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2. NONPROFIT ORGANIZATIONAFFILIATESPresented byACC’s Nonprofit Organizations Committee and sponsored byPillsbury Winthrop Shaw Pittman, LLP Association of Corporate Counselwww.acca.com

3. Presenter: Jefferson C. Glassie, Partner Pillsbury Winthrop Shaw Pittman, LLP

4. Structure ofNonprofit Organizations • Nonstock corporations • Membership associations or charities • Tax exempt under I.R.C. § 501(c)(3), (c)(4), and (c)(6) • Complex structures to maximize legal compliance, risk management, efficiencies

5. Wide Range of Affiliates and Issues • Main organization, including divisions • Supporting organizations, including charitable foundations • For-profit subsidiary • Political action committee • Allied organizations • Affiliates/Chapters – local, state, regional • International affiliates • Corporate relations • Business forms – LLC, partnership, joint venture

6. Main “Parent” Organization • Unincorporated association • Nonprofit, nonstock corporation • Tax exempt • Articles of Incorporation • Bylaws • Policies and Procedures • Divisions, sections, task forces • Contracts with Affiliates/Chapters • Spin off “subsidiaries” for tax, lobbying/political, and liability reasons • Alliances

7. Supporting Organizations • Typically a § 501(c)(3) supporting a § 501(c)(6), but can also support a § 501(c)(3) • Usually no members • Conducts charitable, educational, research activities • Parent appoints majority or all of Board • Section 509(a)(3) public charity status • Often staffed by parent (UBIT issue re management fees) • Can receive tax deductible charitable contributions • Note other non-(501)(c)(3) “subsidiaries”, e.g., certification

8. For-Profit Subsidiary • Established as stock corporation • Parent usually is sole stockholder • Created to minimize tax exemption risks to parent • Minimize liability risks (note: piercing corporate veil) • Conducts unrelated activities, e.g., marketing or other business activities • Often staffed by parent (note UBIT issue) • Dividends not taxable to parent; but if > 50% stock owned by parent, royalties, interest, rent are taxable to parent

9. PAC’s • Political Action Committee, or separate segregated fund • Usually connected to Section 501(c)(6) or (c)(4) within FEC rules • Conduct political campaign activities, e.g., raise and disperse campaign contributions under FECA • No members, but usually have bylaws and required to have treasurer (not usually incorporated) • No contact with §501(c)(3) organizations

10. Allied Organizations • Loose affiliations • Sometimes contractual • Not usually incorporated, but if long term LLC is an option • Sharing of expenses • Consistent with allieds’ tax exempt status • Examples: legislative coalitions, research activities, trade show sponsorships

11. Affiliates/Chapters • Usually authorized in parent’s Bylaws – regional, state, local • Sometimes corporate status murky, and best to clarify • Can be separately incorporated • need tax exemption • file tax report (form 990) • insurance requirements • layer of liability protections • Or, unincorporated association • either separate, where chapter individuals liable • or part of parent corporations and revenues/expenses on parent 990 • Group tax exemption available

12. Chapters (con’t) • Should have charter/affiliation agreement providing for • use of parent’s name/logo • dual memberships, if any • use of parent’s content/lists • obligations of parent/chapter • any transfer of funds, handling of dues payments • termination provisions • Recommend policies and procedures to minimize risks, e.g., hotel and other contracts

13. International Affiliates • Non-U.S. affiliates • Recommend written affiliation agreement • Can be like chapters, “sisters,” or members of umbrella organization • Use and registration of intellectual property is important

14. Corporate Relations • Wide varieties of corporate support • Members – regular and associate • Exhibitors • Corporate sponsors – note UBIT issues • Affinity/preferred provider programs • Cause related marketing programs • Note tax issues re royalties for affinity and cause marketing

15. Business Forms • Used in business ventures • Trade shows, publications, product development • Joint venture and partnership similar – contractual in nature • Limited Liability Companies – corporate protection, flexible “flow through” for tax purposes • Tax Issues – exempt organizations must maintain “effective control” to ensure tax exempt treatment – some IRS guidance • Certificate of Formation and operating agreement terms are important

16. The End • Thank you! • Jefferson C. Glassie, Esq.Pillsbury Winthrop Shaw Pittman, LLP2300 N Street, NWWashington, DC 20037202-663-8036jeffglassie@pillsburylaw.com

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