Should You Take on a Client Who’s Forming a Nonprofit?

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You get a call from a potential client who wants to set up a new nonprofit organization. Here are some questions to ask before you commit to the task.

The first thing to do when asked to set up a nonprofit is to gather enough information to know whether you (or your law firm) and the potential client are a good fit, whether the proposed organization makes sense, and whether the founders are ready to move forward in earnest with the organization.

Start with these 4 questions in an initial phone or email interview to get the information you need:

  1. What will the proposed organization do?
  2. What are the founder’s motivation and goals in wanting to form a new organization?
  3. Do the key people involved have the time, ability, expertise, commitment, and dedication to form and maintain the organization?
  4. What are the immediate sources of funding (how will you be paid)?

The answers to these questions may save time for everyone by stopping the idea in its tracks, or if a follow-up meeting is scheduled, these answers may help make the next meeting more efficient and beneficial.

You also need to ask yourself whether the proposed organization and the legal work involved are within the your (or your firm’s) areas of expertise and if there are any impediments to the accepting the case. Consider associating with an attorney who has the expertise you may lack.

By the end of the initial telephone or email interview, you should know whether to accept the matter and, if so, whether to schedule an appointment or to wait until the client has gathered more information.

Although it can be hard for new and/or hungry-for-business attorneys, don’t be afraid to throw a wet blanket over the proposed idea. One of the most valuable services an attorney can give those eager to form a new nonprofit is to screen out organizations that don’t need to be formed. The corporate landscape is littered with derelict suspended nonprofit corporations that should never have been established and were abandoned due to some combination of

  • lack of commitment of the organizers or participants,
  • a poor business plan, poor timing, or
  • lack of sufficient funds, including lack of funds to properly dissolve the entity when it didn’t succeed.

By exercising independent judgment and helping the client think through the wisdom and reality of starting a new organization, you can avoid contributing to this phenomenon.

Instead of a straight rejection, consider pointing them in the alternative direction of an “incubator” organization, i.e., organizations that foster new projects, enabling them to test their viability without first setting up a new entity. If the activity proves viable, its proponents then leave the shelter of the incubator and establish a new entity. If not, the project dies a quiet death without ever having existed as a separate entity.

For details on 14 basic questions to ask anyone thinking of starting a nonprofit, as well as a list of attorney tasks in establishing a new nonprofit organization, turn to CEB’s Advising California Nonprofit Corporations, chapter 1. And learn how to form, operate, and advise clients on the unique aspects of nonprofit law and regulations in CEB’s program Organizing & Advising Nonprofits, available On Demand.

© The Regents of the University of California, 2014. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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Topics:  Business Formation, Non-Profits, Young Lawyers

Published In: Business Organization Updates, Nonprofits Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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