Lions and Kiwanis and Rotary, Oh My!


Frequently asked questions about becoming a 501(c)(3) foundation

 

Why Should Our Club Become a 501(c)(3) foundation?

 

I have recently had the pleasure of both incorporating and applying for 501(c)(3) non-profit status for a New York Lions and a New York Kiwanis Club.  One club had been in existence for more than 50 years but had just recently chosen to apply for not-for-profit status. The Club realized that in order to attract large donations and grants, it would need to create a foundation and apply for 501(c)(3) status.

But Our Club Already is a Non-Profit, Isn’t it?


When a New York Lions or Kiwanis or Rotary Club receives its charter from the parent organization, it is granted 501(c)(4) status under the parent clubs’ group exemption.  All 501(c)(4) organizations are also non-profits.

 

What is the difference between a 501(c)(3) and a 501(c)(4)?

 

Both kinds of 501(c) entities are tax exempt, which means that they are exempt from paying federal and New York (and even local Long Island) taxes.  However, 501(C)(4) organizations do not allow for tax deductible donations.  When people give money to charity, while they love being charitable, they also love taking the donations as deductions on their tax returns.  Unless your Kiwanis or Rotary or Lions Club has applied for 501(c)(3) status, donors cannot deduct their donations to your organization.

 

What is the next step?

 

Once a New York Kiwanis or Lions or Rotary Club decides to establish its club as a charitable entity, it must do so by creating a foundation, then incorporating in New York as a not-for-profit corporation, then applying to the IRS for a determination letter by filing Form 1023.

 

 

 

Long Island Small Businesses and the Onerous MTA Payroll Tax

I confess, I only incorporated my business this past year.  For a solo attorney such as myself, there aren’t as many reasons to incorporate as there are for other businesses.  I have malpractice insurance that covers most of my liability, and a corporation or LLC formation would offer little in the way of additional protection.  So, I was quite surprised when my accountant sent me a form and invoice for the MTA tax.

The tax is formally known as the Metropolitan Commuter Transportation Mobility Tax (MCTMT).  Besides the cost of paying the tax, there is no simple way of tacking on the tax to your other tax filings.  Aside from the usual federal and New York state tax forms, these additional forms must be filed quarterly.

This tax is imposed on certain employers and self-employed individuals engaging in business within the Metropolitan Commuter Transportation District (MCTD). Specifically, the tax applies to (1) employers required to withhold New York state income tax from employee wages and whose payroll expense exceeds $2,500 in any calendar quarter, and (2) individuals with net earnings from self-employment allocated to the MCTD that exceed $10,000 for the tax year (according to the Department of Taxation and Finance, this includes partners in partnerships and members of a limited liability company (LLC) treated as a partnership).

The small business owner cannot withhold any of the tax from the employee’s compensation.

The recently elected Governor Cuomo has come out  in opposition to this tax, calling it “onerous.”

Small businesses on Long Island pay $3.40 for every $1,000 of payroll. If you are a small Long Island business, you are probably not using the LIRR to commute, and your customers are probably not taking the MTA to see you.

This tax is burdensome to Long Island small businesses and is not proportional to their use of the MTA.

ASK THE CUSTOMER: WHY IS YOUR SMALL BUSINESS FAILING?

Why do so many small businesses fail?  According to this blog post, one of the main problems is that entrepreneurs themselves are the least likely to understand what has gone wrong with their businesses. As Jay Goltz opines, if business owners understood why their business was failing, they’d be able to fix it.

Some of the top ten problems:  operational inefficiencies, out of control growth, poor accounting and owners who cannot get out of their own way.

Check out Goltz’ Top Ten Reasons Why Small Businesses Fail and see if any of the top ten apply to your small business.

Small Business Assistance Bill to Spur Hiring

According to the NY Times, new legislation aimed at providing loans and tax breaks to small businesses is almost certain to pass the Senate this week.  The House is also expected to approve the bill quickly, while President Obama has already given it his strong support.

The new $30 billion lending program is designed to allow banks to make low-risk loans to small businesses with government backed financing.  Easier loans would allow small business the growth necessary to spur new hires.

