Members, Distribution and Indemnification Protection under the Revised Iowa Nonprofit Corporation Act

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1 In This Issue: Ammending Articles of Incorporation Comment: Iowa Principles and Practices Panel On Nonprofit Sector Endow Iowa Update Iowa Grant Symposium US Postal Service Clarification Listening Post Project NOE Courses Now Online New 990 Online Software Wayne Ford & Urban Dreams School Foundations onthe Rise Additional Training e-newsletter September 2005 Volume 1, Issue 2 Members, Distribution and Indemnification Protection under the Revised Iowa Nonprofit Corporation Act New Requirements under the to indemnify a director for any actions or Revised Act inactions except liability for any of the For nonprofit organizations organized following: (1) the amount of a financial benefit on or after January 1, 2005, the Revised received by a director to which the director Iowa Nonprofit Corporation Act ( Revised is not entitled; (2) an intentional infliction of Act ) requires that two items previously not harm on the corporation or its members; (3) required be included within the articles of a violation of the unlawful distribution incorporation. First, the articles must now provision of the Revised Iowa Nonprofit include a statement of whether or not the Corporation Act (Iowa Code section organization has members. Under the ); or (4) an intentional violation of Revised Act, a member is defined to be an criminal law. A provision in the articles of individual or entity with voting rights relating incorporation can either mandate that the to the election of directors. Nonprofits may nonprofit organization indemnify the director still have individuals or entities that can be as long as none of the exceptions apply or referred to as members that have no voting give the organization s board the ability to rights if the articles state that they have no decide on a case-by-case basis whether to members. These members, however, have indemnify a director, assuming none of the no statutory rights and their rights are limited exceptions apply. to any rights granted to them by the If a nonprofit organization does not organization. Second, an organization is now include such an indemnification provision in required to include a provision within its its articles, it is still able to indemnify its articles of incorporation that describes the directors against any liability incurred in a distribution of assets upon dissolution. For proceeding, but the standards for nonprofits with 501(c)(3) tax-exempt status, indemnification are different and not as broad the federal tax law requirements on in scope. Indemnification of directors distribution of assets will dictate which (assuming the articles of incorporation are organizations can receive distributions and silent) is still permissible if all of the following what needs to be provided in the articles of apply: (1) the individual acted in good faith; incorporation. (2) the individual reasonably believed that Under the Revised Iowa Nonprofit while acting in his or her official capacity, the Corporation Act ( Revised Act ), which individual s conduct was in the best interests became effective July 1, 2005, existing of the corporation or, in all other cases, that nonprofit organizations have the opportunity the individual s conduct was at least not to amend their articles of incorporation and opposed to the best interests of the take advantage of new provisions that allow corporation; and (3) in the case of any criminal a nonprofit to provide broader proceeding, the individual had no reasonable indemnification rights to its directors. In cause to believe that their conduct was particular, a nonprofit organization can agree unlawful.

2 INRC Newsletter page 2 of 8 The Larned A. Waterman Nonprofit Resource Center website inrc.continuetolearn.uiowa.edu Panel Executive Director Diana Aviv presents the Final Report to IRS Commissioner Everson (left) and Senator Grassley. The Final Report is available at: Comment on Iowa Principles and Practices for Charitable Nonprofit Excellence We mentioned in our last quarterly issue that the Larned A. Waterman Iowa Nonprofit Resource Center is in the process of revising the Iowa Principles and Practices for Charitable Nonprofit Excellence. We want to reflect the issues being raised and discussions transpiring as a result of the U.S. Senate Finance Committee s Nonprofit Oversight Hearings held by Chairman Charles Grassley (R-IA). Generally, we are attempting to make the Principles and Practices clearer as to what the Iowa law requires and elaborate upon good management practices. The Principles and Practices can play an essential role in assuring local nonprofit accountability without having to create a system of national accreditation and legal oversight as has been proposed. We believe that the Principles and Practices, coupled with training, are a more efficient and effective alternative for Iowa nonprofit organizations than added national regulations and accreditation which could be costly and not necessarily assure the training needed for effectiveness. The proposed revised Principles and Practices will be reviewed by the Governor s Task Force and then be made available on the Center s website. Panel on Nonprofit Sector Makes Final Recommendations for Charitable Organization Action In its Final Report to the U.S. Senate Finance Committee, dated June 6, 2005, the Panel on the Nonprofit Sector, (of the Independent Sector) made several recommendations in an effort to increase the accountability and efficiency of charitable organizations. According to the Panel, the board of a charitable organization, in accordance with recommended practice and the laws of its state, should: Include individuals with some financial literacy in its membership. Review the Form 990 or 990-PF filed by its organization annually. Undertake a full review of its organizational and governing instruments, key financial transactions, and compensation policies and practices at least once every five years. Review the organization s size and staff compensation program periodically in order to ensure effective governance and meet the organization s overall objectives. Incorporate into the organization s bylaws, articles or charter a requirement that the full board must approve, annually and in advance, the compensation of the CEO (unless there is a multi-year contract in force or there is no change in the compensation except for an inflation or cost-of-living adjustment). Establish and implement policies that provide clear guidance on travel rules and outline specific procedural criteria for reimbursement or subsidization of expenses. Ensure that the positions of chief executive officer, board chair, and board treasurer are held by separate individuals. If the board deems it is in the best interests of the charitable organization to have the CEO serve as the board chair, the board should appoint a lead director to handle issues that require a separation of responsibilities. Provide detailed information about its operations, including methods used to evaluate the outcomes or programs, and other statements available to the public through its annual report, website, and other means.

