Training Module 3: Articles of Incorporation and Association Bylaws Presented by the Southern Early Childhood Association
Topics to be Presented…. • Advantages and disadvantages of incorporation • Incorporation procedures • Articles of Incorporation • Association bylaws • Dissolution statement
An “incorporation” is… …an artificial legal entity composed of individual members but considered to have its own existence apart from its members for purposes of organization, operations, liability, longevity, holding property, and so forth.
Important Characteristics of Nonprofit Corporations • As mentioned in the definition of “incorporation,” nonprofit corporations are separate legal entities from their leadership and membership. • The tax-exempt status of an organization is unrelated to whether or not it is incorporated, as are employment standards, discrimination laws, and requirements regarding employee taxation. • An incorporation remains incorporated until it is legally “dissolved.”
Advantages Eliminates personal liability Establishes continuity Protects association name and logo Allows for greater court protection Eases insurance process Encourages reputation for stability Disadvantages Increases costs to associations Adds restrictions to association operation Increases difficulties of disbanding the organization Advantages and Disadvantages of Incorporation
* DISCUSSION * How do the advantages and disadvantages of incorporation discussed in this presentation apply to your organization? Make a chart outlining the advantages and disadvantages of incorporated status for your association.
Procedures for Association Incorporation • Determine name, purpose, membership, activities, etc • Define association’s nature and scope • Identify location for incorporation • Register as a foreign corporation, if necessary • Choose incorporators • Draft and file Articles of Incorporation
Procedures for Association Incorporation(continued) 7. Draft and adopt association bylaws 8. Adopt manual of policies and procedures 9. Gain approval for charitable contributions • Prepare IRS documentation for tax exemption • Pay required fees • Ratify the acts of the incorporators
* DISCUSSION * If your association is already incorporated, were any of the incorporation procedures discussed in the presentation omitted from your association’s incorporation process? If so, what can be done to address them now? If your association is not yet incorporated, how would you manage the incorporation procedure?
Articles of Incorporation are… …an association’s agreement with the state granting its incorporated status, establishing the basis for that association’s separate legal existence.
Full name Specific, tax-exempt purpose Duration of existence Addresses of operation Legal agent Initial board of directors Membership status Bylaws status Provisions for internal affairs Dues requirements Dissolution procedures Distribution of assets State approval Items to include in the Articles of Incorporation
Other Important Aspects of the Articles of Incorporation: • Submission process • Amending the Articles of Incorporation
* DISCUSSION * If your association has already filed its Articles, is all of the necessary information included? If anything is missing, how might you amend the Articles? If your association has yet to devise its Articles of Incorporation, write a sample document based on the guidelines presented in this discussion.
Bylaws Bylaws are rules adopted and maintained by an association to define and direct its internal structure and management.
Legal Characteristics of Bylaws • Serve as subordinate (yet complementary) guidelines to the Articles of Incorporation • Describe relationships, rights and obligations of all participants • Honored and enforced in a court of law • Assist in attaining tax-exempt status
Formation and Revision of Bylaws • Authority • Periodic review • General guidance • Available to all members
* DISCUSSION * Who in your organization is in charge of writing, maintaining and revising your association bylaws? What is the process by which your association bylaws are revised? (Be very specific in outlining this process.)
Detailed purposes Membership qualifications Officers’ qualifications Filling of vacancies Voting procedures Meeting procedures Property procedures Indemnification Committee structure Delegation of authority Organizational relationships Association logo Financial procedures Office locations Amendment procedures Dissolution procedures Legal compliance Content of Association Bylaws
* DISCUSSION * Examine your association’s bylaws carefully and determine whether or not they contain all of the necessary information. If your association does not maintain its own set of bylaws, write a sample document based on the guidelines presented in this discussion.
What is a Dissolution Statement? A statement of dissolution is intended to define the fate of your organization’s assets if the organization ceases to exist. The statement must make it clear that none of the remaining assets will benefit a private person, but instead will be distributed to another tax-exempt nonprofit.
* DISCUSSION * If your organization has non-profit tax-exempt status, how are its assets to be distributed if the organization ceases to exist? If you do not already have a Statement of Dissolution for your organization, write a sample document based on the guidelines discussed in this presentation.
Resources consulted for this presentation: • Jerald Jacobs. Association Law Handbook. 3rd Edition. Washington, DC: American Society of Association Executives, 1996. • www.BoardSource.org , 2005