The information provided in this podcast episode and blog post is very general in nature and may not apply directly to your organization's specific issues. Please contact Schaffer Law Firm with specific questions you have regarding your organization!

In this episode of the Nonprofit Jenni Show podcast, I spoke with seasoned nonprofit attorney Rachel Schaffer of Schaffer Law Firm. I asked her many of the questions I regularly hear from my nonprofit clients and others who work closely with the nonprofit industry.

Please note: I highly encourage you to listen to the Nonprofit Legal Questions podcast episode before reading this blog post! My blog lists some great “action items” for you to take after you listen to the podcast, plus additional resources you can check out if you have further questions. However, my podcast guests give so much additional rich information which isn’t included in the article you’re about the read.

I can't tell you how often I hear people tell me, "I want to start a nonprofit!" Most of these people have great intentions, but aren't at all educated about the requirements of starting a nonprofit, or even the difference between a nonprofit organization and a for-profit social enterprise. Rachel even brought up a third option in our interview, called a Benefit Corporation (or B-Corp). The major difference between a B-Corp and a C-Corp is that B-Corp owners must consider their charitable mission statement in all decision-making processes, as opposed to just considering the bottom line of profits.

Rachel simplified the 501c3 incorporation process into three steps for me:

Prepare your state charter.
Have your first board meeting to determine your by-laws and Conflict of Interest policy.
Fill out the 1023 and other paperwork required by the IRS.

Rachel suggests using an attorney who is experienced in nonprofit law to help with each of these steps, because each step in the process builds upon the previous steps. She told me not every attorney is qualified to support your organization in this process, but you can find one in your city or state who works frequently in nonprofit law by finding your city or state's BAR association and looking through their attorney directory.

I asked Rachel about the most common misconceptions and hurdles that her clients come across when they start the planning process for their new nonprofit organization.

Many people think it's easy to make a living by running a nonprofit. Unfortunately, it can take many years for a brand new nonprofit to become established enough to be able to pay its executive director. Then, when the budget can allow for a full-time employee, the board may not choose to hire the organization's founder as the executive director. Additionally, most nonprofit employees do not make as much as their for-profit counterparts.
Some founders aren't comfortable asking people to donate money, especially because those donors would not receive any tangible goods or services in return.
When someone forms a nonprofit, they don't "own" it in the traditional business sense. The organization's board of directors have ultimate control over the organization's direction and major actions, and they can even choose to remove the founder from the organization if they deem this action necessary.
It can be difficult for people to understand the purpose of operational expenses. These expenses must be factored into an organization's budget, and staff and board members may have to explain why operational expenses are necessary when skeptical donors ask.

I also asked Rachel about some of the common legal mistakes she finds in the nonprofit world, which are often made unintentionally by organizations.

Issues shutting down. If a nonprofit needs to dissolve, there are legal requirements for the dispersement of its assets, including money, items, buildings, and other property. Rachel has seen some organizations improperly dispose of their assets.
Board member liability. Many boards of directors don't understand that they can be held liable for making illegal decisions, such as decisions which violate the conflict of interest policy.
Trademark issues. Sometimes organizations don't check to make sure they aren't violating another company's trademarks, or they don't protect their own intellectual property with trademarks.
Conflict of interest issues! It's important to establish a solid conflict of interest policy upon formation and continually check back to ensure it's being followed.

Because conflicts of interest come up so frequently in the nonprofit world, Rachel gave me some basic elements every COI policy should include:

Definition of a conflict of interest.
Steps to take when a conflict exists.
Require a formal board meeting to address the potential conflict, where the secretary takes detailed notes for the official minutes.
Require the board to investigate alternative options which would not pose a conflict (for example, when selecting a vendor).
Require the board to vote, with the member in conflict abstaining from the vote, and the secretary taking notes on the decision.

Rachel also suggests keeping board member contracts which should be signed by everyone upon joining the board of directors. These contracts will make sure everyone is on the same page and aware of the code of ethics, financial commitment, and any other obligations.

Make sure you subscribe to the Nonprofit Jenni Show on your favorite podcast platform so you don't miss other nonprofit management advice!