3 INRC Newsletter page 3 of 8 Additional Resources: Iowa Council of Foundations Iowa Department of Economic Development Community Vitality Center Iowa Nonprofit Resource Center or nonprofit.law.uiowa.edu The materials for the presentation will be made available in the future on the Larned A. Waterman Iowa Nonprofit Resource Center website in the form of FAQs at inrc.continuetolearn.uiowa.edu/ faq/faqindex.asp The entire ruling can be found at: tools/ps323.pdf Endow Iowa and County Endowment Fund Encourage Philanthropy Endow Iowa and the state s County one half of one percent of the state s gambling Endowment Fund programs are encouraging revenues will provide approximately philanthropic activities throughout Iowa by $5,573,294 for the County Endowment providing grants directly to community Program. The funds will be distributed to foundations (or affiliates), and providing tax community foundations (or affiliates) by the credits to donors who make contributions to end of October Seventy-five percent community foundations. The state legislature of that amount will be sent by the community has authorized $2,000,000 for the 2005 foundations through to nonprofit organizations Endow Iowa Tax Credit Program. As of serving countywide needs. The remaining September 16, $1,205,800 remains available twenty-five percent will be retained in the for donors seeking tax credits. county s community foundation endowment The County Endowment Fund directs funds. Nonprofit institutions interested in state gambling revenues to qualified applying for these funds can obtain community community foundations (or affiliates) located foundation contact information on the Iowa in counties that do not have state-licensed Department of Economic Development web gambling facilities. Currently, 85 Iowa site at: counties are without gaming. During 2005, endowiowa/index.html. Iowa Grant Symposium Addresses Funding Resources The Iowa Department of Management s Grants Enterprise Management System hosted the Iowa Grant Symposium held in Des Moines on August 18, The Symposium was attended by over 200 individuals representing various state government-affiliated entities throughout the State. The Symposium included presentations on community foundations, Endow Iowa, grant-making, and locating private funding resources. Richard Koontz, Coordinator for the Larned A. Waterman Iowa Nonprofit Resource Center, gave a presentation on 501(c)(3) status for government-affiliated entities and organizational issues relating to such entities. Nonprofits Praise U.S. Postal Service Clarification of PS-323 On June 1, 2005, U.S. Postal Service Customer Support Ruling PS-323 took effect, broadly defining those types of mail that shall be entitled to a discounted rate and alleviating the growing concerns of nonprofits that would be affected. Under PS-323, personal information (i.e. information specific to the addressee other than the date and address itself) may not be included at a preferred mail rate unless three conditions are met: (1) the mailing contains explicit promotions or solicitations for a product, service or donation, (2) all of the personal information is directly related to the solicitation or promotion, and (3) the exclusive reason for all of the personal information in the mailing is to support the promotion or solicitation in the mailing. The term solicitation for a donation encompasses a request for any monetary or non-monetary support for a nonprofit purpose of the mailer. This definition should resolve most concerns regarding the mailing of solicitations and personal information at nonprofit and preferred rates. The Alliance of Nonprofit Mailers, which led the clarification effort, termed the guidance very fair and very reasonable.

