Common mistakes in homeschool group bylaws

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Nonprofit attorneys at Veneable LLP posted 15 Most Common Nonprofit Bylaw Pitfalls: How to Avoid the Traps

I adapted their suggestions (all excellent if you want to read their entire list) for homeschool organizations and added some of my own tips as well.

Common Nonprofit Bylaw Pitfalls

1. Understand your state’s nonprofit corporation law.

Veneable LLP advises, “Nonprofits need to be sure that their bylaws do not permit practices that are prohibited by the state nonprofit corporation act.”  It’s not a lot of fun reading state corporation laws (I’m read several of them!), so this is where a pro bono lawyer would come in handy. Ask  your members if anyone has a lawyer in the family who would be willing to check your bylaws against state nonprofit corporation laws.

2. Make sure your bylaws are consistent with other regulatory documents.

If your homeschool group is an educational organization (and most are!), make sure your bylaws do not contradict IRS requirements for 501(c)(3) tax exempt organizations. There are certain things the IRS prohibits 501 (c)(3) organizations from doing such as distributing its assets to members. Read the IRS prohibitions .

3. Be sure to address all foreseeable scenarios.

What if you need to remove a board member? Do the bylaws address that? How will the board member be replaced? Try to think of how things could go wrong or how a  group of disgruntled members could take over your organization. Veneable LLP is correct is stating, “It is important to take the time to carefully walk through all of the “what-if” scenarios to avoid holes in the bylaws.”

4. Keep your bylaws flexible.

From the attorneys at Veneable LLP, “Building flexibility into the bylaws including a range for the exact number of board members and allowing the board to designate additional officers not named in the bylaws, can help the organization moving forward. Bylaws should provide an outline of the governance structure but also should allow some flexibility if and when changes are needed in the future. ”

5. Reserve the details for policies, not bylaws.

“Bylaws generally should be a relatively concise and easy-to-navigate document, leaving the details to policies, which can be more easily revised in the future. This way, bylaws will not need regular amendment.” advise Veneable LLP. Frequently homeschool organizations have policies on sick children, membership requirements, dress codes, late payments, student conduct, etc. These do not belong in the bylaws, but in separate policies.

6. Keep your bylaws current.

One homeschool group used bylaws that mentioned notice of meetings could be delivered by telegraph! Time to update those bylaws! 🙂

7. Ensure that your purposes clause reflects your organization today.

Veneable LLP advises, “Most nonprofits also have a purposes clause contained near the beginning of their bylaws, and many times that purposes clause will differ from the purposes clause in the articles of incorporation. The two clauses should be fully consistent and, therefore, an organization might want to include a clause in the bylaws which simply refers to the purposes clause as written in the articles of incorporation. In addition, the purposes clause in the articles of incorporation should be reviewed, keeping in mind that a clause drafted 30 or more years ago may not accurately or fully reflect your organization today.”

An example would be for faith-based homeschool organizations to be very clear that they have a religious purpose, so that their religious freedoms are protected. If your religious purpose is not clear in your Articles of Incorporation, then it’s time to amend your Articles. This is usually done through your Secretary of State’s office.

8. Closely review the meeting and voting procedures for members and directors.

Review how members (if there are voting members) and directors are permitted to meet and vote. Many homeschool organizations do not have voting members; the board makes all the decisions. In this situation, it’s important to be very clear in the bylaws how the board is chosen.

9. Do not make your bylaws too difficult to amend.

Occasionally your bylaws may need an update. Usually bylaws require a super majority of 2/3 or 3/4 of the board to change the bylaws. One homeschool group found that their bylaws required a meeting of members with two week notice before they could change their bylaws. This was quite difficult to accomplish in the summer and slowed down their ability to make necessary changes.

I hope you find these tips on bylaws helpful. Take time for your board to review your bylaws (hopefully you can find them!) and update them as needed. If you don’t have bylaws, you can start with my sample bylaws  or do an internet search on “homeschool bylaws.”

Carol Topp, CPA

Serving on a nonprofit board: What is required?

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I think we have 3 people willing to be on the board. Their main question is time commitment. I have no idea what to tell them. Do you have any support materials to help leaders judge this?

Jennifer in North Carolina

Jennifer,

Board commitment can vary a lot. Some homeschool organizations need everyone to pitch in on co-op day, but the board may only meet once a month for 1-2 hour long meetings.

The more important issue is that potential board members consider their duties as board members.

Each board member has a fiduciary (i.e. legal) duty to manage the organization and its funds within the purpose/mission of the organization and not for private gain or benefit. The board’s job is to govern the organization, be responsible for the management of funds, and be responsible for its programs.

