New Resource: Non-Profit Corporate Structures
Keeping our momentum going, I’m pleased to announce a new resource on our MLC Resources page. This time, the topic is “Non-Profit Corporate Structures: The Basis and Advanced Applications.”
I think the intro to the presentation on that page does most of the work, but a few stray thoughts:
We started this resource trying to answer one question that is eternally frustrating for clients: what is the difference between a director and an officer? This new resource does that, with lots of charts, but goes off on innumerable tangents. Our blog and resources are too young to have a ‘brand’, but if we did, that would undoubtedly be “on” it.
This presentation also evolved into a discussion of the different governance structures to choose from. I think this will be useful to many clients, but also to me as I frequently find myself encouraging clients to consider alternatives to the “Self-Electing Board” structure that most charities use. Not that there is anything wrong with that structure, but I am a believer in non-profit founders starting with a more tightly controlled structure, at least in the right circumstances. While a non-profit should not exist to benefit a founder economically, there is no prohibition on the founder keeping control of the organization to make sure it reflects their vision. The “hybrid” model we address in the second-to-last slide is a good “middle ground” for some of our clients.
A reader might come away with the impression that we are “down” on true membership structures (e.g. many members of the public electing the members of the Board and needing to approve certain major decisions). And well. I guess we probably are. There are circumstances where democratic governance is so core to what the organization is about that they simply need to be true membership structures. But, that’s rare in my opinion. Especially when you consider: (1) all of the administrative burdens that come with a membership structure and (2) the less burdensome ways of incorporating public input (e.g. advisory boards, nominating committees, director qualifications requirements). Besides, a true membership structure is a miniature constitutional democracy and we have all become increasingly familiar with the challenges of constitutional democracy. (We are a very young organization, so we’ll never know how the October 2016 version of this resource might have read).
We could not help ourselves from talking about MLC Collective, the “nonprofit cooperative affiliate” structure we are creating for our own firm. Allow me to try to justify the self-promotion by framing it as an example of how flexible you can be in terms of structuring a non-profit to accomplish democratic goals in a way that works for your organization. For us, it is allowing us to create a non-profit cooperative to make up for the fact that we, as a law firm, cannot structure the for-profit that way, and balancing employee governance with preventing against mission drift.
On that last point, let me finish with a rambling anecdote (see the note above re our blog’s brand). I started out as more of a tax lawyer than a corporate lawyer. While being a non-profit lawyer certainly requires understanding both sets of laws, I always gravitated towards framing issues in tax terms (i.e., “This could cost your organizations its tax-exempt status,” as opposed to “This is a violation of your Bylaws/Articles/fiduciary duties”). When challenged on this by my good friend and former colleague with a more corporate focus, my snarky, half-serious response (much to her chagrin) was “Well, the IRS is there to enforce the tax law, but I’ve never seen anyone pulled over by the “Corporate Police.” And that’s true in a sense (I have not yet seen armed agents of the Secretary of State barge into a board meeting to audit whether a quorum is present). But:
Thanks to Republican efforts over years to defund the one law enforcement agency that actually makes us money, I’m not sure there is much of a “Tax Police” left either;
This framing ignores the connection between failing to consider corporate law and eventually breaching fiduciary duties and/or divert charitable assets (and there certainly is a charitable trust police: your state’s Attorney General); and
Corporate structuring can be used to a non-profit’s advantage — it’s more than just a series of corporate formalities to clear or documents that still use the words “WHEREAS” and “RESOLVED”.
I’m not sure that I fully appreciated that point until starting my own firm and considering how we might bring in and empower new people, without losing sight of what we are trying to do or completely giving up control of the firm before it’s built. And anyone forming a non-profit is almost certainly thinking about those same issues, maybe for the first time.
To that end, hopefully this resource fosters a similar appreciation for non-profit corporate law. Or at least makes clear the difference between a director and an officer — I’ll take what I can get.
