththeemployer’sshareorFICAtaxes,withtheIRSonaregularbasis,andfilesaForm941quarterlywiththeIRS.

OurOrganizationpreparesFormW-2foremployeesandForm1099foranyindependentcontractors.

STATEREQUIREMENTS OurOrganizationhasregisteredwiththeWashingtonStateDepartmentsof

LaborandIndustriesandEmploymentSecurity.OurorganizationmakesquarterlypaymentstoESDforunemploymentinsurance,andmakesquarterlypaymentstoL&Iforworkerscompensationinsurance.

IntellectualPropertyLaw 30

5.INTELLECTUALPROPERTYLAW

KNOWTherearefivekeyareasofIntellectualPropertyLawfornonprofittobeawareof:

1. IntellectualProperty(IP)Defined:IntellectualPropertyareassetsofanindividualorenterprisethatareintangible.TherearefourkindsofIP:Trademarks,Patents,Copyright,andTradeSecrets.

2. Ownership:KnowingwhoownstheIntellectualPropertyofthekeyelementsofyourorganizationisagoodplacetostartintheprocessofprotectingyourIPrights.

3. Respect:Justaswewantotherstohonorourrights,weneedtorespecttheintellectualpropertyrightsofothers.IntellectualPropertylitigationisexpensive.AdoptingapolicyofrespectingtheIntellectualPropertyrightsofothersinvolvessearchingtoseeifothershaveadoptedIPsimilartoyourspriortoyouradoption.

4. PrivacyPolicy:Thegeneralpublicwantstoknowhowyouaregoingtousetheinformationitgivesyou,particularlyifgatheredthroughawebsite.Aprivacypolicykeepswebcommunicationhonestbytellingvisitorswhatyouwilldowiththeirinformation.

5. Website&OnlineUsage:YouronlinepresenceopensthedoorforIntellectualPropertychallenges,bothinhowyouusetheinformationfromothersandhowothersmakeuseofyourinformation.

KNOWMORE1.IntellectualProperty(IP)DefinedUnlikerealpropertyorpersonal(material)property,IntellectualPropertyistheassetsofanindividualorenterprisethatareintangible.Intellectualpropertyistheownershipinterestapersonorcompanymayhaveincreationsofthemind.Intellectualpropertylawgrantsthecreatorofintellectualpropertyexclusiverightsforexploitingandbenefitingfromtheircreation.TherearefourmaintypesofIntellectualPropertyprotections:A. Trademarks:Protectswords,symbolsandother“marks”thatarecapableof

identifyingitsowner.Atrademarkisanameorsymbolorotherindicatorthatidentifiesyourenterprisetothepublic.Withcontinuoususe,rightscanlastforever.


Trademarkrightsareacquiredbyusingthetrademark.Usethe™markinconnectionwithanunregisteredtrademarkandthe®toindicatearegisteredtrademark.Trademarksdonotcreatemonopolyrights.Theyareacquiredinconnectionwithparticulargoodsandservices.Forthisreason,therecouldbemorethanonepartywiththesamemarkfordifferent,unrelatedservices.Trademarksarealsonotallcreatedequally.Somearestrongerthanotherswithstrongerrightsattachingtoarbitraryormadeupwordsthantowordsthatarehighlysuggestiveofthegoodsorservicestheycoverorevendescriptiveofsuchgoodsorservices.Registration:RegistrationisavailableattheStateandFederallevel.(Note:yourcorporatenameregisteredwiththestateisnotthesameasatrademarkanddoesnotgiveyouproprietaryrightstoaname.)Federalregistrationisonlyavailableifthemarkisusedin“interstate”commerce.Theownerofafederallyregisteredmarkacquiresadditionalstatutoryrightsandenforcementsbythecourts.AFederalregistrationgrantsnationwiderightseventhoughthetrademarkmayonlybeusedinasfewastwostates.Corporatename:Yourcorporatenameisnotautomaticallyatrademark,butitcanbeatrademarkifyouregisterit.Thefirsttouseatrademarkinconnectionwithparticulargoodsand/orserviceshaspriorrights.Domainnames:Adomainnameisalsonotatrademark,thoughtheyarguablyserveanidentifyingfunction.Domainnamesarenotacquiredinthesamewayasatrademarknoraretreatedasatrademark.However,itispossiblethataportionofatrademarkmaybeincorporatedintoadomainnameandthedomainnameitselfmaybeusedorregisteredasatrademark.Use:Atrademarkshouldbeusedconsistentlythroughouttheorganization.Improperuseofatrademarkcouldleadtoerosionorweakeningofthemarkandsometimesloss.

