Allow me to begin this blog post with a very fitting quote from the character of Maria, from the classic Rodgers and Hammerstein musical, The Sound of Music, “[l]et’s start at the very beginning, a very good place to start…” We are going to do just that. Start at the very beginning, a very good place to start.
What is a “nonprofit”?
Most of the time, we are referring to a tax-exempt entity under the Internal Revenue Code 501(c)(3) or a charitable organization. To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization 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, and they are restricted in how much political lobbying and activities they may conduct. Although many of you reading this blog are likely working for or helping with an organization with a current 501(c)(3) exemption, it is very helpful to read the IRS publication “Applying for 501(c)(3) Tax-Exempt Status”. This publication provides straight-forward information, very relevant to understanding the 501(c)(3) exemption.
What about a “Minnesota nonprofit”?
Under Minnesota law, a nonprofit must be a registered corporation with the State of Minnesota and are governed by the Minnesota Nonprofit Corporation Act, Minn. Stat. Ch. 317A. This means you must file Articles of Incorporation with the State of Minnesota.(Spoiler alert: we will discuss what is a “legal corporation” and “Articles of Incorporation” in an upcoming post). The Minnesota Attorney General’s Office is responsible for the enforcement of Minnesota Stat. Ch. 317A. This is very important for every Minnesota nonprofit to understand. The Attorney General’s Office has the authority to supervise, investigate (including subpoena power and the right to request all of your records – from minutes of meetings to banking records and more), bring civil penalties and criminal charges, and other remedies to secure compliance with the law. Under Minnesota law, the attorney general has the powers in sections 8.31 (investigative power) 501B.40 (investigative power – records) and 501B.41(proceedings to secure compliance). The Minnesota Attorney General’s website has a lot of great information for nonprofits, including some key legal provisions that must be followed (Spoiler Alert #2: we will be discussing some of these in upcoming blog posts).
In closing, it is very important to understand the concept we discussed in this post – simply, what is a non-profit (i.e. a 501(c)(3) under the IRS code and what is a Minnesota nonprofit. From here, we will be building on this information. I hope you are still with me…hopefully looking forward to more.