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Legal Guide for Arkansas Nonprofit and Volunteer Organizations Second Edition LEGAL GUIDE LEGAL GUIDE FOR ARKANSAS NONPROFIT FOR ARKANSAS NONPROFIT AND VOLUNTEER ORGANIZATIONS AND VOLUNTEER ORGANIZATIONS Second Edition Legal Guide for Arkansas Nonprofit and Volunteer Organizations Second Edition by Bonnie Johnson, M.P.A., J.D. Williams & Anderson PLC Edited by Jessie Wallace Burchfield, M.L.S., J.D. UALR William H. Bowen School of Law This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the author, publisher and others acknowledged as contributing to the content are not engaged in rendering legal or other professional services. If legal or expert advice is required, the services of a competent professional person should be sought. From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers. i THE ATTORNEY GENERAL STATE OF ARKANSAS DUSTIN McDANIEL The Office of the Attorney General serves as the State’s leading consumer advocate. As part of that service, we educate Arkansans ranging from Medicare rights and responsibilities to how to avoid scams proposed by criminals hoping to trick you out of your money. As such, we take seriously our role in helping our citizens recognize fraudulent requests from those they receive from upstanding charitable organizations such as yours. I believe that society only thrives with the contributions of citizens who are motivated to make life better for others. Indeed, this call to volunteerism is – and always has been -- integral to the spirit of Arkansans. Our State is richer because of all the dedicated men and women, young and old, who so willingly give of themselves, whether they are helping neighbors rebuild after a tornado, feeding the homebound and hungry, nursing the sick, raising money for research, or performing any of the many other services Arkansans engage in every day. I am grateful to you, the thousands of volunteer and nonprofit organizations throughout this state, who help manage and coordinate this important work. I hope you find this publication, “Legal Guide for Arkansas Nonprofit and Volunteer Organizations,” a valuable resource as you go about the business of running a volunteer or nonprofit organization. My office was pleased to collaborate with the UALR Bowen School of Law, the Arkansas Department of Human Services’ Division of Community Service and Nonprofit Support, and Williams & Anderson PLC to produce this guidebook, which we all hope will be a valuable tool in your efforts to serve others. Thank you again for all you do for the people of our State. As you pursue your efforts, my office will continue to work with you so that citizens feel confident in contributing to and volunteering for your worthy organizations. Sincerely, 323 Center Street, Suite 200 • Little Rock, Arkansas 72201 Telephone (501) 682-2007 • Fax (501) 682-8084 INTERNET WEBSITE • http://www.arkansasag.gov iii INTRODUCTION Glance at the news, whether you prefer to read it electronically or in print, and you soon realize that we are once again becoming a nation of service- minded individuals. Arkansans are ahead of this curve and in a position to demonstrate leadership in this era of renewed interest in service and in the non-profit sector. This book was written as a guide to help those individuals achieve their goals and see their projects come to fruition. As Dean of the Bowen School of Law and as an inaugural faculty member of the University of Arkansas Clinton School for Public Service, I have a unique perspective on how people become interested in public service and volunteerism. Law degrees are often associated with high-powered individuals working in tall buildings and commanding large salaries. While some do use their education to pursue that type of career, others end up pursuing service related careers, especially in the non-profit sector. The mission statement of the Bowen School of Law states that one of our five main objectives is “To serve public interest through a wide range of public service activities for the State of Arkansas…” By exposing our students to volunteerism during law school, Bowen Law School fulfills its mission and provides service to the community. The “service connection” with the UA Clinton School for Public Service is much more apparent (the name of the school gives it away). The concurrent JD/MPS degree, a one-of-a-kind program, produces individuals who not only use their education to serve local communities but also the global community. Think of it – students who have a connection to Arkansas are affecting change world-wide. I am glad that so many people found the first edition of this book helpful and I hope this second edition is used even more often; by those whom I have had the privilege to teach