B. Copyright:Protectsrightsintheexpressionofanideaor“artisticworks.”Oncethe

copyrighttermends,worksfalltothePublicDomainandmaybeusedbyanyone,butitissometimesdifficulttoconfirmwhatisinthePublicDomain.Copyrightholdershavetheexclusiverightstoreproduce,createderivativeworksbasedonthework,distributecopies,performordisplaythework.Therightsattachatthetimeofcreationbutinordertohavingstandingtosueincourt,theownerwillneedtoregistertheworkwiththeUSCopyrightOffice.Thesymbol©isusedinconnectionwithcopyrightedmaterial.


Ifyourorganizationproducesmaterials,itownsthecopyrighttothosematerials.Itisagoodideatoobtainawrittenassignmentfromthoseindividualsinvolvedincreatingthematerialsifthereisanyuncertaintyregardingownership.Ifthematerialswillbemarketedorused,itisworthwhiletofiletoregisterthecopyrightinthenameoftheorganization.Thefeeisinexpensive,andtheCopyrightRegistrationCertificateisapowerfulattachmenttoaceaseanddesistlettershouldtheneedarise.

C. Patents:Protectsnew,non-obvioususefulinventions.Utilitypatentslast20years.

Patentsmustberegisteredforrightstoattach.Apatentattorneyshouldbeconsultedifyoubelieveyouhaveaninventionthatqualifiesforprotection.

D. TradeSecrets:A“TradeSecret”isinformationthatisconfidentialtothebusiness

andheldinsecret.ThereisnoregistrationprocessandTradeSecretsremainprotectedsolongastheinformationisheldinconfidence.IntellectualPropertycounselshouldbeconsultedregardingbestpracticestoensureinformationisprotectedasaTradeSecret.

2.OwnershipIntellectualPropertyisgenerallyownedbyitscreator.Ifcreatedbyanemployee,theworksaregenerallyassignedtotheemployereitherbylaworbycontractualagreement.Likeanyothercorporateassets,anonprofitshouldholditsIntellectualPropertyinitsownnameorthenameofsomeotherentityitfullycontrols.HoldingIPinthenameofanindividualputsthecompanyatriskthatthatindividualmightabscondwiththeIntellectualPropertyoruseitforhis/herownbenefit.Importantnote:ThoughnottechnicallyIntellectualProperty,yourdomainnameshouldalsoberetainedbyyourcorporation–inthenameofthecorporation.Donotallowawebmastertoregisterormaintainyourdomainname–itisacorporateasset.3.RespectItisimportanttorespecttheIntellectualPropertyrightsofothers.Beforeyouuseawordorsymbolinyourmarketingmaterialoronyourwebsite,searchforitonline.Someonewithasimilartrademarkcouldchallengeyouruse,evenifyouruseisnotconsideredtrademarkuse.Beforeadoptinganame,searchthenameon(1)theUnitedStatesPatentandTrademarkOfficewebsite,(2)thecorporatedatabasewiththeSecretaryofState’sOffice,and(3)theInternetingeneral.Whilethesesearcheswillnotprovidealegalanalysisofyourrights,theymayalertyoutosomepossibleissuesyoumayencounter.Requestingasearchbyatrademarkprofessionalwillgivethebestresults,buteventhen,commonlawrightsmaybemissed.Thecosttodefendunauthorizeduseatrademarkheldbysomeoneelseortocompensatetheownerforyourunauthorizedusecanbehigh.


Ideally,anymaterialusedbytheorganizationonitswebsiteorotherwiseshouldbeoriginalmaterialcreatedbytheorganization.Othermaterialshouldonlybeusedwithpermissionoftheownerandcreditshouldbegiventotheowner.(SeeSection5belowonWebsite&OnlineUsage.)Justbecausea“work”isolderorthecreatorisdeceased,donotassumetheworkisinthePublicDomainandfreelyavailableforuse.Rightsmayberetainedbythecreator’sestate.4.PrivacyPolicyAwebsitethatcollectspersonalinformationshouldhaveaprivacypolicy.Aprivacypolicytellsyourwebsitevisitorswhatyouwilldowithinformationgatheredfromthem,howyouaregatheringthatinformation,andhowtheinformationwillbestored.Onceyouhaveapolicyinplace,besureyouadheretowhatisinyourprivacypolicyregardingcollection,storageanduseofinformation.Somespecialconsiderationsrelatedtoprivacypolicies:• Linkstoothersites:Ifyourwebsiteprovideslinkstowebsitesofothers,youmay

needtoincludethirdpartyprivacyrequirementsintoyourpolicy.• Usebychildren:Ifyourwebsitewillbeusedorvisitedbythoseundertheageof13,

therearespecificrequirementsundertheChildren’sOnlinePrivacyProtectionActof1998(COPPA).ThestateofCaliforniahasthe“CaliforniaOfficeofPrivacyProtection”withcertainPrivacyPolicyprovisionsthatapplytoanywebsitecollectingdatafromCaliforniaresidents.

• E-commerce:Ifyouoperateane-commercesite,therearecertainprovisionsyoushouldinclude.

SeeKeyDocumentsforsampleprivacypolicies.Donotjustcopyandpasteoneontoyourwebsite.Itmustfactuallystateyouractualpracticesitisagoodideatohavethefinalformreviewedbycounsel.5.Website&OnlineUsageYourwebsiteisyourorganization’sfrontdoortoyourcommunityandtheworldbeyond.Itcanbeeasilyviewed—andcontenteasilytaken—thusitisimportanttopayattentiontohowyouuseothers’contentandhowyouprotectyourowncontent.A.Useofnon-originalcontent


Youshouldobtainpermissionforanynon-originalcontentusedonyourwebsiteandalwaysgivecredittotheowner.Whencreatingyourwebsite,rememberyoucannotclipinformationfromanotherwebsiteandposttoyourownwithoutriskinginfringingthatthirdpartycontent.Evenifyoupayforstockartorclipart,commercialusemaybeexcludedinthefineprintassociatedwithyourlicensetouse.Whiletherearesomeexceptionsforusebynon-profitsthatcouldqualifyas“fairuse”anexceptiontotherightsgranttotheCopyrightholderbytheCopyrightAct,usebyanonprofitcorporationisoftenconsideredcommercialuse.B.PhotoReleaseItisconsideredbestpracticestohaveasignedreleaseforanyphotographofapersonusedonyourwebsiteoranydescriptionorstoryassociatedwithaparticularindividual.Ifyoueverreceiveacomplaintfromsomeoneregardinguseofhis/herimageorlikeness,removeitimmediatelywithyourapology.C.TermsofUseIfyouacceptthirdpartypostsorcontent,considera“TermsofUse”pageinadditiontoaprivacypolicy.Itisagoodideatoincludeacopyrightnoticeatthebottomofthehomepage.Whilethisisnotalegalrequirement,itmightactasadeterrentagainstcopyingyoursiteandcontentcontainedthereon.Thenoticecanbeinmostanyformbutthegeneralformatisasfollows:©Name,date.Allrightsreserved.Itisalsoagoodideatoincludeatrademarkattributionlinesomewhereonthewebsite.Itcouldbeinthe“TermsofUse”pageoratthebottomofthehomepage.Youshouldlistunregisteredtrademarksas“___________isatrademarkofCompanyA.”Federallyregisteredtrademarksarelistedas“___________isaregisteredtrademarkofCompanyA.”Ifyouanticipateyourmarkswillbeusedbyothers,youmaywishtoconsiderincludingguidelinesforproper,acceptableusageofyourtrademarks.

KEYDOCUMENTS• PhotoReleases/StoryReleases• PrivacyPolicytemplate• Take-downRequest–DMCA• DisclaimerTemplate


ACTION


No IntellectualPropertyLawChecklistOWNERSHIP OurOrganizationhasproperlicensesorpermissiontouseallphotosandwritten

informationcreatedbyotherpersonsororganizations. OurOrganizationhasconsideredwhetheritshouldregisterorobtainother

protectionforanyofitsuniquelogos,designs,trademarks,orservices. WeareconfidentthatourOrganization’snamedoesnotinfringeontherights

ofanyotherorganization. OurOrganizationhasconsideredwhetheritwouldbeappropriatetolicenseany

writtenmaterials,photographs,recordings,art,policymanuals,seminarmaterials,etc,thatmaybeavailableforusebyothers.

