Not-for-Profit or charitable organizations around the world have done excellent work to reach out to the people in need. From poverty relief services to cancer awareness, charities provide a medium for people to go beyond their means and help others stricken by a crisis. charities provide a platform for individuals to extend their support and help others facing crises. However, despite their noble intentions, these organizations can sometimes find themselves embroiled in serious legal conflicts and litigation.
The Canada Revenue Agency (CRA) offers a detailed framework for registration, tax filing, and ongoing compliance that not-for-profit organizations can follow. It is advisable to consult an experienced business lawyer to ensure these guidelines are applied correctly to your charity.
In the meantime, here are some of the most common legal mistakes not-for-profits make:
1) Lack of a Business Strategy
Most not-for-profit groups start with a great vision but seldom with a business plan in place. A charitable organization, though audited and managed differently, is still a business that needs appropriate funding and planning.
This lack of strategy can prove to be cumbersome in the future, leading to mismanagement of donors and employees and unnecessary litigations. Consulting a skilled business attorney can help you develop a business strategy for your charity and make its management simpler.
2) Lack of a Funding Model
Most charitable organizations initially are funded by the resources of their founders. However, to sustain your charity in the long term, it’s necessary to have a sound funding model. There are several ways through which a charity can raise resources like organizing fundraising events, planning charity drives, charging fees for your services and investing in other business ventures.
To collect and utilize these funds, you need a clear and transparent legal framework, lack of which could lead to lawsuits and payment of damages.
3) Ill-structured Board
This is the most common legal problem that not-for-profits face. Lack of a well-structured board can cause serious governance issues in the future. It’s important for board members to realize their fiduciary and administrative duties towards the organization. Lack of proper oversight, poor management of conflict of interests and lack of legal expertise can lead to the total disbandment of your organization. Employing the services of a legal counsel can help you solve these issues at an early stage.
4) Lack of Legal Compliance
Canada Revenue Agency provides a complete checklist of protocols and regulations that charities need to adhere to. Review these guidelines regarding establishment, maintenance and restrictions that not-for-profits need to exercise with your lawyer to avoid their violations in the future.
5) Imperfect Bylaws
Flawlessly drafted bylaws are necessary for internal as well as external compliance of your organization with the laws of the state. These Bylaws determine the structure of your charity and all its operative procedures. Hence, they need to be flexible, be consistent with all the legal regulations of your province and provide coherent policy outline for your organization. Always consult a lawyer to draft strong bylaws for your charity.
Most legal mistakes made by not-for-profits occur in the early stages, during the organization’s establishment. Consulting an experienced business lawyer when starting your charity can help identify and resolve these issues, preventing complications down the road. Book a consultation with our firm today to learn more about these legal matters.