4 INRC Newsletter page 4 of 8 Listening Post Project web site: listeningpost Listening Post Project findings: news/ Johns Hopkins University Listening Post Survey Reveals Practices, Concerns of Nonprofits Preliminary results from a survey distributed to hundreds of private, nonprofit, charitable organizations by the Johns Hopkins Nonprofit Listening Post Project during March 2005 reveal that substantial proportions of the country s nonprofit organizations are already utilizing most of the financial disclosure practices under review by the Senate Finance Committee to improve nonprofit governance and accountability. More specifically, as part of a broader survey of nonprofit governance and accountability practices, the Listening Post survey revealed the following: Financial Disclosure The overwhelming majority (Ninety-five percent) of sampled nonprofit organizations regularly distribute financial statements to their Boards of Directors. Many of these organizations also make their financial reports available: (1) to the public upon request (seventy-four percent); (2) to investors (seventy percent); and (3) in published form via annual reports (fifty-four percent). Interestingly, only nine percent of the organizations reported posting their financial statements on the organization s web site. Audits Ninety-seven percent of the surveyed organizations reported having undergone an independent audit at some point over the previous two years. Fifty-seven percent of the responding organizations reported having a Board committee devoted to the audit function, and another fourteen percent of the organizations reported that they were considering creating such an audit committee. excess of $25,000 are required to file an information return (Form 990) with the Internal Revenue Service. A Senate Finance Committee Staff Paper has raised a number of questions about the diligence and precision with which nonprofit organizations complete these required forms and about the seriousness with which they take the Form 990 filing. The Staff Paper has also suggested that the 990 form be broadened to capture nonprofit performance and not simply finances. The Listening Post Governance and Accountability survey makes it possible to shed some useful empirical light on these issues. In particular: (1) Eighty-one percent of Form 990s are signed by either the organizations chief executive or its Board chair. This is consistent with the recommendation embodied in the Sarbanes-Oxley law for the financial reports of for-profit companies. (2) Sixty-five percent of surveyed nonprofit organizations relied on external consultants or firms to complete their Form 990 in the past year. Variations by Field and Size Class Interestingly, most of the findings reported applied fairly uniformly among organizations of varying sizes and across the five fields of nonprofit activity on which this survey focused: family and children s services, elderly services and housing, community and economic development, museums, and theaters. Especially notable in this regard were the following: Form 990 Except for religious organizations, all nonprofit organizations with expenditures in (1) Organizations of all size classes were overwhelmingly likely to have

5 INRC Newsletter page 5 of 8 Listening Post Project Fact Sheet: listeningpost/factsheet/ Listening Post Fact Sheet.pdf Listening Post Project Partners: listeningpost/partners/ undergone an audit in the previous two years (seventy-nine percent of the organizations with expenditures under $500,00 compared with one hundred percent of those with expenditures over $3 million) (2) Organizations of all size classes and in all fields were almost equally likely to keep their Boards and funders regularly informed of their financial condition, though the smaller organizations were slightly more likely to do this on a quarterly rather than a monthly basis. At the same time, a few variations were apparent: (1) Larger organizations were also more likely than the smaller ones to have special Board audit committees (sixty-nine percent and twenty-nine percent respectively). (2) Reliance on outside firms to complete the Form 990 was more common among the smaller organizations than the larger ones. When the larger organizations turned to outside firms, these firms were more likely to pay the market price. (3) Museums and elderly service organizations were less likely to secure an extension to file their 990 forms than the other types of organizations. More-detailed results of the Listening Post Governance and Accountability Survey focusing on Board functions and governance, performance standards, and accountability provisions will be issued in subsequent Listening Post Project Communiqués. These Communiqués will be available on the Listening Post Project web site: Why the Listening Post Project? By surveying nonprofit agencies and disseminating the resulting findings quickly to nonprofit managers, policymakers, and other researchers, this project seeks to: (1) initiate a more informed dialogue that encourages greater experimentation among nonprofit practitioners; (2) improve the ability of nonprofit managers to understand and cope with the changes affecting their organizations; (3) speed the diffusion of best practices throughout the nonprofit field, improving the overall effectiveness of nonprofit organizations; (4) create more practice-relevant teaching materials in the nonprofit field; (5) Provide a more systematic basis for public policy toward the nonprofit sector and alert policymakers to the consequences of their actions for the nation s nonprofit organizations; (6) Equip management consultants and technical assistance providers with more timely and more systematic information on trends affecting nonprofit organizations and promising management and organizational responses; and (7) Increase public and media awareness of the challenges confronting the nonprofit sector and of the sector s efforts to respond. For additional information about the Johns Hopkins Listening Post Project, please call , or listeningpostproject@jhu.edu.

