Taking a Proactive Approach to Legal Matters
One of the things we talk to nonprofit clients about a lot is taking a proactive approach to legal matters. A proactive approach means you address any potential legal problems before they happen or as soon as you see them happening instead of waiting until they become bigger issues.
Taking a proactive approach saves you time, money, and problems down the road. Much like taking care of your physical health by eating healthy, working out, and consulting a doctor regularly prevents costly health problems, taking care of your nonprofit’s legal health prevents costly legal problems.
The three main ways to be proactive are setting and reviewing your policies, contacting your nonprofit attorney before making big decisions, and choosing an attorney who specializes in nonprofit law.
Set and review your policies
One of the biggest ways to prevent future legal issues is to put the right financial policies, employee handbooks, governance policies, and bylaws in place. These documents can solve problems for you before they even arise—if you use them. Be sure to read and understand your policies so you know how to handle things as they occur.
It’s important to have all of your policies legally reviewed to be sure they work for you. Sometimes policies that sound like a good idea when you’re writing them can create problems when put into practice. An attorney experienced in nonprofit law recognizes and anticipates the way policies play out and can recommend changes to improve your policies to better protect your organization.
One example of this would be an organization with a policy that requires showing evidence of wrongdoing before removing a board member. Now imagine that a board member is accused of sexual assault by multiple people. Because of how the policy’s written, that organization must hold a formal hearing before removing that person from the board. That’s a painful process for all involved, and it’s not necessary. By proactively reviewing bylaws, an attorney can recommend a policy that allows for at-will removal of board members because your board needs the flexibility and freedom to remove members as you see fit.
Get input before big decisions
Contact your attorney to review large contracts, potential partnerships, and any time you see conflict arising that could lead to legal action down the road. Being proactive is cheaper and faster than waiting to deal with an issue later.
“Being proactive is cheaper and faster than waiting to deal with an issue later.”
We have some clients who call us before signing any contract that is over a certain amount of money. They pay several hundred dollars for our review, but we catch a lot of things, like a clause requiring the client to pay the entirety of the contract even if the other party does not fulfill their side of the contract. If an attorney catches that clause and changes it, that potentially saves the client thousands of dollars. We recommend having an attorney review any contracts that are over $2,000 to help protect your organization.
Any time you consider a partnership with another organization, whether nonprofit or for profit, an attorney should be involved to make sure the right paperwork’s in place. The attorney looks not only at the current situation, but also at what could happen many years down the line when the partnership ends. Agreeing to terms on the front end, when all parties involved are benefitting from the arrangement, saves legal fees later.
Let’s say that two organizations entered into a verbal agreement about working together, but they never signed a fiscal sponsorship agreement. Now those two organizations are parting ways. Because there was no formal agreement about what should happen to the assets if the two parties split, it cost about $5,000 to negotiate and transfer disputed assets. If lawyers had been involved up front to make those decisions, it would’ve saved a lot of legal fees in the end.
Taking a proactive approach to legal counsel also means calling a professional to avoid crisis situations rather than calling them in the midst of crisis. At times, that means asking your attorney to present to the board about a legal situation or having them guide the organization through an issue. Maybe there’s a personality conflict brewing among a couple of board members that could get out of control. If a nonprofit attorney comes in to consult on the issue, it could help diffuse the situation before it gets much worse.
Choose the right professional
Being proactive in choosing your team of professionals means considering their specialties and being sure they fit your needs. Just like you wouldn’t visit an ENT for a broken leg, you shouldn’t have a CPA file paperwork to establish your nonprofit organization. There are many kinds of charitable organizations, and charities are complex legal entities. You need an attorney who understands the nuances involved and the different options available to guide you through the process.
Errors on nonprofit paperwork can add up quickly. One mistake that seems relatively small can be incredibly expensive. In one situation, an existing organization set up a supporting nonprofit, but the paperwork wasn’t right. They both ended up being 501(c)(3) organizations, and the assets got tangled over time. When it came time to split those organization, the total litigation costs totaled in the millions.
As attorneys specializing in nonprofit law, we want you to be successful. One of the best ways to do that is to encourage a proactive approach to your legal matters. Consult an attorney to create or review your policies, before making big decisions, and when conflicts begin to arise. Be sure to use an attorney specializing in nonprofits who understands all of the options and legal issues that affect your organization. Doing this saves you time, money, and the frustration of resolving legal matters that could have been avoided entirely.