Small Businesses Need Minutes of Meetings

Why Does a Small Corporation Need to Keep Minutes?

Corporate minutes are a reflection of the decisions of the Board of Directors.  Even more importantly, corporate minutes are an indication that formalities of the corporation are being kept.  If involved in a lawsuit, one way an attorney will attempt to reach personal assets of the officers of the corporation is to check to see if corporate formalities are followed.  One important type of formality is keeping records, or minutes of meetings.

Even if you are a single officer of a corporation, or you are a family business, or there are just two of you and the meetings are not formal affairs, you need to keep records of these informal meetings and decisions that are being made for your corporation.  Resolutions need to be drawn up ratifying those decisions that affect the life of the business.  Corporate minutes are among the most important documents a company must produce and keep.  Failing to keep accurate and complete minutes can expose officers and board members to personal liability.

What Should the Minutes Include?

There is no required format, but minutes should include all important decisions made for the company.

  • List all directors/members attending
  • Include a brief narrative description: What issues were discussed; what significant points raised; what actions taken
  • Include record of how each director/officer/trustee voted, including whether the vote was unanimous and if anyone abstained from voting

It is important to ratify and vote on the prior meeting’s minutes.  This ensures that each director had a clear understanding of the proposed actions.

What Needs to be Documented in your Minutes?

Is every item as important to record as all others?  Absolutely not.

The general rule is if the transaction is in the ordinary course of your business, the kind of transaction you engage in all the time, then there is no need to add those discussions to the minutes.  However, if the action is one that enables the business to engage in its business, the discussion of that action should be voted on and added to the written records.

Some major decisions that should appear in the minutes:

  • leases–for office space or equipment rental
  • significant contracts
  • elections of officers and directors
  • taking out loans or other kinds of financing
  • marketing and advertising campaigns
  • mergers, reorganizations or transactions involving the bulk of the corporation’s assets
  • providing employee benefits

LLC requirements

Although LLCs are generally not required by law to keep minutes or have formal meetings, a writing is always helpful in establishing that the members were in agreement on the actions that are taken.

Conclusion

Finally, if you keep your minutes on your computer, make sure you have a back-up.  Discard your notes since they are not a final accounting.  Minutes should be kept for at least seven years.

Operating your corporation properly by following state law allows you to focus your attention on running your business, and removes concerns about having to defend lawsuits and losing the limited liability protection that was your purpose for incorporating.

New York Religious Corporations Law

It makes sense for religious organizations such as churches, temples, synagogues and other religious nonprofits to form corporations. Incorporating enables the religious organization to enjoy the benefits of limited liability and other attributes of corporate entities. In New York, religious corporations are controlled by both the Religious Corporations Law (RCL) and the New York Not-for-Profit Corporations Law (NPL).  This interplay between the two laws can be complex.  Any church or synagogue considering incorporating should consult an attorney familiar with both the RCL and the NPL.

Because of the separation of church and state, the requirements for becoming a religious corporation can be less onerous than other corporation law.  The New York Religious Corporation Law has general statutes that apply to all religious corporations and numerous denomination-specific articles.

For example, the articles of incorporation for religious organizations that maintain a place of worship are filed in the county with the county clerk where the religious organization is located, instead of with the Secretary of State as are other corporations.

Churches and other religious corporations who wish to dissolve do not have to get the attorney general’s permission, unlike other nonprofits.  Although religious corporations do need to get the attorney general’s permission to sell property, if that sale is pursuant to dissolution, only the Supreme Court needs to give permission.   However, if an issue is not addressed in the RCL, then the New York Not-for-Profit law must be followed.

Because the Religious Corporations Law is such an unknown part of New York non-profit law, affecting how to sell property and dissolve the church, you should contact an attorney knowledgeable in this law before forming or dissolving a church or other religious corporation, or selling property.

Long Island 501(c)(3) Not-for-Profit Formation

What is a nonprofit organization?

Terms: Some confusion exists because of the different names for these organizations: Not-for-profit, non-profit, nonprofit.   These terms are used interchangeably in the charitable world.

Are nonprofits the same as 501(c)(3) organization?