From Ohio Attorney General Guide for Charity Board Members comes this excellent list of the duties of board members (with my comments and links added).

Duty of Care

  • Read and understand mission, vision, and governing documents. I recommend a board binder for important documents.
  • Attend board and committee meetings.
  • Be informed and prepared to participate in decision-making and oversight.
  • Exercise same care as a prudent person would in the handling of their own affairs.

Duty of Loyalty

  • Be prepared to put organizational objectives above self-interest.
  • Establish and follow written policies concerning conflict of interest situations.
  • Disclose personal financial interests when needed/excuse yourself from voting. See a sample Conflict of Interest policy.
  • Avoid entering into business relationships between board members and the organization.

Duty of Management

  • Develop policies that assure the financial responsibility of the organization. Get my list of best practices when you sign up for HomeschoolCPA’s email list.
  • Keep accurate and complete records of income, expenses, investments, and minutes.
  • Develop budget as a blueprint for program plans and all organizational spending. My book Money Management in a Homeschool Organization can help you create a budget.
  • Develop fundraising goals and assist the organization in acquiring adequate resources.

Duty of Compliance

  • Understand and comply with governing documents, including bylaws and code of conduct. Sample bylaws.
  • Know and comply with state and federal laws governing non-profit organizations, including registration and reporting requirements. If you’re unsure about what your filings requirements are, contact me and we can discuss it. My book, The IRS and Your Homeschool Organization, will also be helpful.

I hope this list of duties doesn’t scare away your potential board members! I have found that serving on a nonprofit board has been one of the most rewarding things I have done.

Carol Topp, CPA

 

“Is my idea a homeschool co-op or not?”

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Hi Carol,

I would like to start a homeschool support or enrichment group. I have a large home on 1/2 acre that is perfectly suited for a co-op or school type gathering place for homeschoolers and unschoolers. I would like to offer all inclusive art, drama, stretching and balance, cooking, gardening classes and help with school work. Hours would be Monday through Friday from 8 a.m.to 5 p.m. with children able to come and leave at their own schedule.

I would like to offer part time or full time based on the families needs. I would like to charge a monthly fee of around $200/month per child and less for part time. Could you please tell me if this is legal and if there is a cap on the number of children I could have in my home? If my idea sound like it is covered in your book I would be happy to buy it, I am not sure if this is a co-op?

Would I need to file anything or get a license or could I just advertise and start. Any help you could give would be great because I can’t seem to find any info on my particular idea, and I would love to use your services if they could apply to my situation

Thank You!
Heather M in California

 

Heather,

You have a pretty neat idea!

What you need to decide is if you’re going to run this as a business with you as owner (since you are using your property) or if you want it to set up a nonprofit organization (a homeschool co-op).  No one “owns” the co-op; you may help lead it with others and you can offer (or rent) your space to the organization.

Your specific questions on the maximum number of children and licensing are California specific and I cannot answer them. And they probably apply more to for-profit school/daycare than a nonprofit association (i.e a gathering of moms and kids).

In my opinion, if the parents stay on the premises and help out, you have a co-op and fewer regulations because you are a gathering of moms and kids and not a “school.” And my book, Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out would be extremely helpful.

My advice is to start small and learn as you go. For example, start with one or two classes, one day a week, but not Monday-Friday, 8 am-5 pm. Make the full time operation your goal after a year or two. After a year of running your program, you’ll know if you should get licensed, operate as nonprofit or for-profit business.

Carol Topp, CPA

Will getting an EIN put us on the IRS radar?

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Usually the first contact a homeschool organization has with the IRS is getting an Employer Identification Number (EIN). Most banks now request an EIN when a group opens a checking account. One group in Virginia is doing things right by getting a checking account for their homeschool co-op instead of using a personal account, but they wonder if this will mean more contact with the IRS.

Hi Carol,
I am new to an existing homeschool co-op in VA. This co-op is more then 12-15 years old, we do not accept donations or need to, so far we have been handling the money through someone’s personal bank account, we receive fees from students and then pay teachers and reimburse them for materials, generally we break even each year (or can if we need to).

The bottom line is that we want to be able to have a business checking account.

Can we get an EIN in order to open a checking account in our co-op name without incorporating and without having a state or federal annual filing requirement? I seem to remember that once you get an EIN (that I think is required for a business bank account), you are on the radar screen with the IRS and will need to file some sort of return.
Thanks so much,
Nancy in VA

Nancy,

Yes, you need an EIN for banking purposes. It used to be that getting an EIN was the first and last time a small homeschool organizations had to deal with the IRS. But not anymore!