and by those I’ll never meet. I hope all of you experience the joy of seeing your ideas come to life, the reward of seeing your projects help those in need, and the satisfaction of serving instead of being served. John M.A. DiPippa Dean and Distinguished Professor of Law and Public Policy UALR William H. Bowen School of Law v ACKNOWLEDGEMENTS This manual was made possible by a partnership between the Depart- ment of Human Services Division of Community Service and Non- profit Support, Williams & Anderson PLC and the UALR William H. Bowen School of Law. We would like to thank the following individu- als for the time and talent they invested in this project. Division of Community Service Matthew A. Glover Legal Guide for Arkansas Nonprofit and Volunteer Organizations and Nonprofit Support Patrice Melville Published by Bonnie Johnson, Williams & Anderson PLC in cooperation with the DeLora Butler Lindsey C. Pesek Arkansas DHS Division of Community Service and Nonprofit Support (DCSNS) and Selena Ellis Madeline Taylor the University of Arkansas at Little Rock Bowen School of Law. Edet Frank Breanna Trombley Sherry Middleton UALR William H. Bowen Original printing: 2009 Williams & Anderson PLC School of Law Second Edition: 2011 Associates Dean John DiPippa Daniel Beck Special thanks to: Advisors Andrew King Jessie Wallace Burchfield, Reference & Circulation Librarian & Legal Research Professor, David L. Mosley, UALR Bowen School of Law Library Thomas Tarpley Mosley Consulting, LLC Sherry Middleton, CVA, CEL, Arkansas DHS Division of Community Service Law Clerks Kevin Wells, and Nonprofit Support (DCSNS) Drew Bacon Office of the Arkansas Lisa J. Black, Consultant Aaron Brooks Attorney General Matthew J. Foerster Copyright 2011 All rights reserved. Book design by John Houser Printed by Magna IV Color Imaging vii ABOUT THE AUTHOR TaBLE OF CONTENTS Bonnie Johnson is an attorney with Williams & An- derson PLC in Little Rock, Arkansas. She practices in the areas of nonprofit, education and employment Chapter 1 The Birth of a Nonprofit ....................................................1 law, commercial litigation, and appellate advocacy. Ms. Johnson assists her nonprofit clients in such areas as Chapter 2 The Nonprofit Board of Directors .....................................29 governance advice, application to the Internal Revenue Service for recognition of tax-exempt status, employment issues, and Chapter 3 Theories of Liability and the Nonprofit Board Member .....49 review of bylaws, articles of incorporation, contracts and other docu- ments. Chapter 4 Liability and Volunteers ................................................. 63 Before joining the Arkansas Bar, Ms. Johnson worked for Arkansas nonprofit organizations for twenty-five years. Her most recent position Chapter 5 Personnel Issues in Volunteer Management ....................75 in that field was as executive director of Nonprofit Resources, an -or ganization dedicated to developing the capacity and infrastructure of Chapter 6 Risk Management .........................................................103 Arkansas’s nonprofit sector. Chapter 7 Fiscal Sponsorship and Financial Management ............117 Ms. Johnson remains active in nonprofit work. She serves on the boards of directors of state and national organizations. In 2006, she founded Chapter 8 Subsidiaries and Joint Ventures ................................... 133 the Jennifer L. Carson scholarship endowment, which is managed by the Arkansas Community Foundation and provides a scholarship each Appendix A Selected Resources ......................................................147 year to a student at the William H. Bowen School of Law who is a single parent. Appendix B Sample Conflict of Interest Policy ..................................151 Williams & Anderson PLC provides legal services to nonprofit and for-profit organizations and individuals in an array of business-related Appendix C Outline of Subjects Typically Covered in Bylaws .............159 fields including appellate advocacy, banking and creditors’ rights, busi- ness litigation, construction law, corporate and securities, employment Appendix D Arkansas Statutes of Special Interest to Nonprofits ......161 law, estate and tax planning, health law, intellectual property, media law, public and corporate finance and real estate. Index ....................................................................................................179 Ms. Johnson may be contacted through the Williams & Anderson PLC website, www.williamsanderson.com. An electronic version of this publication is available at www.williamsanderson.com/staff/bonnie- johnson. viii ix CHAPTER 1 The Birth of a Nonprofit Big News in Little Dipper
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