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Not-For-Profits and Lobbying

Many people who run not-for-profits think that not-for-profits are prohibited from lobbying.  This is not an accurate statement.  Not-for-profits are prohibited from engaging in political campaign activity and political activity will be taxed, but lobbying, within the limits provided by the IRS, is appropriate and can be necessary to carry out the nonprofit’s mission.

It is important to distinguish between “political campaign activity,” “political activity” and “lobbying.”  Political campaign activity deals with an individual who is a candidate for public office.  Not-for-profits are prohibited in participating in this activity.

Political activity, however, refers to influencing or attempting to influence the selection, nomination, election or appointment of any individual to any federal, state or local public office other than in the context of legislative confirmation.  If a not-for-profit chooses to undertake this type of action, the not-for-profit may be subject to a special tax.

Finally, lobbying refers to when a bill or draft bill is proposed in any legislative body (i.e. city council or state legislature) or any action with respect to direct actions of these bodies such as proposed constitutional amendments or referenda.  Not-for-profits CAN engage in lobbying as long as no “substantial part” of its activities consists of attempts to influence legislation.  If your organization’s mission is to help kids get a better education and you work with schools and teacher’s to provide after school activities to further this mission and you see a bill being introduced to lengthen the school day and want to support it, by all means, your organization should support it.  Not-for-profits should feel free to support causes that further its mission and long term goals through lobbying as long as that is not the main part of the organization’s role.

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What’s in a Name?

In the current economy, a lot of individuals have considered branching out and starting a business on their own.  Many people who start a business by themselves spend a lot of time planning how they will make money:  deciding what they will sell, how they will reach there customers, and how they will manage the day-to-day operations.  Another big business decision is what to call yourself.

Many people have the mistaken belief that if they do a google search and find a website address is available then they can use this as their business name.  If, however, you plan to operate a business under anything other than your own name, the law does have a say.  In New York State you must file a Certificate of Assumed Name with the government and tell them what name you will be using.  The form is only one page and the fee is low (only $50).  This step can be crucial, though.  If you enter into any contracts under the name of your new business (for renting space, hiring employees, or purchasing supplies and materials) and you have not filed the form, all of those contracts could be completely voided and/or unenforceable.  Unenforceable contracts means customers can demand refunds, landlords can change the terms of a lease, and suppliers can back out of promises.  Don’t get caught with a document that cannot be enforced.  The time and cost of the Certificate of Assumed Name is well worth the effort.

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Hindsight is 20/20 – How to Learn from Other’s Mistakes

I was reading through the news on LinkedIn the other day and I came across this great article about failure. Failure is usually considered a dirty word in the start-up business, but really it is just a way for entrepreneurs to learn and grow. The article, posted originally by LearnVest, is entitled “Entrepreneurship 101: What I Learned From My Failed Business.” Five entrepreneurs were asked what lessons they learned from their failures and the answers were enlightening. I will provide a summary here, but you should really check out the whole article at the link above.

Lesson #1: Put someone clearly in charge.
Lesson #2: Your founding team should represent varied skill sets.
Lesson #3: Make sure your business is self-sustaining.
Lesson #4: Protect yourself before your company.
Lesson #5: Make sure your personal life can accommodate your business.

These are all really good points to consider when you are starting a business. Oftentimes entrepreneurs get so excited about their amazing business idea and forget how important it is to plan long-term. Setting out a plan for who you see yourself working with, how the business might grow, and how it could be dissolved down the road is important. Entrepreneurs should never be afraid of failure, if one idea doesn’t work out, another will come along that could make you even more successful. Instead, it is important to plan for bumps so that if you do fail, you do it faster, recover more quickly, and move on to your next great idea.

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The Purpose Clause in Not-For-Profit Articles of Incorporation

Most not-for-profit corporations opt to incorporate under state law. This step is taken prior to seeking the very valued 501(c)3 status. Initially, drafting the certificate of incorporation can seem fairly easy and New York State offers examples to help guide people forming not-for-profits. Most of the information the creators need to provide are fairly self-explanatory and include things like the name and addresses of a minimum of three board members. Those who chose to draft these articles on their own should be aware of the importance the “purpose” section is, however.

The purpose clause is probably the trickiest part of the certificate. Although businesses in New York are allowed to use all encompassing language, allowing the business to participate in “all lawful activity,” not-for-profits must be more specific than this. Additionally, even if the state approves the purpose, when the not-for-profit goes to apply for its 501(c)3 status (which is granted by the IRS, not the state) the IRS will carefully review this purpose before ruling on the exemption request, so all purposes need to be drafted with the IRS standards in mind. The goal is to be as specific and as broad as possible in the purpose. The purpose clause should be drafted so as to avoid the need to amend it later should the not-for-profit wish to expand to a different kind of business, but not be so expansive that the not-for-profit needs to obtain a large number of consents from state agencies.

All in all, it is wise to carefully review your purpose clause on multiple levels before submitting it to the Department of State.

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Who Owns Those Tweets?

No one can deny that social media has become an amazing way to promote small and start-up businesses.  Facebook and Twitter accounts are free for the taking and the majority of American are spending significant amounts of time on social media everyday. Before you ask someone to take on the task of tweeting for or about a business, business owners should consider putting a contract in place.

A recent federal case demonstrates how valuable tweets and twitter followers can be.  In PhoneDog v. Kravitz, Kraviz, a tech reporter who was formerly employed by the news site PhoneDog, left his job with PhoneDog and took his 17,500 twitter followers with him by refusing to release the password to his account.  A federal judge refused to dismiss PhoneDog’s suit and the case will likely be in court for another year.  To read the decision, click here.

Small business owners should keep this case in mind when asking someone else to tweet for them.  Business owners can protect themselves and ensure that tweets and other social media avenues concerning their businesses belong to the business by putting a specific contract in place with anyone who is tweeting or posting statuses about the business.  Setting out the terms of tweets in writing prior to asking others to take on this task will protect businesses from potential disputes in the future.