Since 2007, the IRS has required tax exempt organizations (like your homeschool co-op) to file an annual information return, Form 990/990EZ or 990N. Fortunately, for small organizations (under $50,000 annual gross revenues), the Form 990N, is a short online form that asks only 6 questions. Read more here: Form 990N FAQ

If you are paying teachers, then you have some reporting to the IRS and your state government. You will have to pay payroll tax (Social Security and Medicare) and file a W-2 if they are employees or file a 1099MISC if they are independent contractors. You should read this blog entry: Paying co-op teachers is a sticky issue

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Need help understanding tax exempt status or money management in your homeschool group?

Carol Topp’s books are written specifically for the homeschool leader.

 

Carol Topp, CPA

Nonprofit status for homeschool co-ops (video)

At the Midwest Homeschool Convention I presented as workshop called “Homeschool Co-ops Are Like Marriage: Know What You’re Getting Into”

This is Part 6 of 7 is titled “Nonprofit Status for Homeschool Co-ops.

I explain what it takes to be considered a nonprofit and that nonprofit status does not mean tax free (or tax exempt as the IRS calls it)!

In the video I mentioned my books
Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out.
The IRS and Your Homeschool Organization
Money Management in a Homeschool Organization

Here’s a handout for the presentation.

More clips from this presentation can be found at HomeschoolCPA’s YouTube Channel.

 

Carol Topp, CPA

Is your homeschool organization a “mutual benefit” organization? Maybe not!

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Many homeschool organizations file to become nonprofit corporations in their state and they are usually asked:

Are you a mutual benefit corporation?

Well, most homeschool groups benefit their members with mutual support, so the answer is “Yes”, right?

Maybe not.

Most states recognize three types of nonprofit corporations:

  • Mutual Benefit
  • Public Benefit
  • Religious

You pick the type when you file Articles of Incorporation in your state.

 

A mutual benefit  nonprofit corporation provides an association of people with a common benefit. Mutual benefit corporations are formed for common gain purposes such as providing insurance for members (many insurance companies still have “mutual” in their names, such a Mutual of Omaha.) Other examples include social clubs, business leagues, and veterans groups. Homeschool support groups may fit this category.

A public benefit nonprofit corporations is organized for a public, educational or charitable  purposes. Examples of public benefit nonprofit corporations include charities, social service organizations, schools, foundations, and scientific and research organizations. Homeschool co-ops may fit this category.

Religious nonprofit corporations include those organized primarily or exclusively for religious purposes. Examples of religious nonprofit corporations include synagogues, churches and other places of worship.

Only public benefit and religious nonprofit corporations are eligible for 501(c)(3) tax exempt status with the IRS.

Mutual benefit nonprofits may be eligible for other types of IRS tax exempt status such as 501(c)(6) trade associations of 501(c)(7) social clubs.

 

Most homeschool co-ops are public benefit organizations because they serve a public good (i.e. education of children) and are not mutual benefit organizations.

 

Our Articles of Incorporation state we are a mutual benefit corporation. How do I change them?

You will have to amend the Articles of Incorporation. Start researching “amend nonprofit corporation and YOUR STATE”  on the internet. It usually involves holding a board meeting to change the Articles of Incorporation, filing some paperwork with your state and paying a small fee to your state (typically $30-$50).

Need to discuss this more? Contact me, Carol Topp, CPA,  and we can arrange a phone consultation to discuss your homeschool organization.

Should your homeschool group have members? Maybe not!

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Many homeschool organizations file to become nonprofit corporations in their state and they are usually asked

 Does your corporation have members?

 Well, naturally most homeschool groups have members, so the answer is “Yes”, right?

Maybe not.

 

Read the question carefully. It asks if your corporation has members. Your group may have members, but not the corporation.

What’s the difference?

For-profit corporations have shareholders. These shareholders are entitled to a vote on matters brought to their attention. A nonprofit corporation may have members, but is not required to have members. If a nonprofit corporation has members, then those members are entitled to a vote on matters brought to them. Typically, this might be electing board members, approving the budget, choosing  to hire paid staff, etc. (the bylaws usually spell out what members vote on).

Voting memberships are useful when an organization wishes to be democratically controlled by its constituents. Voting memberships structures are commonly used by member driven organizations such as social clubs, churches, chambers of commerce and trade associations. In such cases, the organization exists to serve its members and its makes sense for control to be vested in the members.

Source: http://charitylawyerblog.com/2011/04/26/nonprofit-law-jargon-buster-voting-members-vs-self-perpetuating-boards/

Some nonprofit corporations do not have members; instead decisions are made by the board. The members do not have a vote, nor do they elect board members. The board appoints replacement board members (it’s called self-perpetuating).

Many homeschool organizations may have members participating in their activities (co-op classes, field trips, clubs, etc), but not have voting members of the corporation. Instead, they have a board that makes the decisions.