Whencontractingwiththirdpartiestoperformservices,ourOrganizationusesanemploymentorindependentcontractoragreementthatassignsownershiptotheOrganizationofintellectualpropertycreatedbytheemployeeorcontractorwithinthescopeofhisorherworkfortheOrganization.

PRIVACYPOLICY OurOrganizationhasconsideredimplementingawrittenprivacypolicythat

describeshowtheOrganizationusesanddisclosespersonalinformation. Ifaprivacypolicyhasbeenadopted,theOrganizationperiodicallyconfirms

thatitisincompliancewiththecommitmentsitmakesinthatpolicy.WEBSITE IfourOrganizationoperatesawebsite,theOrganizationhaspostedwrittenterms

ofuseortermsofservicethatlimitstheOrganization’sliabilityanddisclaimswarranties.ThesetermsofserviceareprominentlylocatedontheOrganization’swebsite.

IfourOrganizationallowsthirdpartiestopostinformationontheOrganization’swebsite,theOrganizationhasimplementedaDigitalMillenniumCopyrightActcompliantnoticeandtakedownprovisionaspartofitstermsofuseortermsofservice.TheorganizationhasalsoregisteredanagentwiththeU.S.CopyrightOfficetoreceivenoticesofcopyrightinfringementundertheDMCA.

Resources 36

RESOURCES

GovernanceWashingtonStateBusinessandOccupationTax(B&OTax):http://dor.wa.gov/content/findtaxesandrates/bandotax/WashingtonSecretaryofStateNonprofitCorporations:http://www.sos.wa.gov/corps/nonprofitinformation.aspxWashingtonSecretaryofStateNonprofitCharity:http://www.sos.wa.gov/charities/Charitable-Organizations.aspxIRSForm1023andInstructionshttp://www.irs.gov/pub/irs-pdf/f1023.pdfIRSForm1023EZinformationhttp://www.irs.gov/uac/About-Form-1023EZUnitedWayofKingCountyGovernanceandManagementResources,http://www.uwkc.org/partner-with-us/nonprofits/governance/WashingtonStateGamblingCommissionhttp://www.wsgc.wa.gov/activities/fund-raising-events.aspxTax-exemptinformationhttp://leg.wa.gov/Senate/Committees/WM/documents/Publications/2006/NonprofitsMay2006.pdfRecordkeepinghttps://www.irs.gov/pub/irs-pdf/p4221pc.pdf

EmploymentLawWashingtonStateDepartmentofLabor&IndustriesIndependentContractinformationhttp://www.lni.wa.gov/FormPub/Detail.asp?DocID=2134CityofSeattleOfficeofLaborStandards–MinimumWage(Seattle)http://www.seattle.gov/laborstandards/minimum-wageDavisWrightTremainearticleonMinimumWage(Seattle)http://www.dwt.com/Seattle-Minimum-Wage-and-Wage-Theft-Ordinances-Take-Effect-April-1-2015-03-31-2015/IntellectualPropertyUnitedStatesPatentandTrademarkOfficehttp://www.uspto.gov

OtherResources501CommonsNonprofitLegalResourceshttp://www.501commons.org/resources/tools-and-best-practices/legal-resources

NationalCouncilofNonprofitsTools&Resourceshttps://www.councilofnonprofits.org/tools-resources

Resources 37

KEYDOCUMENTSREVIEW

1:STATEArticlesofIncorporation(sample)Bylaws(sample)ConflictofInterestandCertificationDocumentRetentionPolicyGiftAcceptancePolicyMinutes(sample)2:FEDERALForm1023Form990Form990EZForm990N3:FUNDRAISING&DONATIONSQuidProQuoLetter(thatmeetsFederalrequirements)ThankYouLetter(thatmeetsFederalrequirements)4:EMPLOYMENTAnti-discriminationPolicy/EqualEmploymentOpportunity(EEO)PolicyAt-willPolicyConfidentialityPolicyI-9Form:BlankIndependentContractorchecklist(http://www.lni.wa.gov/IPUB/101-063-000.pdf)WhistleblowerPolicy5:INTELLECTUALPROPERTYDisclaimerTemplatePhotoReleases/StoryReleasesPrivacyPolicytemplateTake-downRequest–DMCA