Legal
Nonprofit and Philanthropic Organizations, an in-depth, semester-long course is offered each fall term at the University of Iowa College of Law that provides an overview of nonprofit legal issues. The course is taught by Professors Willard Boyd and Richard Koontz.
XIII. A. Principle – Compliance Responsibility
Charitable nonprofit organizations are chartered and granted tax exempt status by government to serve the public. With this public privilege comes the obligation of accountability. This accountability takes a variety of forms: good management practices, legal mandates, and ethical conduct. The obligations of charitable nonprofit organizations are defined both by government laws and regulations and by self-regulation through policies adopted by organizational peers and by the organization itself.
Practices
The concept of charitable immunity from lawsuits has been eliminated. Therefore, directors and officers are liable for organizational torts and breaches of contract where they are negligent and third parties have been injured.
Starting and Managing a Nonprofit Organization: A Legal Guide by Bruce Hopkins (2009).
Frequently Asked Questions about Legal
Yes. There was a time when nonprofits, under the doctrine of “charitable immunity,” were not held liable for injuries that they caused. However, nonprofit organizations can now be sued by anyone at any time, and nonprofits must accept legal and financial responsibility for their activities.
Learn more: Nonprofit Risk Management Center
Yes. According to the Iowa Principles and Practices for Charitable Nonprofit Excellence an Iowa nonprofit corporation that expands its activities into other states should submit the required foreign corporation filings in those states. (II. D. 5.) Usually the foreign corporation filing requirements are spelled out on the Secretary of State Web site for the state in which the nonprofit has begun to operate. The required forms are available on those sites. Forms and more information for the states bordering Iowa are available at these Web sites:
Illinois - Application for Authority to Conduct Affairs in Illinois (Form NFP113.15); $50 filing fee.
Minnesota - Select pdf for Certificate of Authority to Transact Business in MN; $50 filing fee.
Missouri - Go to Nonprofit Foreign Corporations and choose Foreign Nonprofit Corporation Application for Certificate of Authority to do Business in Missouri (Corp. 55A); $25 filing fee.
Nebraska - Corporations Nonprofit (Foreign) and choose Application for Certificate of Authority; $25 filing fee.
South Dakota - At the Secretary of State Web site choose Nonprofit Corporations Informational Pamphlet; $25 filing fee.
Wisconsin - go to Corporation Section Filing Forms and choose Foreign Nonstock Corporation Certificate of Authority Application (Form 121); $45 filing fee.
Nonprofit corporations in Iowa are created under Iowa Code 504, the Revised Model Nonprofit Corporation Act ("RMNCA") which became effective in Iowa on January 1, 2005 for new corporations. Nonprofit corporations are created by filing articles of incorporation signed by the incorporators with the Iowa Secretary of State at Business Services Division, Lucas Building, First Floor, Des Moines, Iowa 50319. The articles of incorporation should be accompanied by a filing fee of $20 with checks made payable to "Secretary of State." The required provisions of the articles of incorporation are the corporate name, a registered office and registered agent, incorporators, members, and dissolution. To get tax exemption under 501(c)(3) there must also be in the articles of incorporation a purpose statement, limitations on political activity, and a prohibition on private inurement.
A nonprofit corporation is a legal entity that can engage in nonprofit activities in Iowa. In many ways it can function like a for-profit corporation. For instance it can purchase land, hire employees, have a bank account, borrow money, and have board meetings. But unlike for-profit corporations a nonprofit corporation cannot operate for profit and distribute earnings to investors as a for-profit does. Nonprofit corporations in Iowa are described in a statute in Iowa Code 504. The Iowa Secretary of State's office governs the creation and regulation of nonprofit corporations in Iowa. Management of liability through incorporation is one of the easier risk management techniques available to nonprofits. This incorporation is only one of a number of processes available to protect board members from liability described in Iowa Code 504, others being immunity, indemnification, and insurance.
When determining whether an organization is directly or vicariously liable, perhaps the most relevant factor is whether or not the organization, or someone acting on its behalf, was negligent. To show that an organization was negligent, a plaintiff must establish the following: That the organization or someone acting on the organization’s behalf had a duty to meet a certain standard of care with respect to the person harmed; that the organization or someone acting on the organization’s behalf breached the duty of care that was owed to the person harmed; that the individual actually suffered a compensable loss (physical injury, property damaged, etc.); that the compensable injury was the direct result of the organization’s breach of duty; or that the compensable injury was the result of a chain of events beginning with the organization’s breach of duty. As mentioned above, strict liability is not assessed on a fault basis, but is simply based on whether or not the injury occurred within the scope of the duty in question.
Learn more: Nonprofit Risk Management Center
A nonprofit can be held responsible for its own actions and omissions (direct liability). In addition, under the theory of respondeat superior, a nonprofit can also be held responsible for the actions and omissions of individuals in the organization’s employment or acting on the organization’s behalf (vicarious liability). In the cases of direct and vicarious liability, an organization will be held liable if it is determined that the organization (or someone acting on its behalf) was at fault, either intentionally or negligently. However, in the case of strict liability, liability is not necessarily assigned on a fault basis. For example, under workers’ compensation laws, a nonprofit will be held responsible for injuries suffered by employees while acting within the scope of their employment, even if it was the employees’ negligence that caused the injuries.
