Northeast District Meeting:Overview of Incorporation and Nonprofit Tax StatusJune 5, 2010

Legal Documents Defining Chapter Governance

• Charter Agreement• Chapter Bylaws• Articles of Incorporation

Charter Agreement

• APICS charters granted through the Board of Directors

• Gives chapters the ability to publicly affiliate themselves with APICS

• Chapters shall adopt rules in harmony with, and shall not conflict with, the APICS bylaws

Bylaws

• Defines the relationship between chapters and members

• Complementary and subordinate to Articles of Incorporation

• Also must complement the APICS bylaws to maintain charter.

Articles of Incorporation

• Required to establish corporate status• Legal agreement with the state• Establishes the basis for the chapter’s individual,

legal existence.• Must have a very clear statement of purpose to

ensure proper tax-exempt status and to avoid anti-trust implications

Incorporation• The best protection from litigation a chapter officer can

have, is to make sure the chapter is incorporated and insured.

• Incorporation provides certain advantages and protection to your chapter, members and officers.• Establishes recognition as a legal entity• Eliminates personal liability of officers and members• Establishes continuity• Assists in obtaining insurance coverage• Most states require yearly fees, to avoid termination of status

Other Protections

• Business Judgment Rule• In corporate law, business judgment rule is doctrine that

protects officers and directors of a corporation from personal liability so long as the actors acted in good faith, with due care, and within the officer or director’s authority.

• Reliance on third party advice – if you sought out and accepted 3rd party advice, your liability is limited.

Other Protections• Volunteer Protection Act 1997

• No volunteer of non-profit organization is liable for harm caused by act or omission of the volunteer on behalf of the organization.

• Exceptions:• Gross negligence• Willful conduct (defamation)• Hate crimes and sexual offenses• Conduct under influence of alcohol

• Act protects volunteers not the organization • Director conduct may be assigned to organization

Federal Tax Exempt Status

• Tax-exempt status is a privilege, not a right, conferred on a chapter that meets certain requirements of the Internal Revenue Code.

• To ensure federal tax-exempt status, chapters must be organized and operated in accordance with the requirements under Internal Revenue Code Section 501(c)(6) and then must obtain IRS recognition of meeting the requirements.

Definition of A Professional Society 501 (C) (6)

Section 501(c)(6) of the IRS Code provides an exemption from federal income taxes for professional societies (“business leagues”) defined as follows:

• Its members must have a common business interest.• Its purpose must be to promote that interest.• Its purpose must not be to engage in a regular business of a kind ordinarily

carried on for profit.• Its activities should be directed to the improvement of business conditions of one

or more lines of business as distinguished from the performance of particular services for individual persons.

• It is not organized primarily for profit.• No part of its net earnings may inure to the benefit of any private individual.Clearly APICS and its chapters fit the definition of a professional society and, as such, may be granted tax-exempt status under IRS Code Section 501(c)(6).

Definition of A Charitable Organization 501 (C)(3)

Organizations granted exemption under Section 501 (C)(3) of the IRS Code commonly referred to as charitable organizations, are described as follows –

• Must be organized and operated exclusively for exempt purposes, set forth in section 501(c)(3).• None of its earnings may inure to any private shareholder or individual.• It may not be an action (lobbying) organization, it may not attempt to influence legislation as a

substantial part of its activities and it may not participate in any campaign activity for or against political candidates.

• Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170.

Although some APICS chapters were granted the ( C)(3) exemption, before theIRS strengthened its guidelines, this exemption is more appropriately designated to Charitable or research organizations, i.e., The APICS Education and Research Foundation.

APICS Chapter Tax Exempt Stats