Legal Checkups Strengthen Nonprofits – Charity Lawyer Blog

As we enter a new year, it’s the perfect time for nonprofits to assess their legal and operational health by conducting a legal audit. A strong legal foundation is essential for your organization to thrive, maintain public trust, and achieve its mission.To ensure your nonprofit is on solid legal footing, consider conducting a comprehensive legal checkup of its key legal documents. Here are the key areas to review:

1. Governing Documents

Your nonprofit’s governing documents—including the articles of incorporation, bylaws, and conflict-of-interest policy—are the backbone of your organization. These documents should:

• Ensure the bylaws comply with current laws and best practices.
• Clearly define the roles and responsibilities of the board and officers.
• Include provisions for handling conflicts of interest, decision-making, and dissolution.
• If there are voting members, ensure their authority and voting rights are clearly spelled out.
• Consider adding provisions for decision making in an emergency when a quorum of the Board is unable to meet.

If your bylaws haven’t been reviewed in several years, now is the time to update them to reflect any changes in your organization’s structure or operations.

2. Contracts and Agreements

Review major contracts and agreements your nonprofit has in place and note termination dates as well as any notice requirements or auto-renewals. These might include:

• Leases for office space or equipment.
• Vendor or service provider agreements.
• Grant agreements and donor restrictions.
• Employment and independent contractor agreements.

Ensure that any deadlines or reporting requirements are being tracked. Look for outdated terms, reporting deadlines, notice requirements, automatic renewal clauses, or areas where legal protections could be strengthened.

3. Governance Policies

Policies guide your day-to-day operations and ensure consistency in decision-making. They are are also important oversight tools for the Board. Key policies to review include:

• Conflict of interest policies
• Gift acceptance and fundraising policies
• Financial policies, including internal controls and expense reimbursements.
• Whistleblower and document retention policies.
• Social media and communication policies.
• Signature authority and compensation policies.
• Volunteer management and child protection policies (if applicable).

Confirm that your policies comply with federal and state laws and reflect your organization’s current practices.

4. Compliance with State and Federal Regulations

Nonprofits must adhere to various regulatory requirements to maintain their tax-exempt status and good standing. Conduct a compliance check to ensure:

• Annual filings (e.g., IRS Form 990, state charitable registrations) are up to date.
• Proper classification of employees versus independent contractors.
• Fundraising registrations are filed and current in every state where your nonprofit solicits donations.

Failure to comply with these requirements can result in penalties or jeopardize your tax-exempt status.

5. Intellectual Property

Your nonprofit’s intellectual property—such as logos, program materials, and website content—should be properly protected. Consider:

• Registering trademarks for your organization’s name or logo.
• Ensuring you have the right licenses for any third-party content used.
• Reviewing copyright protections for original materials.

Protecting your intellectual property helps safeguard your brand and mission.

6. Risk Management and Insurance

Evaluate your organization’s risk management practices and insurance coverage. Key questions to ask include:

• Do you have adequate general liability, directors and officers (D&O), and cyber liability insurance?
• Are emergency and crisis response plans in place?
• Have risk assessments been conducted for programs or events?

Proper risk management can prevent costly legal disputes and protect your organization’s assets.

Take Action in 2025

A legal checkup may seem daunting, but it’s a worthwhile investment in your nonprofit’s future. Start by creating a checklist of the areas to review and set a timeline for completing each task. Engage your board, staff, and legal counsel in the process to ensure nothing is overlooked.

By strengthening your nonprofit’s legal foundation, you can confidently navigate the challenges of 2025 and focus on what matters most: advancing your mission and serving your community.

Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on federal tax and fundraising regulations nationwide. Ellis also advises donors concerning major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.