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Association Law Review for Aspiring CAEs
Monday, August 11, 20142:00-3:00 p.m.
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Todays’ Program• Introduction• About the Exam• Legal Issues
– Governance– Tax– Antitrust– Labor/Employment– Others
• Conclusion
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George E. Constantine, III• Counsel to tax-exempt trade
associations, professional societies• Former staff counsel for American
Society of Association Executives• Concentrates practice on tax,
contracts, antitrust, governance and other legal issues affecting associations
• ASAE Legal Section Council Chair
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About the Exam• Legal issues implicate much of
association management; exam questions reflect this
• Be familiar with the concepts—look for red flags and issues
• Immersion course, other prep courses
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Governance• Tax-exempt status—federal • Corporate status—state
– Protection from individual liability– Obligation to abide by state laws on
governance and related matters
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Governance• Hierarchy of Authority
– State nonprofit corporate law• Requirements on indemnification,
membership rights, manners of acting, etc.
– Articles of Incorporation– Bylaws– Board Policies and Procedures
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Governance• Governance Legal Issues Generally
– Board is only permitted to act at a meeting
• But—exception for UWC, telephone meetings
– State of incorporation governs, even if based elsewhere
• But—note foreign corporation filing obligations
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Governance• Association Governance Structure
– Board of Directors– Executive Committee– Other Committees “of the Board”– Other Committees (Advisory)– Staff
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Governance• Fiduciary Duties
– Duty of Care– Duty of Loyalty– Duty of Obedience
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Governance—Duty of Care • Duty of care standard is that of
“ordinary and reasonable care,” or what would an ordinarily prudent person do in the same or similar circumstances?– Very subjective– Tied to reasonableness
• Business judgment rule—bad decisions are more easily defended than ignorance
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Governance—Duty of Care • Compliance tips
– Review all materials provided in advance of meetings
– Ask questions– Avoid actions/discussions outside the
formal meeting setting– Be familiar with organizational
documents (policies, bylaws, articles)– Maintain confidentiality
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Governance—Duty of Care • Compliance tips (continued)
– Directors may rely on experts when appropriate (but understand such reliance cannot be absolute)
– Directors should ascertain that all minutes (particularly recorded votes, attendance) are accurate
– Encourage directors to attend meetings regularly, read publications, be involved
– Work with chief elected officer to encourage best practices/compliance with duty of care
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Governance—Duty of Loyalty• Duty of “undivided allegiance”• Duty to avoid conflicts of interest
– Types of conflicts• Business dealings with association• Business dealings with competitors• Corporate opportunities doctrine• Representational conflicts
– Remedies—DISCLOSE FIRST• No action needed• Recusal• Resignation
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Governance—Duty of Loyalty• Compliance
– Keep in mind that organization’s interests come first
– Adhere to conflict of interest policy• Disclose actual, apparent, and potential
conflicts of interest through regular disclosure statements (and at each meeting as appropriate)
• Deliberate as a board or through a committee to determine whether conflict exists
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Governance—Duty of Obedience• Obedience to nonprofit mission• Follow terms of articles of
incorporation, bylaws, policies and procedures
• Applicable laws and regulations must be followed
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Governance—Final Points– Roles of board members are defined by
governing documents, common law fiduciary duties, state statute, IRS requirements
– Board sets the policy and mission of the organization; staff is charged with carrying out the mission
– Members have some powers, but generally board’s authority is paramount
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Tax• The Basics
– Most organizations are exempt under either section 501(c)(6) or 501(c)(3)
– Exam emphasizes 501(c)(6), but not solely 501(c)(6)
– Tax-exempt status means exemption from federal income tax, but not from all taxes (e.g., property, sales)
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Tax• 501(c)(6) Requirements
– Not organized for profit– Membership organization with
meaningful membership support– Advance an entire line of business or
profession– No private inurement– No provision of particular services
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Tax• 501(c)(3) Requirements
– Must benefit the public—religious, charitable, educational, etc.
– No private inurement– No substantial part is “carrying on of
propaganda” (e.g., lobbying)– No political activities
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Tax• Considerations for both 501(c)(6) and
501(c)(3)– Unrelated Business Income Tax
• Trade or business• Regularly carried on• Not substantially related
– Exceptions• Royalty• Sponsorship• Qualified conventions and trade shows• Investment income
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Tax• Considerations for both 501(c)(6) and
501(c)(3)– Form 990
• Disclosure of employees’ salaries• Policies
– Conflicts of interest– Whistleblower protection– Record retention– Review of Form 990– Executive compensation– Joint ventures
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Antitrust• Relevant Statutes
– Sherman Anti-Trust Act– Federal Trade Commission Act– Clayton Act– Robinson-Patman Act– State antitrust laws
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Antitrust• Any contract, combination, or
conspiracy that is illegally in restraint of trade
• Must be some form of agreement to unlawfully restrain trade—agreement need not be formal or in writing
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Antitrust• Concept of “per se” illegal and “rule of
reason”– “Per se” reserved for actions so pernicious that a
court or enforcement agency will not look to see if the actions had any anticompetitive effects—price fixing, market allocation, bid-rigging
– “Rule of reason” analysis means a court will look to relevant facts—effect on competition, procompetitive benefits
• Most association activities viewed under rule of reason
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Antitrust• Association Activities and Antitrust
– Membership restrictions– Membership termination– Certification and accreditation– Information reporting
• Past data• Aggregated/Anonymous• Voluntary• Handled by third-party (like an association)• Results generally available
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Antitrust• Association Activities and Antitrust
– Apparent Authority– Meetings—Board, Committees,
Membership• Compliance policy and reminder• Work with Chair• Counsel or staff monitor discussion• When to step in• What to do when they don’t listen
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Antitrust• General Risk Management
– Membership services to nonmembers– Member-only services– Issues in the supply chain (e.g., retailers
angry about Internet sales)
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Antitrust• General Risk Management
– Clearly define rules and restrictions in membership documents (bylaws, policies and procedures)
– Restrictions should be reasonably designed to pursue a procompetitive result (avoid arbitrary restrictions or restrictions related to price)
– Enforcement should be uniform and fair
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Labor and Employment• General Legal Issues
– Wage and hour compliance• Not everyone is a “professional”• Time-keeping and overtime
– Written policies• Sexual harassment• Discrimination• Working from home
– Performance review and counseling– Terminations
• Consistency/progressive discipline• Grievances• Internal interviews
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Other Legal Issues• Contracts
– Offer, consideration, acceptance– Apparent authority– One key tip on negotiating
• Intellectual Property– Copyright– Trademark
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Questions/Conclusion
