Should You Consult With a Lawyer Before Forming a Nonprofit?

A lawyer can help you start a nonprofit and deal with contract, trademark, and other relevant issues as you get underway.

When starting a nonprofit, you’re likely on a tight budget, which means you may be tempted to pass on professional services. One professional visit that’s risky to skip, however, is with a lawyer.

While many great tools are available to help form a nonprofit without engaging a lawyer, every nonprofit is unique in its needs and goals, and it’s common for questions to arise that require an in-person or state-law-based professional analysis.

Doing It Yourself: What Could Go Wrong?

Here are a few common ways that a new or growing nonprofit can easily go astray, and how a lawyer can help forestall or deal with such problems:

  1. Forming the wrong type of business. Nonprofits will fall into one of two categories, a nonprofit corporation or a nonprofit limited liability company (LLC). There are advantages and disadvantages to each and you will want to make sure you’re choosing the right type for your nonprofit. If you form one that turns out not to fit your nonprofit’s activities, you will have to spend time and money fixing the error. A brief consultation with a lawyer can help determine which is the best.
  2. Failing to follow applicable nonprofit laws. Nonprofits must abide by both state and federal laws, the applicable portions of which can be difficult to find, put together, and interpret. Special rules apply to nonprofits (as distinguished from for-profit businesses). For example, nonprofits are required to be transparent with how they spend their funds and implement strict record-keeping systems for finances. Failing to follow such rules can get your nonprofit in hot water. A lawyer who understands the complexities can guide you through nonprofit law—preferably preventing trouble before it arises.
  3. Not including proper language in internal documents. A nonprofit is required to adopt bylaws and a conflict of interest policy, and these documents need to have specific language in them. Without such language, your nonprofit could fail to receive tax exemption from the Internal Revenue Service (IRS) and could have its Articles of Incorporation rejected by the state where it does business. A lawyer can help avoid this by helping draft or review your nonprofit’s documents.
  4. Using the wrong type of contract. Contracts are important for nonprofits and should be used for various purposes from the time the nonprofit is formed. For example, the board of your nonprofit may decide to require each board member to spend ten hours a month fundraising. If that’s not stated in the board contract, there’s no legal way to hold a board member to that promise. While sample contracts for such purposes can be found online, a lawyer in your state is in the best position to draft or review such a contract and make sure it reflects your nonprofit’s particulars and complies with state law.
  5. Improper filing of paperwork. A lot of paperwork needs to be filed when you form a nonprofit; for example, with the state your nonprofit will be doing business in, as well as with the IRS, for tax exemption. Filing the wrong paperwork or filing incomplete paperwork can extend the time it takes to form your nonprofit and get tax exemption, and may cost more money in the long run. Your nonprofit doesn’t need to hire an attorney to draft the paperwork, but doing so helps assure it will be done right the first time.
  6. Not considering issues with the nonprofit’s name and logo. Numerous free resources are available with which to check whether another nonprofit is already using your chosen name or logo. Depending on what you find, your nonprofit may need to consult with a lawyer for further advice. For example, if your nonprofit discovers that another nonprofit is using a similar logo, a lawyer can help determine whether there are possible trademark issues. Doing this early can prevent a legal showdown and expensive rebranding in the future.

Free Versus Paid Consultations

Initial consultations with a lawyer come in many forms. As a nonprofit, you will likely want to begin with a free consultation. A free consultation can be by phone or in person. Some attorneys even offer them through Skype. Many free consultations are as short as 15 to 30 minutes, although some lawyers will be available for more time.

While you will be able to get some basic information from a free consultation, you will get more valuable information with a paid consultation. A paid consultation can last an hour or more. An attorney is likely to share more in-depth information in a paid consultation than in a free one. You can always start with a free consultation and then add a paid one on if you find you need more time.

What to Expect at Your First Consultation With an Attorney

Consultations go by quickly, so it’s important to be prepared and have a list of questions ready. If you want to go over paperwork, such as your 501(c)(3) application or a contract, be sure to forward this paperwork to the attorney ahead of time.

If you are working with others to form your nonprofit, make sure to schedule the consultation when everyone can attend, and get input from those who can’t attend.

During the consultation, the attorney will answer your questions, review documentation, and advise you on areas that you may not have considered. As this is your time, it’s okay to direct the conversation however you see fit.

Questions to Ask at a Consultation

Your most important questions will depend on what you’ve already accomplished on your own.

If you have already started forming your nonprofit and just need to ask a few questions about a certain area, be sure to let the lawyer know ahead of time. For example, if you’re working on your application for 501(c)(3) tax exemption and want the attorney to review it, ask the attorney to do so ahead of time if possible, so that your consultation time can be used for questions.

If your groups is brand new and just needs some general guidance, you’ll likely want to ask the following questions to get the ball rolling:

  • Should our nonprofit form a corporation or an LLC?
  • How and when should our nonprofit apply for 501(c)(3) tax exemption?
  • Are you available to review our application for 501(c)(3) tax exemption before we file it?
  • Are there any issues with the name or logo we’ve chosen?
  • What advice can you give us about starting a nonprofit?

In addition to receiving valuable legal advice, consulting with a lawyer before forming your nonprofit will give you the opportunity to find a lawyer your nonprofit can work with in the future. Because you will hopefully be establishing a long-term relationship, consulting with more than one lawyer to find the right fit for your organization is a good idea.

Consider asking these additional questions to better get to know the attorney:

  • How long have you been practicing law?
  • Do you work with other nonprofits?
  • What type of work do you do for nonprofits?
  • What are your fees?
  • Would you consider accepting alternative fee arrangements for nonprofits?
  • How do we contact you if we have an issue?
  • What are your working hours?
  • Will you personally be working on our issue, or will you be assigning it to another, perhaps junior attorney?

Even if you don’t use a lawyer to start a nonprofit, consulting with one either before or during the process can help you gather important information and begin forming a relationship with someone you can turn to for advice in the future.

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