Legal and Tax Issues for Nonprofit Associations - American Beverage Licensees June 8, 2014

American Beverage Licensees
                June 8, 2014

Legal and Tax Issues
for Nonprofit
Associations
George E. Constantine, III, Esq., Partner
Venable, LLP, Washington, DC
(202) 344-4790
geconstantine@venable.com

George E. Constantine, III, Esq.
 Counsel to tax-exempt trade associations,
  professional societies
 Former Staff Counsel for the American
  Society of Association Executives
 Concentrates practice on tax, contracts,
  intellectual property licensing, election law,
  corporate governance and other issues
  affecting tax-exempt, nonprofit corporations.

Today’s Program
 Introduction                  Application to
 Legal Issues                   Association
      Governance                Activities
      Contracts                  Meetings
      Tax
                                  Publications
      Antitrust
                                  Board activities
      Intellectual Property
                                  Contracting with
                                   Vendors
                                  Other

Corporate Governance
 Hierarchy of Authority
   State Nonprofit Corporation Law (statute and
    common law)
   Articles of Incorporation
   Bylaws
   Board Policies and Procedures

Corporate Governance
 State nonprofit corporation statutes set forth:
  Requirements for maintaining corporate status
  Rights and obligations of board
  Rights and obligations of members
  Default provisions if not self-addressed
 Internal affairs of a corporation governed by the
  law of the state where the corporation was
  formed
 Registration as a “foreign corporation” may be
  required in other states (e.g., headquarters
  location)

Corporate Governance
 Governance Structure
   Board of directors
   Executive committee
   Other committees of the board (e.g.
    finance)
   Other committees
   Staff

Corporate Governance
 Fiduciary Duties
   Care
   Loyalty
   Obedience

Corporate Governance
 Duty of Care standard is that of “ordinary and
  reasonable care,” or what would an ordinarily
  prudent director do in the same or similar
  circumstances?
  Very subjective
  Tied to reasonableness
 Business judgment rule—bad decisions are more
  easily defended than ignorance

Corporate Governance
 Compliance with fiduciary duty of care:
  Review all materials provided to you in
   advance of meetings
  Ask questions
  Avoid actions/discussions outside of the
   formal meeting setting
  Be familiar with the organization’s articles,
   bylaws, and procedural documents
  Maintain confidentiality of information and
   documents

Corporate Governance
 Compliance with fiduciary duty of care,
  continued:
  Rely on experts when appropriate (but such
    reliance does not excuse willful ignorance)
  Ascertain that all minutes (particularly
    recorded votes) are accurate
  Insist on legal/accounting/other expertise
    when necessary
  Attend association meetings regularly, read
    publications, be involved

Corporate Governance
 Duty of Loyalty—undivided allegiance
 Duty to avoid conflicts of interest (actual,
  potential and apparent)
  Examples
     Business dealings with association
     Business dealings with competitors
     Corporate opportunities doctrine
     Representational conflicts
  Remedies
      Disclosure; recusal or resignation

Corporate Governance
 Compliance with fiduciary duty of loyalty:
  Keep in mind that Organization’s interests
    come first
  Adhere to conflict of interest policy
     Disclose actual, apparent and potential
      conflicts of interest through regular
      disclosure statements
     Deliberate as a board or through a
      committee to determine appropriate
      responses to and management of actual,
      apparent and potential conflicts of interest

Corporate Governance
 Duty of Obedience—obedience to the nonprofit
  mission is required
 Articles of incorporation, bylaws other governing
  documents must be followed
 Applicable laws and regulations must be
  followed

Corporate Governance
 Final Points:
   Roles of board members are defined by
     articles, bylaws, board policies manual,
     common practice.
   Board sets the policy and the mission of the
     organization; staff is charged with carrying
     out the policy and the mission.
   Boards are generally only allowed to act in a
     meeting.
   While members may have some powers,
     power of the board of directors is paramount.

Contracts
 What is a contract?
     Offer
     Acceptance
     Consideration
   Memorandum of understanding
   Letter of intent
   Oral vs. written
   Who can bind your organization?

Contracts —
  Tips for Negotiating, Reviewing
 Start with the RFP    Intellectual
 Everything is          Property
  Negotiable            Term and
 Warranty               termination
 Liability Issues      Read Everything
 Payment Terms         Be Willing to Walk
                         Away
                        “Special”
                         considerations

Taxation
 The Basics
   Associations are exempt from tax under
    Section 501(c)(6).
   But that does not mean they are exempt
    from all taxes.

Taxation
  Basic requirements (c)(6)
    Not organized for profit
    Membership organization with
     meaningful membership support
    Line of business or profession
    No “private inurement”
    No “particular services”

Taxation
  Unrelated Business Income Tax
    Trade or business
    Regularly carried on
    Not substantially related
  Exceptions
    Royalty-Affinity programs
    Sponsorship-Permissible benefits
    Qualified conventions and trade shows
    Investment income
  Public Disclosure Issues

Taxation
 Form 990
   Disclosure of employees’ salaries
   Policies
       Conflict of Interest
       Document Destruction/Records Retention
       Whistleblower
       Joint Venture
       Executive Compensation Approval
       Review of Form 990

Antitrust
Sherman Antitrust Act
Federal Trade Commission Act
Clayton Act
Robinson-Patman Act

Antitrust
 Contract, combination or conspiracy
  unreasonably in restraint of trade
 Must be some form of agreement to
  unlawfully restrain trade—agreement
  need not be formal

Antitrust
Association activities
    Membership restrictions and termination
    Standards
    Certification
    Meetings
    Information reporting
    Cooperative buying and selling
    Lobbying

Antitrust
 General Risk Management Rules
   Clearly define restrictions and standards
    in the Bylaws or applicable documents
   Make sure restrictions and standards are
    reasonably designed to pursue a
    procompetitive result (avoid arbitrary
    restrictions or restrictions related to price)
   Make sure reasonable policies and
    procedures are in place for enforcement

Antitrust
 Other Antitrust Issues
   Membership services to nonmembers
   Board meetings
     Antitrust reminder
     Monitoring discussions
   Statistics
     Third party
     Make data available
     Stick to the past
     Aggregate data only
     Voluntary
     Avoid unregulated discussions

Intellectual Property
 Copyright: Generally protects original
  works of authorship, such as books,
  articles, songs, software, paintings
 Trademarks: Generally those items
  that readily identify the association or
  its projects/activities, such as names,
  logos, slogans

Intellectual Property
 Copyright
   Must be an original work (not copied)
   Must consist of “expression” (not just
    ideas)
   Must be fixed in a tangible form (when you
    put pen to paper)

Intellectual Property
 Copyright
     Registration
     Fair use
     Works for hire (association volunteers)
     Transfers and licenses

Questions?
 http://www.venable.com/associations/publications

Contact Information
George E. Constantine, III
Partner
Venable LLP
575 7th Street, NW
Washington, DC 20004-1601
Phone: 202-344-4790
Fax: 202-344-8300
Email: geconstantine@venable.com