Nonprofits need to maintain legal compliance with all federal, state, and local regulations to continue operating lawfully. Nonprofit compliance laws vary by jurisdiction and are sometimes complex or even unclear.
This is especially true in today’s digital landscape. With the prevalence of online fundraising, potential donors could come from anywhere, meaning a click to donate on your website triggers compliance requirements in the state where that donor resides. Much of the current regulatory framework was enacted for traditional fundraising and so does not account for online fundraising. This lack of clarity has further complicated compliance even for the most experienced nonprofit personnel.
However, compliance laws and regulations exist for a reason: they help promote transparency and accountability, improving public trust in all nonprofit organizations, including yours.
To help your nonprofit meet common compliance standards, our team at Labyrinth has compiled a comprehensive checklist your nonprofit can use to ensure you remain in good standing and can operate efficiently. We’ve divided our list into six essential compliance categories, allowing nonprofits to more easily find the information most relevant to their needs:
If your nonprofit needs additional help meeting your compliance obligations, do not hesitate to reach out to our nonprofit compliance specialists The essentials outlined in this guide will give you a solid starting point for understanding the tasks you can manage in-house, and when outsourcing is necessary.
Nonprofits generally follow the same incorporation process as most organizations with one notable exception: mission statements. After choosing a mission statement that accurately encompasses your nonprofit’s activities, your nonprofit will need to take the following actions to maintain its incorporated status:
Filing to incorporate usually requires paying a fee. Costs for both your initial incorporation and renewals will vary widely depending on your location. For instance, some states allow organizations to renew their status for free while others may charge up to $70.
No matter the cost, your nonprofit must comply with corporate regulations in order to remain in good standing with your state. Failure to do so may result in your nonprofit being dissolved as a legal entity, which can have serious consequences for your continued operations, up to and including loss of liability protections for your leadership.
Fundraising laws and regulations allow your nonprofit to solicit donations from supporters and collect proceeds without paying taxes on them. Ensure your nonprofit follows all federal fundraising regulations, and research your state’s unique requirements as fundraising requirements can vary based on your location.
Additionally, be sure to review and follow all solicitation laws and regulations. Keep in mind that most laws dictating how nonprofits can solicit donations will apply based on where the people you are soliciting from are located, not where your nonprofit is based. For example, this means that if your nonprofit is based in the U.S. but has supporters in the E.U., you will also need to be aware of E.U. solicitation laws.
All organizations will need to draft, approve, and adhere to internal operational procedure guidelines, and nonprofits are no exception. A copy of your nonprofit’s bylaws is necessary for many essential federal and state registration processes, including applications for 501(c)(3) status and donation solicitation registration.
It might be helpful to think of your bylaws as a formal agreement between your nonprofit’s personnel. Everyone at your nonprofit is expected to follow the guidelines as written, and the bylaws can and should be referenced on a regular basis. Additionally, you should also be sure to compare your operational guidelines as laid out in your articles of incorporation and your bylaws to ensure that they remain consistent with each other.
Accounting regulations help nonprofits maintain financial transparency, building trust between nonprofits and their donors. Additionally, following necessary accounting practices can also help your nonprofit stay organized and prevent a last-minute scramble during tax season.
Your nonprofit will need both a designated bookkeeper and an accountant and the two positions are not interchangeable. Accountants need formal training and will be able to offer deeper insights into your financial situation that can be essential for rectifying financial discrepancies.
Your nonprofit can hire an in-house bookkeeper and accountant if you have the available funds to do so. However, many nonprofits may prefer to outsource these positions to both save money and ensure they are receiving professional services.
Nonprofits with paid staff and contractors are required by the US Department of Labor, the IRS, and most states to properly classify employees as exempt or non-exempt under the FLSA or face penalties. Make sure you follow all federal as well as state employment laws. File W-2 , W-4, I-9 forms, withhold tax, and pay social security and Medicare taxes.
Records are necessary for nonprofit legal compliance and will also help your organization stay organized and transparent. Ensure you have a systemized process for storing records, allowing your organization to access them as needed. Some key documents are easier to attain replacements for than others, and remember that any document you need to re-request from a government office will likely take weeks, if not months, to be delivered.
Strong record-keeping practices will not only help your nonprofit operate legally, but will make applying for tax-exempt status, grants, and state licenses easier. Today, many of these records will likely have both digital and physical copies, so ensure you have a secure storage system in place for both of these types of records.
Nonprofit compliance is a complex topic, and it’s normal to have more questions about what your nonprofit can do. The nonprofit specialists on our team at Labyrinth can help charitable organizations through both the initial registration process and subsequent renewals. We’ve been a resource for thousands of nonprofits, helping them understand and maintain legal compliance.
If you’re interested in taking a more in-depth look into nonprofit compliance standards, you can get started with these resources: