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Many small and mid-sized nonprofits take a reactive approach to legal oversight, reviewing policies and practices only when an issue arises. Larger nonprofits, especially those receiving government grants, may conduct annual risk assessments or policy reviews, but those processes don’t always include a full legal audit.
Having a structured legal review process, whether annual or event-driven, helps nonprofits catch and correct issues before they lead to regulatory trouble, reputational damage, or loss of funding. While in-house counsel or compliance officers often lead these efforts at larger organizations, nonprofits of any size can access the same level of review more affordably by working with outside general counsel.
Even if a full review isn’t conducted every year, it’s a good idea to schedule one after key changes, such as:
- Leadership transitions
- Program expansion or adding new funding sources
- Changes to board structure or bylaws
- Receipt of large grants, particularly those involving government oversight
- When issues are flagged during an audit or compliance check
1. Outdated Bylaws That No Longer Match Operations
Bylaws are the legal backbone of your nonprofit’s structure. But as organizations grow or shift focus, it’s common for bylaws to become outdated. General counsel can identify gaps, such as undefined voting rights, unclear indemnification clauses, or vague officer roles. They can help revise bylaws to reflect current operations, IRS regulations, and Georgia law.
2. Missing or Weak Conflict of Interest Policies
If a board member’s business gets a contract, or a relative is hired without disclosure, it can look like self-dealing. This is true even when there were no nefarious intentions and the decision aligned with the organization’s best interests.
Legal reviews can surface missing policies or outdated procedures that expose the nonprofit to IRS penalties or loss of public trust. Outside general counsel can recommend clearer disclosure procedures, recusal processes, and board oversight improvements.
3. Employment Classification and HR Policy Issues
From misclassified contractors to vague leave policies, employment law violations are among the most common (and expensive) nonprofit risks. A legal review can flag:
- Workers incorrectly classified as 1099 contractors
- Unpaid interns not meeting legal exemption standards
- Missing anti-harassment training records
- Inconsistent or non-compliant leave procedures
Employment claims that end up in courtrooms may damage the reputation of even the most well-intentioned nonprofits. Negotiated settlements can eat into a nonprofit’s limited budget. Spotting these issues early helps avoid fines, reputational damage, and staff morale problems that can put a damper on the mission.
4. Poor Contract Language or Risky Vendor Agreements
Many nonprofits enter into MOUs, leases, and service contracts without attorney review. General counsel can flag unfavorable terms, unclear deliverables, or clauses that shift too much liability to the nonprofit. Reviews can help ensure contracts meet grant requirements and align with charitable-use restrictions.
5. Noncompliance With Charitable Registration or Reporting Laws
Even diligent nonprofits sometimes miss deadlines for IRS Form 990, Georgia charitable solicitation renewals, or licensing renewals. During a risk assessment, legal counsel can review your reporting practices and identify:
- Missed registrations or outdated filings
- Inconsistencies between state and federal disclosures
- Gaps in compliance calendars
It’s preferable to fix these issues proactively. A single missed deadline or disclosure error can have potentially severe consequences for nonprofits. The risk is particularly high for small nonprofits and new leaders who are still learning the rules.
A Small Investment in Legal Review Can Prevent Bigger Problems
Legal risks often arise slowly through policy gaps, administrative oversights, or informal practices that become habits. A structured review, even every couple of years, can save your nonprofit from much bigger headaches down the line.
At the Law Office of Cameron Hawkins, we help Atlanta nonprofits protect their tax-exempt status, board, and mission with outside general counsel services tailored to your size, budget, and compliance needs.
Call the Law Office of Cameron Hawkins at (678) 921-4225 to discuss how we can help.