6 For additional information, students may contact the Center for Credit Programs at (800) Learn more about the IRS efiling at efile.form990.org. or article/ 0,,id=108211,00.html. INRC Newsletter page 6 of 8 Two Nonprofit Organizational Effectiveness (NOE) Courses Offered Through the World Wide Web The University of Iowa Center for Credit Programs within the Division of Continuing Education is offering a new course, Nonprofit Organizational Effectiveness I (06J:147/ 06J:247), by way of streaming video via the world wide web this fall semester. Interested students may register for either undergraduate or graduate credit. The course addresses topics such as operational and financial nonprofit management, the mission and ethical governance of nonprofit organizations, strategic planning, and effective fundraising technique. Students may register for the spring course, Nonprofit Organizational Effectiveness II (06J:148/06J:248) without having taken the first course. The spring course will be conducted from January 18 through May 3, 2006, with registration beginning in mid-november. This course will focus upon two primary areas of interest: (1) the qualities needed for leaders of nonprofit organizations (including relationships with staff and volunteers), and (2) an examination of the relationship between nonprofits and the external world (i.e. community constituencies, governmental entities, professional associations, and other nonprofit organizations). Undergraduate-level tuition is $204 per semester hour, and graduate-level tuition is $318 per semester hour. Interested students can check their computer capacity for streaming video by going to connect/. Students may register for either course at: new.htm#onlineform. New 990 Online Software Improves Nonprofit Efficiency Internal Revenue Service regulations and includes nearly fifty standard issued on January 12, 2005 now require taxexempt organizations that file at least 250 PDF files for printing or distribution. attachments. The software can also create variuos tax returns, including income tax, Other features include user-friendly excise tax, employment tax, and information screens with math error checking, dropdown menus, easy links to IRS instructions, returns, during a calendar year, to efile in If, for example, an organization has tips from nonprofit tax experts for each line 245 employees, it must file Form 990 or on the form, and the ability to import Form 990-PF electronically, because each spreadsheets. No special computer Form W-2 and quarterly Form 941 is knowledge is required in fact, much of the considered a separate return (245 W-2 s, work of preparing the forms is done by 990 four 941 s, and one 990/990-PF). Online. Free technical assistance is also The Urban Institute s National Center available. The IRS sends an receipt for Charitable Statistics (NCCS) has within 24 hours of efiling. developed, 990 Online, a free IRSapproved system to prepare and that the IRS has received and accepted your For the first time, you will be notified electronically file the Form 990 and Form organization s return. Should you need an 990-EZ. Using 990 Online will make annual extension, 990 Online also includes the filing easier and more accurate for Form 8868 (Request for Extension). Simply nonprofits. It is currently available at no cost. efile your extension request, get a Available at the confirmation from the IRS, and then use the 990 Online software calculates totals, verifies system when you are ready to complete a the accuracy and consistency of the return, Form 990 or 990-EZ.