Advantages of a board-run organization (i.e., no members of the corporation)

  • A board-run homeschool group does not have to gather members together for a vote.
  • Decisions can be made more quickly.
  • A smaller group of people, the board, makes the decisions

Disadvantages of a board-run organization (i.e., no members of the corporation)

  • No input from the members
  • The board replaces itself and could become insular with no new ideas.

 Should your homeschool nonprofit corporation have members?

Well, of course, that is up to you, but I believe that it is more cumbersome for most homeschool organizations to have voting members. Many homeschool organizations are run by a self-perpetuating board very successfully.

What if your Articles of Incorporation state you have members, but you want to change that?

You will have to amend the Articles of Incorporation. This will probably take a vote of the members. State law dictates who can change the form of the corporation. Start researching “amend nonprofit corporation and YOUR STATE”  It usually involves holding a member meeting to change the Articles of Incorporation, filing some paperwork with your state and paying a small fee to your state (typically $30-$50).

 

Carol Topp, CPA

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Homeschool group wishes to grant college scholarships

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Carol,

Our 501(c)(3) non-profit homeschool support organization would like to award a $1000 college scholarship to a graduating senior in our chapter of the Eta Sigma Alpha home school national honor society. The criteria for receiving the scholarship is the student must be a member of our homeschool honor society chapter and be a graduating senior that will be attending college in the fall. The students will be judged on their accomplishments in areas of scholarship, character, service, and leadership.

The plan is that I would donate the $1000 to our 501(c)(3)non-profit home school support organization, which would in turn award the scholarship to a student in our honor society chapter. The scholarship winner would be determined by an independent panel of judges. I would not be one of the judges and I have no children involved in the program.

Are there any hoops we need to jump through to accomplish this?

Janis H in Texas

Janice,
You’re to be commended for establishing a scholarship fund and already having good policies in place.

You should look at your organization’s original application for 501c3 status (Form 1023) to see if included Schedule H Scholarships. If your organization included Schedule H, you’re all set. Award away! 🙂

If you did not file a Schedule H, then you’ll need to notify the IRS that you are adding a new activity.

According to this IRS webpage, you report changes and additions in your activities on Form 990 or 990EZ.
http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Reporting-Changes-to-IRS

It would be a very good idea to look at the Form 1023 Schedule H (scroll down to page 28) and it’s instructions. From the questions the IRS asks, you get a very good idea of how they think a scholarship fund should be set up. It sounds as if your organization already has in place many of the IRS’s recommendations. Include a paragraph outlining your policies based on Schedule H questions when fling Form 990 or 990EZ.

If your organization does not typically file Form 990 or 990EZ because you are eligible to file the online e-postcard Form 990N (Annual gross revenues less than $50,000), you should file the longer 990EZ for the year you launch the scholarship program.

I hope that helps.

Carol Topp, CPA

Should my homeschool nonprofit corporation have members?

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Carol,

I’m filling out the paperwork for my homeschool co-op to be a nonprofit corporation in my state. They ask “Does your organization have members?” We have families that pay for co-op classes and we call them members. Is this what the form is asking?

Joann in IN

Joann,

The state is asking about members of your corporation, not what you call members who participate in your homeschool co-op classes.

Here’s a helpful explanation from Nolo.com

Although a nonprofit corporation can choose to have members who have voting rights, many nonprofit corporations decide not to adopt a membership structure and, in the interests of efficiency, leave the decision making up to the directors. If a nonprofit does opt for a membership structure, the members participate in major corporate decisions. Specifically, the members have the exclusive right to elect directors, amend articles and bylaws, and vote on a merger or dissolution of the corporation.

I have found that most homeschool co-ops are run by a board and do not have members participate in decision making or vote on anything.

One homeschool group incorrectly checked the box on their nonprofit corporation application stating they had members. Later, they needed to amend their Articles of Incorporation  when applying for 501c3 tax exempt status with the IRS. This meant they had to gather the members together for a vote to amend the Articles. This was not easy because co-op classes had ended for the summer and the members no longer gathered together. It also involved explaining complicated IRS language to a group of people who didn’t really care, gathering ballots for votes, etc.

So be careful about what you are agreeing to when you check the box stating your nonprofit homeschool corporation has members.

Carol Topp, CPA

 

Video: Nonprofit status for homeschool groups

I created a short video explaining nonprofit status for homeschool groups.

I compare nonprofit status to being married!
See what you think:

 

If you have more questions about nonprofit status for your homeschool organization, start by reading these articles:

 

IRS and Your Homeschool Org cover

 

My book The IRS and Your Homeschool Organization is very helpful for homeschool groups considering tax exempt status.

 

Carol Topp, CPA