If you run a nonprofit or a church, or if you’re starting one, you certainly don’t want to make serious legal mistakes. This could be enough to ruin the entire enterprise or you could face fines and other ramifications.
To help, here are five different mistakes that are commonly cited by those in this industry. Learning from these errors in advance can help you avoid them in the future.
Assuming they are tax exempt
Being tax exempt does not necessarily apply to all nonprofits. Some businesses are, while others are not. The IRS has an internal code with qualifications that a business has to meet. Even a nonprofit has to meet this code to be tax exempt. The board or the owner should never assume they have this status.
Assuming lack of regulation
Similarly, when a business is tax exempt, owners sometimes think they’ll face less regulations. They seem themselves as operating more independently than for-profit companies. But the truth is that they may face more regulations because the government is working to ensure that no exploitation or fraud is taking place.
Breaking fundraising laws
Fundraising is critical for many churches and nonprofits, but there are laws at the state, federal and even local level. These have to be followed in order for those financial gifts to be obtained and used legally. If funds are obtained or used in an inappropriate manner, even if it’s not strictly illegal, it can be a PR nightmare.
Breaking their own bylaws
Nonprofits will often set up bylaws and guidelines that they have to follow, perhaps with the help of the board. An example could be requiring a vote for certain decisions. It’s important for these to be followed at all times. Laws cannot be waived or ignored at times and enforced at others.
Never admitting a mistake
When a nonprofit does make a mistake, perhaps the worst thing to do is to try to cover it up or hide it. This could result in more serious allegations. At a time like this, admitting the mistake and moving forward, utilizing all of the legal options at your disposal, is likely the best option.
