Continuing our series on nonprofit formation… we know why we are starting a nonprofit; we thought through whether we needed a new nonprofit, we decided how to structure the relationship to our for-profit entity; now... we form it.

This post will tackle the Articles of Incorporation, specifically for a California nonprofit public benefit corporation, using our new entity for organizations targeted for their DEI work as an example.  A document that is usually no longer than a page or so, many people do not realize that they are making a number of important choices when they file their Articles of Incorporation.  Choices that are not always easily unwound.

Let's walk through those together.

Continuing our blog’s series walking through how to launch a non-profit, we have already talked about what activated us to want to start a nonprofit  and whether it actually makes sense to start one – now, we’re going to start… with a detour (yes, this series is going to take a long time).

Like many people that come to us to form a nonprofit, we are not starting our plan from a blank canvas.  We have a for-profit law firm whose work could potentially overlap in personnel and subject matter with the 501(c)(3) nonprofit’s plan to provide legal and educational support to progressive charities targeted for their DEI efforts and social justice work.  We have a 501(c)(4) nonprofit that we use to carry out the charitable and advocacy missions of our employees – and the 501(c)(4) is allowed to do things that a 501(c)(3) is not. 

How do we make sure the 501(c)(3) nonprofit remains compliant and operates without integrity, while still leveraging support from our existing structure?

If you have or have considered a for-profit/non-profit affiliate relationship, this post is intended to illustrate how we work that question with clients (and ourselves). 

Following up on our last post, and with our firm continuing to feel frustrated about how we’re supposed to help, we started kicking around an idea.  If we think nonprofits should be open and defiant about their support of diversity, equity, and inclusion and if we think philanthropy should be putting up their resources to defend those that do, why not set up a nonprofit to gather and provide that support?   Provide our own expertise in terms of defending the exempt status of progressive organizations that are targeted, gather volunteers or use donations to hire experts to help with the things we have no business doing ourselves (immigration, civil rights litigation, criminal defense), and educate organizations in a way that pushes back on the fear campaign.

As transactional attorneys, we are not as useful as we’d sometimes like to be when it comes to times like these.  No one makes movies about tax lawyers, and they really shouldn’t.  The lawyers doing the most important work right now, and always, are the ones trying to keep people safe and out of cages.   

So, we’ll just have to settle for one of the handful of things we know how to do, which is set up a nonprofit.  And maybe we can help make it a little more meaningful by making it an educational exercise – using this blog to discuss and share documents for each step in the process in case people want to try it themselves.

Before committing to actually setting it up though, let’s ask the question that we try to get all of our prospective-charity-founder clients to ask:  is a new charity actually necessary?

I will spare our readers a detailed recap of what is going on at this particular moment in history, and what it means for nonprofits.  If you’re reading a nonprofit law blog, you probably know that the administration has threatened, directly or indirectly, foundations and charities that care about diversity, equity, and inclusion and progressive principles with loss of federal funding, enhanced enforcement, or revocation of exempt status. 

The legal foundations of these threats do not warrant serious consideration.  They misstate the law by conflating interest in diversity or combatting racial injustice with unlawful discrimination, criticism of Israel with antisemitism, and concern for immigrants with treason.  They are brazenly unfounded arguments advanced by a hateful administration dedicated to oligarchy, resegregation, and hostility to anything other than self-interest, and should be treated as such.  If their arguments prevail, it’s only because they’ve broken the system that will consider them.

From that context emerges a pernicious version of “risk management” – namely, asking nonprofits to dance around their mission.  Whether that’s private foundations being “silently defiant” (an oxymoron, I’d argue) with respect to DEI or public charities being told by funders or their own Boards to Ctrl-F their way to safety by deleting the words the fascists don’t like (this NYT article has been cited to me a number of times), the premise is consistently that the threats need to be dodged rather than answered.

Why are so many nonprofits and their advisors acting like we are the ones that need to change?

In light of the uncertainty with respect to recent changes to federal funding initiatives and their potential impact, nonprofit organizations are facing difficult questions regarding the continued viability of their operations in this current climate due to budgeting and/or funding considerations.

While layoffs are a common and sometimes inevitable approach taken to realize cost savings, organizations should be mindful of other viable options to achieve this goal while minimizing the impact on its employees and the attendant legal exposure of employment terminations.

Below are options that employers may wish to consider to reduce personnel expenses, from least to most drastic.  Each option has its own advantages and disadvantages. Some options can be employed concurrently or in succession, depending on the actual or expected effectiveness.

Being a nonprofit corporation is always harder than being a for-profit: you have to follow additional rules, you can’t just do anything you want, you have to limit your benefits to insiders, and you have additional regulators looking over your shoulder.

And it’s not just more difficult during life – in California, your nonprofit corporation can’t even die in peace. You have to ask the Attorney General’s office for permission.

After years of maintaining a very helpful Guide to nonprofit dissolution, California’s Attorney General’s Charities Bureau (the “AG”) has issued some proposed regulations to formalize these requirements. With a couple of minor exceptions (most of which will be addressed in a Part II to this post), there is not a lot of new there. Still, it provides a useful opportunity for us to summarize a common project of ours and dilemma of our clients: wrapping up your California nonprofit in a compliant manner.

Mill Law Center (MLC) is excited to unveil MLC Compliance, a specialized division of MLC, dedicated to easing the burden of charitable registration for nonprofit organizations. MLC Compliance is committed to providing streamlined solutions tailored to meet the compliance needs of nonprofits nationwide.

MLC is launching this service to expand our support beyond traditional legal and corporate services for nonprofits. Our goal is to provide specialized compliance solutions tailored specifically for nonprofit organizations. Just as MLC Employment broadens our firm's scope to offer dedicated labor, employment, and HR legal advice, MLC Compliance aims to simplify charitable registration and other compliance obligations for nonprofits, social enterprises, and cooperatives. Led by experts in nonprofit law and compliance, our team leverages extensive experience to ensure nonprofits can navigate regulatory challenges effectively, fostering positive relationships and compliance with all relevant laws and regulations.

If you're an employer in California, it's time to start paying attention to some important new employment and labor laws that will come into play in 2025. The Golden State is known for its progressive approach to worker protections, and the latest round of laws promises to reshape how businesses manage employees, from anti-discrimination measures to workplace safety. Staying up to date will not only help you avoid penalties but also create a fairer, more inclusive workplace for all your employees. Here’s a quick summary of the key changes that could impact your business in 2025. 

Although often cited as a source of free speech rights, the First Amendment does not actually provide employees with a constitutional right to express political thoughts or opinions in a private workplace (as it only controls government action). As a general matter, employers can regulate what employees say and do in the workplace during working hours. However, federal and state laws exist that complicate an employer’s efforts to control the political speech, activities, affiliation of their employees.

Today, I not only get to announce the arrival of another great attorney to join our growing team in Daniel Lac, I also get to announce the arrival of a whole new line of service for the firm: MLC Employment.

MLC Employment will be the vehicle through which our firm goes beyond just the specialized tax, corporate, and outside general counsel services we provide to nonprofits, and provides specialized labor, employment, and human resources legal advice to nonprofits, social enterprises, cooperatives, and any other organization committed to maintaining positive and compliance relations with their employees. Daniel Lac will be the leader of this effort, applying his 10+ years of employment law experience at major firms for a wide variety of complex organizations to create an employment law practice that caters primarily to the needs of nonprofit organizations.