5 Legal Issues Nonprofit Startups Often Face

17 March 2020
 Categories: Law, Blog


Dealing with a startup in the nonprofit sector presents many of the challenges that come with starting up other types of organization. On top of those, however, there are also unique legal issues that confront nonprofits. These 5 potential challenges that may face your nonprofit startup.


Articles of Incorporation will have to be filed with your county, and there will also have to be bylaws designed to guide the daily operation of your nonprofit. Purpose is an important topic in the articles that incorporate such an organization. These will form the legal basis for arguments if there is litigation of disputes within your group. It's wise to meet with a nonprofit startup services provider to figure out these details before you submit documents incorporating the organization.


While many nonprofits go untaxed at the federal level, do not assume this will be the default for yours. Likewise, take the time to know what the local and state tax rules are regarding nonprofits. Similarly, you should appreciate that certain forms of taxes, such as withholding and payroll, will come out anyhow.

Classifying Employees

Nonprofits will oftentimes end up dealing with the same sorts of labor issues that for-profit enterprises do. This means there may be issues regarding employment contracts, non-disclosure agreements, the use of independent contractors and even the right to organize.

It's common for nonprofits to operate within tight margins. You don't want to end up in a situation where, for example, you end up with a large tax bill because you were issuing 1099s to people who were supposed to be classified as employees. Even small details, such as implying someone with a non-employment contract has a title with the organization, can get you in hot water.

Political Engagement

Laws in the U.S. explicitly forbid participation in many forms of electioneering, campaigning, and lobbying. Violations may be punished with penalties up to and including loss of your tax-exempt status. You can't contribute to political campaigns, and no board member should use the organization as a platform to promote any candidates or outside agendas.

Organizational Manual

With so many legal concerns hanging over your head, it's wise to develop a manual that will be issued to employees and board members. A nonprofit startup services firm can help you figure out what phrasings should be used in the manual to insulate the organization against claims. Likewise, you should develop a process for documenting acknowledgment of the ideas stated in the manual.

To ensure your nonprofit will perform these processes correctly, contact nonprofit startup services in your area.