Nonprofit organizations come in a stunning variety of purpose and form. We are delighted to present in this issue a fascinating glimpse into the array of issues faced by those who advise nonprofits. Most lawyers are familiar with traditional charities focused on service to the needy, education, religion, and health care; there are also many other organizations created (entirely legitimately) to further political or business purposes. Nonprofits can be organized as unincorporated associations, trusts, corporations, or LLCs. Some are tiny volunteer-led organizations and others are among the largest employers in the country. While they may have members, or a single member, or no members at all, with control entirely in the hands of a board, what all these nonprofit entities have in common is that there are no “owners” as there would be in a business entity. The individuals in control can have neither ownership in nor private benefit from the entity; the benefit they receive must remain entirely subservient to the purposes of the organization. Despite the enormous variety in purpose and mission, nonprofits share the underlying principle that the organization will not generate a profit for distribution to the owners, but instead will further only the organization’s mission with any excess funds generated from its activities. This creates some unique challenges and interesting twists on standard transactional practice for the business lawyer grappling with nonprofit issues.
With the lengthy economic difficulties of recent years, many business lawyers have felt that their clients are operating as nonprofits, but true nonprofits especially have had to learn to cope with a harsh funding environment. In addition, increasing regulation has beset all sectors of business law, but in the nonprofit sector this pressure has been consistent in recent years, with federal review through Internal Revenue Service oversight of tax exemptions and state attorney general oversight of activities, fundraising, and governance.
This mini-theme issue of Business Law Today addresses how a variety of nonprofit organizations are addressing this challenging economic climate and heightened levels of regulatory scrutiny. In The Messiest Catch: Fishing for Donors in a Changing Sea, Matthew Wright talks about the legal complexities faced by nonprofit health-care providers dealing with state and local regulators, changing funding mechanisms, legacy obligations, and challenges from possibly more nimble for-profit service providers. Bill Boyd, in Mergers, Acquisitions, and Affiliations Involving Nonprofits: Not Typical M&A Transactions, discusses how mergers and acquisitions, so often a response to economic stresses, face special concerns in the nonprofit context. David A. Levitt and Steven R. Chiodini’s article, Taking Care of Business: Use of a For-Profit Subsidiary by a Nonprofit Organization, addresses how a subsidiary, in the nonprofit context, is not just a subsidiary, but a whole new set of challenges and opportunities. Cynthia Rowland and Deborah Tellier, in their article on Five Tax Traps for Business Lawyers Advising Nonprofit Clients, address the principal regulatory concern facing nonprofits – tax compliance.
In an interesting juxtaposition of the past and present, Lisa A. Runquist and David T. Ball in Whither the Parsonage Allowance? Will It Survive the Most Recent Attack?, focus on recent challenges in our increasingly secular times to tax benefits with medieval roots: the provision of living quarters to a church’s minister to enable him or her to fulfill the traditional pastoral role. Jumping forward to the new opportunities in the modern era, Leah Cohen Chatinover in E-mail Voting: A Practical Approach to a Difficult Trap, talks about a governance conundrum of recent times facing both business and nonprofit organizations. The urge to make key decisions electronically is an area where legal norms have not caught up with technology.
We hope that this issue of Business Law Today both challenges and communicates, airing new ideas and approaches to all business lawyers, both those who regularly work with nonprofits and especially those who do not. All business lawyers should appreciate that understanding different approaches to similar situations enriches all practice areas.