HOW TO AVOID TROUBLE: CORPORATIONS NOT FOR PROFIT Alicia Magazu - - PowerPoint PPT Presentation

HOW TO AVOID TROUBLE: CORPORATIONS NOT FOR PROFIT

Alicia Magazu

Community Legal Services of Mid-Florida 444 Seabreeze Blvd. Ste. 150 Daytona Beach, Florida 32118 Phone: (386) 255-6573 ext. 2118 Email: AliciaM@clsmf.org

Revised April 2017

KNOW THE NON- PROFIT RULES

26 U.S. Code § 501 - Exemption from tax on corporations, See www.irs.gov or call (877) 829-5500

KNOW THE NON- PROFIT RULES

• Ch 617, Florida Statutes
• FL Dept. of Agriculture

and Consumer Services

register to solicit charitable funds and renew annually

• Florida Dept. of

Revenue tax exemptions

• Florida Dept. of State

annual reports due by May 1

Basics of Corporate Liability

BUSINESS JUDGMENT RULE

• Boards are not liable if they act in GOOD

FAITH for what they believe to be the BEST INTERESTS of the Corporation

• Boards are not liable for honest mistakes or

errors of judgment

ADDED ED PROTE OTECTIO CTION N for r NO NON-PROFITS PROFITS

For-profit board members are personally liable if they act negligently

Non-profit board members must be MORE THAN negligent to be personally liable

Follow the CORPORATE FORMALITIES to protect yourself from personal liability

What are the CORPORATE FORMALITIES?

• Steps and precautions to make sure

corporation stays separate from its owners

• Make group decisions and take action properly (by

resolution)

• Keep a record of all meetings and actions taken by

the board (minutes)

• Exercise fiduciary duties
• Keep a copy of your bylaws (with date of last

revision)

Basic Duties of Board Members

• Attend meetings
• Pass resolutions
• Develop budgets
• Demand a reasonable standard of

reporting and control

• Read staff reports and take notice of

problems raised

• Respond to repeated warnings from

staff, volunteers, or outside experts

The Role of Officers

Unless a resolution is passed giving an officer permission to take action, he or she CANNOT act on behalf of the board! Extra duties, not extra power

The Role of Officers – Agency Law

An agency relationship is formed when two people agree that one person (the Agent) is to act for the benefit of the

• ther (the Principal).

The Role of Officers – Agency Law

When a resolution gives an officer the power to take action on behalf of the corporation, the officer becomes an AGENT of the corporation.

• For example, the board can pass a

resolution to purchase property and allow the president to sign the deed.

DUTIES OF SECRETARIES

It is vital for the Secretary to record the minutes, all actions and votes at the

• meetings. If the corporation has

members, the Secretary should also create a membership book , recording member attendance and contact information at gatherings.

Keeping Minutes

The minutes should include:

• Time, date and place of meeting
• Names of those present
• Resolution adopting previous meeting’s

minutes

• Record of resolutions passed
• Sign-in sheet

Taking Action: Resolutions

How a corporation takes action

• Board meeting with a quorum

(half +1 or defined in bylaws)

• Board votes on motion and secretary

records action in the minutes

How to Pass a Resolution

• A board member gives a short

description of the proposed action (a “motion” to adopt the resolution)

• Another board member must “second”

the motion

• The chair repeats the motion and calls

for discussion

• The board votes on the resolution

What is a FIDUCIARY DUTY?

Board members must act in good faith with fair dealing, full disclosure, and undivided loyalty to the corporation

COMMON VIOLATIONS OF FIDUCIARY DUTIES

• Competing with the corporation
• Personally taking corporate opportunities
• Disclosing confidential information
• Actively working to destroy or harm the
• rganization
• Not disclosing a conflict of interest

What is a CONFLICT OF INTEREST?

Occurs when your personal or professional interests

• verlap the
• rganization’s

interests or business

How to Handle Conflicts of Interests

• Disclose the potential conflict and step out
• f the meeting
• Remaining members discuss whether the

proposed deal is in the bests interests of the corporation (and document why)

• Record the process in the minutes
• Include a policy in bylaws

Questions will be answered at the end of the presentation

Alicia Magazu, Esq. AliciaM@clsmf.org