School and Community Foundation Collaboration

School and Community Foundation Collaboration A Presentation for the 2006 Iowa Community Philanthropy Academy By Willard L. Boyd III NYEMASTER, GOODE, WEST, HANSELL & O'BRIEN, P.C. 700 Walnut, Suite 1600 Des Moines, Iowa 50309 Telephone: 515-283-3172 Facsimile: 515-283-8018 wlb@nyemaster.com

Applicable Laws • State Nonprofit Laws • Revised Iowa Nonprofit Corporation Act (“RINCA”) – Iowa Code Chapter 504 • Uniform Management of Institutional Funds Act (“UMIFA”) – Iowa Code Chapter 540A • Other State Laws • Iowa Code section 279.42 – Gifts to Schools • Funds to be deposited in trust and agency fund • Iowa Code section 298A.13 – Trust or Agency Funds • Iowa Code section 359.29 – Gifts to Civil Townships • Iowa Code section 565.6 – Gifts to Governmental Entities

Applicable Laws (cont’d) • Federal Tax Laws • IRC 501(c)(3) • Support Organizations • Affiliation Status • Unrelated Business Income Tax

Community Foundations • Community Foundation may be set up as nonprofit corporation or charitable trust • Most foundations set up as nonprofit corporations • Not deemed a private foundation but instead a public charity • 501(c)(3) Tax-Exempt Status

Community Foundations (cont’d.) • Tax-exempt, autonomous, publicly supported, nonsectarian philanthropic institution • Long term goal of building permanent, named component funds established by many separate donors for the broad-based charitable benefit of the residents of a defined geographic location

Community Foundations (cont’d.) • Purposes: • RINCA provides that a nonprofit has the purpose of engaging in any lawful activity unless a more limited purpose is set forth in the articles of incorporation • Most nonprofits generally describe their purposes in their articles of incorporation • Receiving, using, managing or administering gifts, grants, bequests • Making distributions

Community Foundations (cont’d.) • Powers Under RINCA include: • Same powers as an individual to do all things necessary and convenient to carry out activities of organization • RINCA specifically provides that nonprofit may be a promoter, partner, member, associate, or manager of any partnership, joint venture, trust, or other entity

Community Foundations (cont’d.) • Ability to Contract with Other Nonprofits (Incorporated or Not Incorporated) • Endow Iowa – Iowa Code section 15.301, et seq. • County Endowment Fund – Iowa Code section 15.311, etseq. • Ability to provide a “group exemption” for tax purposes to affiliated organizations

School Foundations • Generally set up as nonprofit corporations under RINCA • 501(c)(3) Tax-Exempt Status – Public Charity • For IRS purposes, can be viewed as a “supporting organization” • Supporting organization must be organized and operated exclusively for benefit of, to perform functions of, or to carry out purposes of one or more specified qualified supported organizations

School Foundations (cont’d.) • Purposes and Powers • Established to support a school or school district • Powers generally allow for: • Aid in fulfillment of teaching and service functions of school(s) • Make grants and loans of property • Solicit, accept, administer, and disburse gifts, grants and bequests or hold in trust • Receive government grants • Make disbursements to school(s)

Collaboration Issues • Parties Involved in Collaboration • Community Foundation • School School District Foundation? • Schools or School Districts? • Community Affiliate Organization? • Donors?

Collaboration Issues (cont’d.) • Services Agreement Between Community Foundation and School Foundation • Administrative services provided by Community Foundation • Staff support • Accounting services • Investment services • Issues • Fees • Restrictions on investments for gifts provided directly to schools • Donor lists • UBIT

Collaboration Issues (cont’d.) • Donor Advised Funds • Community Foundation may receive gifts in form of donor advised funds • Allows donor to remain involved in gift without assuming administrative and financial burdens of a private or public foundation • Donor advised funds are part of the legislative recommendations of the Panel on the Nonprofit Sector

Collaboration Issues (cont’d.) • Affiliation Agreement Between Qualified Community Foundation and Community Affiliate Organization • Qualified Community Foundation provides: • Staff support • Accounting services • Investment services

Collaboration Issues (cont’d.) • Affiliation Agreement (cont’d.) • Qualified Community Foundation (cont’d.) • Issues • Fees • Portability • Automatic or discretionary on part of Qualified Community Foundation • Fees • Notice • Donor list • UBIT

Collaboration Issues (cont’d.) • Fiduciary Duties of School Foundation Officers and Directors – Issues: • Officers and Directors Have Fiduciary Duties To Nonprofit • Duties Include: • Duty of Care • Duty of Loyalty • Duty of Obedience

Collaboration Issues (cont’d.) • Duty of Care • RINCA requires “each member of the board of directors, when discharging the duties of a director, [to] . . . act . . . in good faith [and] in a manner the director reasonably believes to be in the best interest of the corporation.”

Collaboration Issues (cont’d.) • Duty of Care (cont’d.) • RINCA explicitly recognizes that as members of the board and committees of the board directors have both a decision-making function and an oversight function • Attending meetings regularly, entering discussions • Reading minutes, learning about entity’s programs. • Oversight of finances • Inquire as to any questionable activity

Collaboration Issues (cont’d.) • UMIFA requires Board to consider various factors before making investment decision: • Long-term and short-term needs • Present and anticipated financial requirements • Expected total return • Price level trends • General economic conditions • Board may delegate day to day investment decisions to investment advisor.

Collaboration Issues (cont’d.) • UMIFA (cont’d) • Board is required to regularly review portfolio. • Advisor needs to be given investment policy with guidelines.

Collaboration Issues (cont’d.) • Duty of Loyalty • A director is required to act in the interest of the corporation and not in his or her own interest or the interest of another person or entity. • Conflict of Interest Transactions • Transactions in which director has personal financial interest • Written conflicts of interest policy • Full disclosure of interest in transaction to Board • Not participate in voting on transaction • Corporate Opportunity

Collaboration Issues (cont’d.) • Duty of Obedience • Nonprofit directors and officers have been determined to owe a duty to carry out the purpose of the organization • Includes compliance with federal and state laws applicable to nonprofits • Complying with the terms of the articles and bylaws

Collaboration Issues (cont’d.) • Protections for Directors and Officers • Liability Shield – Iowa Code section 504.901 • Business Judgment Rule – Iowa Code section 504.832 • Indemnification – Iowa Code sections 504.202; 504.831 et seq. • Liability Shield for Volunteers of Unincorporated Associations – Iowa Code section 613.19 • Federal Volunteer Protection Act • Directors and Officers Coverage

RESOURCES • Larned A. Waterman Iowa Nonprofit Resource Center • http://nonprofit.law.uiowa.edu/ • Iowa Secretary of State • www.sos.state.ia.us/business/nonprofits/index.html • Community Vitality Center • http://www.cvcia.org/ • Panel on the Nonprofit Sector • www.nonprofitpanel.org/

Thank You

School and Community Foundation Collaboration