Nonprofit Success: 5 Areas To Concentrate on for Legal Risk Mitigation
Recent trends suggest that legal challenges and the potential for nonprofits to face lawsuits have continued to rise, making it critical for organizations to be vigilant and proactive regarding their legal risk mitigation preparedness.
According to various legal experts, navigating potential legal challenges requires proactive risk management, staying informed about legal developments, and being prepared. Your nonprofit clients can find themselves in a better position to successfully navigate legal challenges by focusing on the following five key areas.
1. Fundraising Compliance
A critical area for most nonprofits is adherence to state charity regulations and fundraising compliance, including registration and annual filing requirements. State charity regulators continue to engage in enforcement efforts to ensure charitable organizations comply with the increasing regulation of charitable solicitation activities, including professional fundraisers, online charitable solicitation platforms, and crowdfunding.
2. Unrelated Business Activities
Unrelated business activities for nonprofits are those that generate income but are not substantially related to the organization’s exempt purpose. Some examples include income from advertising in publications or on websites, income from renting out property, and the sale of merchandise not related to the nonprofit’s mission. The legal pitfall is that these activities can be subject to the Unrelated Business Income Tax. Not understanding the specific rules can result in unexpected tax liabilities and noncompliance with IRS regulations.
3. Website Terms & Conditions
Terms of use for websites and mobile apps are essential for online legal risk mitigation. However, poorly drafted or outdated terms of use can pose legal threats. Organizations can better mitigate legal risks, protect their interests, and foster a trustworthy relationship with supporters by ensuring that website terms and conditions are comprehensive and current.
4. Ransomware Attacks
Last year, two-thirds of all nonprofit organizations were impacted by some type of ransomware attack! As a result, some states have adopted more stringent cybersecurity rules and have even implemented cybersecurity audits to ensure compliance. Nonprofit leaders must ensure their organization’s data security program is up to date and remain current on the evolving legal and regulatory landscape. This includes having a comprehensive cybersecurity plan and an incident response process for dealing with an attack.
5. Antitrust Activities
Antitrust laws are designed to promote fair competition and prevent unfair business practices. For nonprofits, these laws are made to ensure that an organization is engaging in fair pricing, not making exclusive deals with vendors while excluding others, avoiding conflicts of interest among board members, and not engaging in actions and collaborations that could lead to them dominating a specific market and pushing out competitors. Nonprofits can avoid and mitigate legal challenges associated with antitrust activities by understanding the laws and operating fairly. Organizations should consult with a legal expert in their state to learn more about antitrust laws and ensure compliance.
Navigating the legal landscape and risk mitigation are essential to the success and sustainability of nonprofit organizations. By understanding and focusing on key areas of concern, organizations can ensure they are operating fairly and within the scope of the law – avoiding legal pitfalls that can result in liabilities, impact their success, and derail trust with stakeholders.
About Charity First
Charity First is committed to providing our retail partners nationwide with best-in-class underwriting, consistent and responsive service, and risk management services, including directors & officers liability insurance, accident insurance for volunteers and participants, and cybersecurity coverage.
To learn more, please contact us at 800-352-2761 or marketing@charityfirst.com.
Sources: National Council of Nonprofits, Nonprofit Risk Management Center and the IRS.