While almost every 501(c)(3) organization is a nonprofit, not every nonprofit has 501(c)(3)status.  A nonprofit organization such as a Lions, Kiwanis or Rotary Club is usually a 501(c)(4) organization operated exclusively for the promotion of social welfare. This means that any donations received by the club are income tax free, but donors cannot deduct their donations on their tax returns.

Why apply for 501(c)(3) status?

Any organization hoping to receive large donations, or to apply for grants should apply for 501(c)(3) status.  Organizations expecting annual donations in excess of $5,000 are required to apply.

Are there any other benefits?

In New York, a 501(c)(3) organization can be exempt for sales tax on purchases, franchise tax and property taxes.  Additionally, special nonprofit bulk rate postage discounts are available for qualifying nonprofit organizations.

Why use a local lawyer?

Online services do not offer personalized mission statements and then charge additional fees for registering with the New York Attorney General, another requirement.  They frequently charge additional fees for applying for separate EIN numbers and for applying for New York sales and franchise tax exemptions.

Even more importantly, establishing a relationship with a New York attorney gives you the ability to ask questions about running the organization.  Some examples of this are whether an organization can use proxies for voting at Board or member meetings, what is a quorum, what are the duties of the Board as opposed to the membership, can voting take place by email.

About Ellen Victor, Esq.

Ellen most recently successfully formed the Merrick Lions Club Foundation, Inc., a 501(c)(3) organization currently fundraising for the Purple Heart Pups.  PHP was established to raise money to help disabled veterans lead successful and independent lives by raising the money needed to provide them with access to service dogs and other supportive programs.

Your Family Small Business Succession Plan

When your business succession planning involves family, a whole new set of variables need to be thought about.

In some ways, it is easier when you have family to leave your business to, in other ways it can be way more difficult as you add family dynamics to the mix

First of all, some statistics: according to the Small Business Administration and researchers at Baylor University’s Institute for Family Business, only 30% of family businesses survive from one generation to the next, and even fewer to a third generation.  The mostly commonly given reason for this huge drop is the lack of a plan for an orderly succession.

If you own a family business, and would like to see your business survive  into the next generation, there are a few questions you should address:

  • Do your children or grandchildren want to take over your business?  It is never a good idea to insist your children take over the business.  You know how much hard work it is to make the business you love succeed, imagine if it was not a passion.
  • Is the interested family member qualified?  Has that family member worked in the business?  Learned skills at school or on the job?
  • If you have more than one child, there are other possibilities to consider.  More than one of your children may want to go into the business, but it is possible that some will not.   Many of us want to treat our children fairly when we leave our assets in our wills.  Can you treat your children fairly if leaving the business to one child?
  • If no family members want or are capable of running your business, do you want to hire management to run the business while retaining ownership, or does it make more sense to sell the business?

This is not a decision the business owner should make on his or her own.  The best thing to do is to sit down with your family and discuss it.

One of the most important aspects of family succession planning is estate planning.  If you are ready to start planning for the next generation, contact your Long Island small business lawyer soon.

Do You Need A Business Succession Plan?

Once you’re past the startup phase of your small business, it is time to start thinking about your business succession plan.  If you are years from retirement, this may be the last item on your to-do list.  You surely have enough to do in your daily operations without building in time to work on the future.  However, succession of your business should be built into any business plan from the beginning.

Starting  from your choice of name for your company (have you named it after yourself?  While law firms in New York have no choice but to include the owner’s name in the name, is your company name going to prevent an orderly transition?) you should be thinking about succession planning.  After all, you would not have started a business if you had no expectations it would live on to support you during your retirement, and hopefully continue to take care of your family after you are no longer able to do so.

A  business succession plan should be considered years before you plan to retire in case of a sudden emergency, such as a serious accident or illness.

Business succession planning should also be an integral part of your estate plan.  You must consider where the money will come from to pay estate taxes, or, if you have a partner, where the money will come from to buy out the deceased partner’s share.

f you own a small business either as a sole proprietor, or an S- or C-Corporation, or LLC, you need to consult with a business lawyer and your accountant to start planning for an orderly transition.