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Filing Tax Returns Is Not Enough - Why Your Chapter Needs to Incorporate

Filing Tax Returns Is Not Enough - Why Your Chapter Needs to Incorporate. Global Leadership Congress London February 26, 2004. Agenda. Introduction Why Incorporate Reasons to Revise the By Laws Incorporation: Procedural Steps and Costs The Process By Laws. Introduction.

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Filing Tax Returns Is Not Enough - Why Your Chapter Needs to Incorporate

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  1. Filing Tax Returns Is Not Enough - Why Your Chapter Needs to Incorporate Global Leadership Congress London February 26, 2004

  2. Agenda • Introduction • Why Incorporate • Reasons to Revise the By Laws • Incorporation: Procedural Steps and Costs • The Process • By Laws

  3. Introduction • By Laws - Do you know where they are? • Tax Returns • Every chapter must file annual tax returns. • Most chapters are not incorporated • In California only 2 out of the 16 chapters were incorporated in 2002.

  4. Why Incorporate • Unincorporated chapters have no legal standing. • Members who are part of a chapter’s governing body can be held personally liable. • Unclear authority exacerbates risks

  5. Reasons to Revise the By Laws • Allow for incorporation • Consistent with current chapter strategic plan • Provides institutional memory • Replace rules with principles • Transparent governance - post on chapter website

  6. Incorporation: Procedural Steps and Costs • Preparations • Gather tax returns (as many as possible) • If tax returns not filed • income is taxable • file back returns and pay tax to obtain retroactive exempt status • Gather copies of governing documents and provide them to legal counsel

  7. Incorporation: Procedural Steps and Costs • Filing Requirements • Prepare and file Articles of Incorporation • “Action of Incorporator” • Appoint officers, adopt By Laws, approve filing for exempt status • File “Application for Exempt Status” (Form 3500 in California) to exempt organization from minimum tax ($800 in California)

  8. Incorporation: Procedural Steps and Costs • Filing Requirements (cont’d) • After exempt status obtained, file Form 199 with the Franchise Tax Board (for California chapters). Chapter must continue to file Form 990 with the IRS. • File Form RRF-1 with California Registry of Charitable Trusts (for California chapters). • Issue 1099’s to vendors including speakers, chapter admin., etc.

  9. Incorporation: Procedural Steps and Costs • Costs (in California) • $45.00 initial filing of Articles of Incorporation • $25.00 with FTB Form 3500 “Application for Exemption” • $20.00 Statement of Domestic Nonprofit Corp. • Filed every other year • No charge for update filings (anytime there is a change in directors)

  10. Incorporation: Procedural Steps and Costs • Costs (in California) • $25.00 to Registry of Charitable Trusts with Form RRF-1 (if assets > $100K anytime in year) • $10.00 processing fee with FTB Form 199 (chapters exempt from $800 per year min.) • Total filing fees - $125 (first year), $35 to $80 thereafter.

  11. The Process • Will take about six months depending upon: • Chapter filed annual tax returns? • Records organized? • Have a copy of By Laws? • Start with the By Laws • Must conform to state or provincial laws • Opportunity to bring them up to date

  12. The Process • Start with the Generic By Laws (copy YPO-International By Laws on website) • Do not just copy them. Each chapter is different. • Look at By Laws of other non-profits that you respect (including other YPO chapters).

  13. The Process • Getting Started • Review YPO’s “Mission, Vision, Core Values”, and “Statement of Strategic Direction” (ypo.org Tools/References “Operating Materials” - General Information) • Review chapter’s strategic plan (or get one articulated if you do not have one).

  14. The Process • Getting Started • Form a Task Force • Former chapter chairs have institutional memory and no conflict in the outcome. • Had very few meetings - most handled by e-mail • Hire an attorney with experience in tax-exempt organizations. • Makes process relatively painless • Ask well-run non-profits you are familiar with

  15. By Laws • “Operators guide” for corporate governance • Must specify the number of directors • Issues not handled in the By Laws are handled by default provisions of the Corporation Code (assuming incorporation) • Avoid default provisions by carefully crafting your chapter’s By Laws

  16. Summary • Determine if your chapter is incorporated. (Most chapters which think they are incorporated are, in fact, not incorporated.) In U.S. check your Secretary of State’s website. • Make sure your chapter files tax returns, and gather copies of the last five years.

  17. Summary • Review your chapter’s current By Laws. Make sure they are consistent with your chapter’s current practice and strategic plan. • If By Laws need to be updated, form a task force composed of former chapter chairs and current officers to develop new By Laws to reflect the chapter’s philosophy and strategy.

  18. Summary • Hire an attorney experienced in non-profit organizations. Avoid default provision in state/provincial corporations code. • File for incorporation. • Post By Laws on YPO chapter website. • Put procedures in place to ensure all annual filings are completed on schedule.

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