7 INRC Newsletter page 7 of 8 Ford is a statesman who never forgot where he came from Urban Dream website can be found at Wayne Ford s Urban Dreams Center Celebrates Twentieth Anniversary The things people run away from, Justice Advisory Council and the Iowa State declares nonprofit administrator and State Legislature. In recognition of his status as an Representative Wayne Ford, I run toward. anti-gang expert, the Milton S. Eisenhower On June 1, 2005, Urban Dreams, Ford s Foundation has asked Mr. Ford to participate well-known outreach agency celebrated its in a national workshop on urban gangs. As a twentieth anniversary to much fanfare. Ford result of Representative Ford s efforts, the founded the organization in Des Moines in community surrounding the center has been 1985 with a $10,000 grant from the city deemed an Enterprise Zone, enabling tax council and a vision of building a program credits for several businesses that have chosen that could offer unique human support to relocate within (and revitalize) the services to residents who are unable to find community. needed help through traditional channels. If you come from the inner city, Ford Today, the organization works with city says, you recognize how lucky you are, and and state governments, the United Way of you want to give back and help. Building the Central Iowa, and Drake University to offer community will give kids better services including family counseling and opportunities as long as they recognize their preservation, self-sufficiency training for responsibilities to themselves. I tell them, welfare mothers, support groups for exoffenders, don t you ever tell me you can t find the higher and structured after-school ground Don t you ever tell me about what programs for children. you can t do. Ford has long been recognized as an antigang expert, serving on the Iowa Juvenile School Foundations on the Rise: Merger creates NSFA in Effort to More-Efficiently Serve Public School Students In order to serve more efficiently the needs of students, the Association of Education Foundations and the National Center for Public and Private School Foundations merged in April, 2005 to form the National School Foundation Association. Educational foundations are popping up all over the country, according to the Public Education Network, a national association of local education funds. The Network estimates there are currently 2,500 to 3,000 educational foundations nationally. Within Iowa, growing numbers of public school districts are turning to tax exampt support foundations to foster educational innovation and supply needed funding and services from individuals and local businesses. Iowa currently has more than 150 school foundations (up from only about 60 in 1997). According to the Public Education Network, shrinking tax revenues, budget cuts, a shift of state funds to poor districts, a fear of losing students to private schools, and parents rising expectations of what their children deserve are factors fueling the explosive growth of school foundations. Additional information may be obtained by visiting the NSFA website at or contacting NSFA by phone at The Iowa School Foundation website is also available at: foundations.asp.

8 The Larned A. Waterman Iowa Nonprofit Resource Center s online calendar will be updated as more nonprofit events become available. Be sure to check them out at inrc.continuetolearn.uiowa.edu/ updates/calendar/ calendarindex.asp The Larned A. Waterman Iowa Nonprofit Resource Center 130 Grand Avenue Court Iowa City, Iowa toll free: INRC Newsletter page 8 of 8 Additional Training Nonprofit Management Academy New schedules are available at npmacatalog.html. BoardLaunch Course: Eliminate the Fear Factor: Successful Fundraising Strategies for Board Members Date: 10/4/2005 Time: 4:00p.m. 8:00p.m. Fee: $40.00 (includes a light dinner) Location: Arthur Davis Conference Room The Greater Des Moines Partnership 700 Locust St., Suite 100 Des Moines, IA Registation form available at BoardLaunch-RegistrationForm pdf AFP EASTERN IOWA CHAPTER: Strategies for a Successful Campaign Date: 10/19/2005 Time: 12:00 1:30 PM Location: Heritage Ballroom Saemann Student Center Warburg College Independent Sector s 2005 Annual Conference Date: 10/23/2005 Time: 3 - Day Conference Location: Washington, DC... About Our Organization The Larned A. Waterman Iowa Nonprofit Resource Center is a University of Iowa interdisciplinary collaboration created to make more accessible educational and service programs focused on strengthening the operational capacity of Iowa nonprofit organizations. The Center works collaboratively with government agencies, nonprofit organizations and educational institutions to impart new knowledge through activities and provide information and training For more information go to AnnualConference/2005/Program.html. BoardLaunch Course: The Rules Have Changed: Your Guide to Governance & Legal Obligations Date: 10/25/2005 Time: 4:00 p.m. 8:00 p.m. Fee: $40.00 (includes a light dinner) Location: Arthur Davis Conference Room The Greater Des Moines Partnership 700 Locust St., Suite 100 Des Moines, IA Iowa Conference on Volunteer Service Date: 11/9-10/2005 Time: 8:00 AM to 4:00 PM Location: Sheraton, 50th & University, West Des Moines, Iowa Content: For more information, contact Jody Benz toll free at or jody.benz@iowalifechanging.com. For additional info : Checkin.asp? EventId= AFP Eastern Iowa Chapter: Philanthropy Day- Iowa City Date: 11/15/2005 Time: TBA Questions can be directed to Brenda Duello, AFP Board member at brendaduello@uiowa.edu, x403. resources to help nonprofit organizations and interested persons throughout Iowa. We seek to build the capacity and develop the effectiveness of community-based organizations and enhance the overall effectiveness of local organizations in building communities. The Center also introduces students to the nonprofit sector and develops their sense of public and community service.