A non-profit organization, also known as a non-profit corporation, is an organization that exists to fulfill a non-monetary purpose. This is different from a regular corporation that exists to make a profit. The two types of corporations are structured and function in a similar manner. However, a non-profit corporation may have tax-exempt status and be eligible for governmental and private funding.
Generally, in order to be a non-profit organization, the purpose of the organization must be one the following:
- Charitable;
- Literary;
- Educational;
- Religious; and/or
- Scientific.
In some cases, other groups or individuals may qualify as a non-profit organization. These may include artists, community service groups, religious-based organizations and/or musicians.
A non-profit organization is not required to pay any federal or state income tax for activities related to its stated purpose. Private individuals or businesses who donate to non-profit organizations are permitted to receive a tax-deduction for their donation.
In order for a non-profit organization to keep their tax-exempt status, they cannot be:
- Contributing funds to political campaigns;
- Engaging in lobbying that would influence legislation to a “substantial degree;”
- Distributing profits to officers, directors, or members; and/or
- Making “substantial” income from activities unrelated to the stated purpose.
Examples of non-profit corporations may include homeless shelters, child care centers, museums, and community care clinics and/or hospitals. Some commonly known non-profit corporations include:
- Amnesty International;
- The Better Business Bureau;
- Big Brothers Big Sisters of America;
- The Red Cross; and
- YMCA.
These are, of course, not the only examples of non-profit organizations, as they can vary widely so long as their purpose is from the list above.
Who Runs a Non-Profit Organization?
The majority of non-profit organizations are run by a board of directors. In some states, they may be known as trustees. Their main role is to set policies and oversee issues like finances, strategic planning, and/or management-level hiring.
The board of directors of a non-profit organization will appoint officers. Most organizations have a president, a secretary, a treasurer, and possibly other positions such as a vice-president or an assistant secretary. This will depend on the needs of the organization and local law requirements.
Can a Non-profit Organization Be Held Liable for its Actions?
In the majority of states, a non-profit organization is treated as a legal entity capable of suing and being sued. Because of this, it must abide by any contract entered into. It must also exercise the same duty of care as any other corporation would in the same circumstances.
Additionally, because a non-profit organization is set up similar to a corporation, there is limited liability for the board of directors and officers. For example, should a creditor come after the organization to satisfy a debt, it can only take assets from the corporation and not from board members or officers directly.
When Are Directors, Officers, and Members of a Non-profit Liable?
Much like corporations, the directors and officers of non-profit organizations are given a large amount of discretion to manage their organization. The business judgment rule offers directors and officers protection when making decisions on how to manage the non-profit organization. For the most part, a director of an officer will only be held liable in rare circumstances, such as if they acted in bad faith.
In most states, members of the non-profit organization cannot be held liable for its actions. Conversely, the non-profit will be held liable for the action of a member if they are acting as an agent for the non-profit within the course and scope of the organization. In other words, a member will not be personally held liable unless they are acting as an agent of the non-profit organization.
How Can Non-Profit Organizations Limit Liability?
There are steps a non-profit organization can take to limit liability. These include:
- Purchasing liability insurance;
- Including a liability limitation clause in contracts; and
- Producing and maintaining clear policies and procedures.
What Types of Disputes are Common With Non-Profit Organizations?
Non-profit organizations are businesses, just like any other corporation. They may face similar types of legal issues, including, but not limited to:
- Employment disputes such as harassment, wrongful termination, and/or wage/hour disputes;
- Disputes regarding the services, products, and/or pricing provided by the non-profit organization;
- Non-litigation clauses, or clauses that place limitations on how disputes can be resolved, such as mediation or arbitration;
- Disputes on renewal terms if a contract does not provide clear expiration and renewal terms; and/or
- Property disputes when the organization does not own the property they operate on and/or they share that property with other organizations.
Remedies for breach of contract usually involve a damages award. This award is used to offset the financial loss caused by the breach.
What Are the Steps to Sue a Non-profit Organization?
When suing a non-profit organization, there are steps that can be taken to ensure a more favorable outcome. In most cases, it is best to attempt to resolve the issue outside of a courtroom. Litigation is costly and time-consuming for all parties involved. An important step is to notify the organization of the issue in writing and include any requests. The organization may be able to resolve the issue.
If the issue is unable to be resolved without litigation, it is important to gather information and evidence to support a claim. This may include correspondence, such as emails or letters, documents, receipts, contracts, and/or any other documents available. It may also be helpful to document memories of events in writing and include individuals who may become witnesses.
The next step would be to consult with an attorney. Present the evidence gathered and review the facts. The attorney will be able to help determine what, if any, claims are available and what, if any, damages are available. If an injury or loss has occurred, an individual may be able to recover compensatory damages. Many claims have a statute of limitations so it is important to file a claim quickly.
An attorney can also assist with steps that may not be obvious to the general public. For example, somes a business or defendant’s legal name may be different than the name known to the public. The state in which they are incorporated will also matter, as well as what state or states in which they operate.
An individual may represent themselves in small claims court. This court typically handles claims less than $5,000 as well as smaller disputes. While this is available, it is still recommended to have an attorney’s assistance. However, should an individual choose to represent themselves, they must complete the following steps:
- Pay the filing fee;
- File a complaint;
- Serve the defendant with notice of the claim;
- Prepare their case and gather evidence; and
- Subpoena any necessary witnesses.
How Can a Lawyer Help?
Non-profit organization laws can be complex and vary by jurisdiction. An experienced business lawyer can provide guidance throughout the claims process and fight to obtain the best results for you.
Lawyers specializing in non-profit organizations will be especially helpful in these cases. This type of lawyer can review your case and ensure that timelines and deadlines are met in your case, as some states have strict rules. A lawyer can assist you in attempting to recover damages and represent you during any court proceedings, if necessary.
