Many people who are interested in forming a non-profit organization or corporation do not give mind to the internal organizational aspect. Without weighing the consequences, they look for canned documents either they find them on the internet, or they are provided by, for example, their accountant who, although he can help you in many matters, cannot do everything. There is much more to consider when forming the company and this is what I want to talk to you about. I generally applies in different jurisdictions as in Puerto Rico.
If you are creating a non-profit organization other than a partnership or trust, you will typically be incorporating an entity that will not be authorized to issue shares and will generally be established for a public purpose that serves a social interest to address issues of communities or groups. In this type of not-for-profit company there is no profit motive on the part of the organization, although some unscrupulous people see this structure as an opportunity to personally benefit from government grants funneling them through large salaries, bonuses and perks- but that’s a separate topic.
Structuring a nonprofit corporation takes much more than filling out the online form that the Department of State provides to register and obtain the certificate of incorporation. That is only the beginning, although there are people who think that this is the only legal document to write; and nothing may happen except when they try to qualify their organization as tax free and/or go into business with partners. There are a number of regulations that must be met and up kept including Puerto Rico.
If you are the only person who manages the nonprofit organization, the internal processes do not matter, because you are the one who is driving them. If you do something wrong or contrary to your own standards, nothing happens, it can only have external repercussions if you run the not-for-profit organization for a different purpose than the one you joined or manage it as if the company and you were the same. However, once you incorporate a partner the internal structure changes.
By having more than one person in the non-profit organization you will have some obligation to share information and agree on issues such as the mission, vision of the organization, expectations and roles of its participants and future members. None of that is achieved by simply registering the corporation. It is required at least to establish the rules of the game; the internal regulation that is commonly known as the bylaws. This will be required by banks, the IRS and state regulations if you intend to obtain tax exemption in any state or in Puerto Rico.
There are also canned forms of bylaws but using them puts you at risk of not complying with state law requirements including Puerto Rico without considering internal conflicts that could affect your role in the not-for-property organization. It is useless to have a generic model if you do not know if it is consistent with government regulations and your operational objectives. Many of these models vary and even with knowledge in this field, it is necessary to modify them to adopt them to your development plan. An attorney who practices in this area can discuss with you your goals and how to structure the available options.
You will have wide freedom to structure the non-profit organization in the way that best suits your needs. The General Law of Corporations of Puerto Rico allows it. With the bylaws you choose between options of different types of board of directors, members, votes, officers, and other typical elements in a corporation but that do not necessarily require or need to be included in its internal regulations.
The board of directors you establish will depend on your vision and goals. Who will have the ultimate authority? You may understand that they will be those who incorporated the organization, or its directors or even the members who are integrated if they are part of the organizational objectives. You must take into consideration that directors are generally not in charge of the day-to-day operations of an organization. Their role is more strategic and supervisory, for which they hire operational officers. You must define the authority and roles of each one as the organizer of the corporation.
In addition, it is recommended to create a conflict of interest policy. A conflict of interest occurs when individuals’ obligation to further the charitable ends of the organization is at odds with their own financial interests. The policy provides protection against charges of misconduct involving officers or directors.
The role of the lawyer becomes more relevant for your non-profit organization when you are interested in applying for tax exemption because the Internal Revenue Code imposes certain requirements on internal statutes. For example, under local state law, the organization is required to have a minimum of board members and a maximum of family members. In addition, the regulations must provide for the disposition of assets in case of resolution.
The bylaws are not the only document that you must complete. There are other external forms necessary to start the operational process in Puerto Rico such as the Merchant Registration Certificate (SURI), employer identification number (EIN), permits and patents, among others. Make sure that in addition to complying with these external regulations, you also structure your internal ones.
In addition to the initial steps, it is necessary to conduct the nonprofit organization in such manner to assure the purpose for which it was conceived and classified as exempt is achieved and or maintained and to provide annual follow-up with the filing of the required documents to avoid losing the tax exemption. The tax exemption is a privilege that the government can revoke if it understands that the non-profit organization is not in compliance with the guidelines of the tax law and regulations. Some maintenance include:
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