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Prevent Legal Problems and Issues With Preventive Maintenance, Fundraising for your Nonprofit - Thesis by Robert David Hartman Prevent Legal Problems and Issues With Preventive Maintenance, Since John Mott invited us to assist with the annual association seminars held at Asilomar each year we have become fairly familiar with the kinds of problems that can arise in the day-to-day operations of the associations. Because of the great diversity in size, kind, and characteristics of the many different associations there is no one-size-fits-all cookie cutter solution to the various issues that can arise, but there are some common issues or features that have been experienced by different associations. Problems can commonly arise involving interpretation of the associations founding documents (articles and by-laws), or its records or lack thereof, and whether the association is operating according to the laws or within the terms of the contract with the State Parks. In our work with a number of different associations it has become clear that a bit of prevention, or preventive “legal” maintenance, through an annual review or “corporate audit” of an associations founding and operating documents and procedures would go a long way towards preventing later legal problems, internal conflicts, and other issues from interfering with the associations business, whether in the form of conflicts between members and the board, between members and other members, between board members and other board members or officers, conflicts with an employee or employees, and conflicts or issues arising out of the relation with State Parks and things like interpreting the contract between the State and the associations or any of the specific activities at a specific unit or related matters and accountings. The associations are, I believe always or at least almost always, non-profit corporations as opposed to some other form of legal entity. Of all those different association-corporations in the State some are member organizations. They have a membership body separate from the governing body of directors. Others are non-member organizations, having no “official” or voting members and sometimes having non-voting associate affiliated members. The governance of the organizations is greatly affected by those simple differences, as you can see if you quickly review the California Corporations Code sections governing non-profit corporate entities. It is important that the articles and by-laws accurately and in a way that is easy to understand describe the nature of any memberships, how and when meetings are to be held, who is responsible for keeping and making available records of the organization, and other similar issues. All of the associations have articles of incorporation and all should have by-laws, which each should accurately describe the organization as it exists in reality and each be followed in the day-to-day operations of the association. Those articles and by-laws should be readily available and copies kept easily accessible for review. We have run into problems when there were two or three sets of bylaws and no one was sure about which was the “official” copy and articles that appeared to be inaccurate in their description of the association or out of date since the Corporations Code was amended after the articles were originally filed. In addition to sitting around gathering dust, the articles, by-laws and other corporate records should be available and should be reviewed each year (I believe the annual reports to the State Parks and in some cases the IRS and/or Franchise Tax Board really require that kind of annual review) – even if it has not been the practice of the association to perform such a review up to this point in time. That review accomplishes several things at one time and prevents a whole lot of future troubles, which I will not go into detail about in this already too-long piece. One of the biggest and simplest of benefits is that such a review will ensure that all of the directors and any administrative staff will have to read the documents and be familiar with the organizations operating practices as defined by those documents. It can also ensure that the articles are in proper legal form (to see if you are in good form, if you can do nothing else, simply compare them to the sample articles at the Secretary of State’s website if you do not have the assistance of legal counsel or an experienced non-profit director or administrator and look at the by-laws to see if they actually describe what the organization is really doing). We can provide assistance with that kind of preliminary review and “corporate audit” for no charge, as long as the time involved is reasonable and the association has people or a lead person willing to assist with getting the documents together and participating in a review to see that the organization is in fact doing what its articles and by-laws prescribe. As with the articles, the by-laws should be reviewed to see that things like the definition of a quorum is understood by the directors (and members if there are any) and that meetings are being properly held with a quorum present when actions are taken by the Board or, if there are any, the members. It was surprising to find that in some cases associations may not have been holding meetings with the legally required quorums present for a number of years, including at meetings where important items were approved by both boards and members, including approving amendments of the articles and by-laws. Most importantly, the articles and by-laws should properly reflect the way the organization has existed and functioned in reality – when and how meetings are called and held, how many directors run the organization, whether the organization is a membership organization or whether the Board is in effect the membership and managing body. Additionally, it is most advisable that each association have some brief policy statements to govern common practices and activities that can govern the brick and mortar day to day operations of the entity. Those policy statements need only be a paragraph or two if that is all there is time or the motivation to create, but at least they will be there when needed – even if minimalistic in form. Those policy statements are important aids in preventing conflicts and problems in various aspects of the association’s operations, for example written policies are especially important in dealing with the hiring and managing of employees if there are any and defining who will do the hiring, how, when and where; describing how to deal with issues related to employees on the job, like harassment claims and a method for employees to make complaints and then a method and person responsible for dealing with the complaints; termination procedures, notices, exit interviews, or methods, etc.; when and how to hold executive sessions closed to members and the public; how to keep records of meetings and accounting records, etc. Those can all be very brief and common sense kinds of statements – yet they can be invaluable when a crisis occurs and time is of the essence in responding to a developing set of circumstances. As another example, it is a good idea to have a conflict of interest policy in place to deal with any issue where a director or a director’s spouse or relatives have a financial interest in a transaction, with a method for raising the issue and then dealing with it when that issue presents itself. The bottom line is that to be effective, especially in these harsh fiscal times, the associations must be able to move quickly when necessary to deal with the kinds of issues and crises that can arise in the individual park units and to deal properly and effectively with the Parks and Recreation staff and management in resolving any issues, including coming up with funding and on-going operational functions in these troubled times. In order to achieve the goals of efficient, effective, and timely resolution of the many issues confronting the park units and State Parks the associations will be greatly benefited by having up-to-date, properly reviewed, and successfully amended or updated articles, by-laws, policies where needed, and accurate up to date meeting minutes and resolutions (including simple written forms recording the decisions made at meetings and the vote on those matters, and a simple waiver of notice and notice form for the directors attending meetings to execute for each official meeting being held). Hopefully we can get some draft forms prepared for the next CALPA newsletter and over the next few months provide more specific and detailed information on how to review your foundational documents, how to amend them, and how to improve corporate governance practices where necessary. Anyone who wishes more immediate assistance or information can contact us any time and we will be happy to provide some free consultation and assistance to anyone who needs it. Good places to start in getting readily available information are to (1) review the sections discussing association and the documents sections of the State Parks web site; (2) look at the Secretary of State’s website pages covering non-profits and how to file articles or amend them; (3) read the Attorney General’s website pages discussing non-profit corporations and governance of those entities; and (4) use the State Legislature’s California Codes (a) containing the Corporations Code and the sections starting at section 5000 that govern non-profit entities, and (b) the Public Resources Code sections that provide the legal authority for the contracts with the associations and authority for the State Parks to work with the associations to benefit the parks and the public. If that is not enough home work for self-study, you can also buy the legal handbook for lawyers published by the State Bar in association with the Continuing Education of the Bar publishers, Advising Nonprofit Corporations, available at many law libraries, local attorneys libraries, or for purchase online at the CEB website. Also, the IRS has very useful publications available through its website regarding 501c3 entities. And, last but not least, you can buy or read the Nolo Press self-help guide: California Nonprofit Corporation Kit book, with sample by-laws and articles on disc and in print depending on the version at many local bookstores (you can sit and read it at Barnes and Noble I believe for free as long as they are open) or go online to learn more at the Nolo website.
Dear Cooperating Association board member, volunteer, liaison or staff member; • All volunteer Board raises money though interpretive retail in the parks, an annual |
