Sunday, March 25, 2007

How to Start a Nonprofit Corporation, Part 2

A couple weeks ago I posted my notes from reading the first few chapters of How to Start a Nonprofit Corporation, by Anthony Mancuso. I reread a couple pages today to get me back on topic, and I noticed an important point about "unrelated income." If non-profits make money from activities not related to their missions, their non-profit status can come into question.

Continuing to new material starting on page 39 and continuing through page 60, the author suggests that although many non-profits consider incorporating in a state other than their home state, it usually does not pay off financially or time-wise to do so. And although a lawyer is typically involved to incorporate a non-profit, Mancuso's book claims that a person could incorporate without the help of a lawyer by following the guidelines from his book.

In today's increasingly litigious society, recruiting directors can be challenging since they're afraid of being held personally responsible for lawsuits against even a non-profit corporation. In addition to establishing safeguards, non-profits can also purchase directors' and officers' (D&O) errors and omissions insurance. However, this insurance can be quite expensive. Many states also have laws that limit liability of volunteers and directors of non-profits.

According to Mancuso, the ideal number of directors is typically somewhere between 9 and 15. He notes that the larger and more diverse the board is, the greater the network of potential donors. However, a board can elect a smaller executive committee to make most decisions. Board participation on non-profits is typically unpaid, with the exception of travel allowances to and from board meetings. Mancuso suggests a 3-year term for board members.

Most states require a non-profit to have at least three officers: (1) president, (2) secretary, and (3) treasurer. Some states also require a vice-president. Officers are typically chosen from among the directors. If they perform daily activities, they are usually paid.

To be continued...

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