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Arts Law Toolbox:
Top Areas of Legal Concerns for Arts Non-Profit Organizations

by Joey Novick, Esq.

One of my many jobs, when I was the Executive Director of the New Jersey Volunteer Lawyers for the Arts, was to work as “crisis manager” for the very many arts non-profits that would call with issues on a daily basis.

Since the main job of an arts organization executive director is handling day-to-day matters and putting out their own crisis ‘fires,’ I’d often get calls when all hell broke loose on a legal matter. I’d function as an Emergency Room doctor doing triage on their legal matter first.

However, I’d much rather have functioned as their regular doctor–a general practitioner whose job it is to prescribe a good diet, an exercise program, stress-reducing activities and healthy sleep habits.

Once I learned that it was better to be a good medical doctor who keeps his/her patients in good health, I developed a key list of areas of legal concern of which all arts non-profits should be made aware. The overall health of an arts non-profit is very much reliant upon their overall legal health.

Here are key legal areas for an arts non-profit organization to keep in mind. Have your attorney provide a periodic assessment of these areas–and save your organization from legal crisis management.

Arts Law Toolbox

1- Board Bylaws

Your organization’s bylaws are a vital tool to manage your organization. They outline the structure of your governing body, detail the responsibilities of your board of directors, and describe how board actions and amendments take place.

Updated bylaws protect both your board members, and the organization as a whole. Organizational bylaws should include such details as:
●  the duties of your executive board (president, vice-president, secretary, and treasurer)
●  what constitutes a quorum for a meeting
●  how often your board meetings take place
●  whether actions can be taken without a meeting
●  the number of members on the board of directors, and the length of their terms
●  whether the organization will cover its directors’ legal costs in case of a lawsuit (“director liability”)
●  whether the bylaws can be amended by a simple majority or a two-thirds majority

Once you’ve created your non-profit bylaws, you’ll have a better understanding of your legal rights and responsibilities, and can get down to business.

Your non-profit’s bylaws are both a legal document and a roadmap for your organization’s actions. To be incorporated, an organization must have a set of bylaws. If your non-profit decides to seek 501(c)3 tax exemption from the IRS, it’s much easier if you are incorporated, and incorporation requires you to set up all the legal requirements, such as bylaws, that the IRS requires when granting tax exemption.

Bylaws vary according to the nature of the organization but consider them as the internal manual for how your organization will operate.

They should address basic activities, such as:
●  governance, such as whether the org is controlled by a board or by its membership
●  when and how board meetings will be held and conducted
●  how board directors and officers will be appointed or elected
●  voting procedures, such as what constitutes a quorum so that your board can make a decision
●  how committees are created and discontinued
●  number of directors for your board, their required
qualifications, and their terms of service
●  language that affirms the requirements and prohibitions for
non-profit 501(c)3 organizations as outlined by the IRS
●  rules that govern conflict of interest
●  how bylaws can be changed or amended

2- Independent Contractor vs Employee

For large non-profit arts organizations, the choice to classify someone as an employee or an independent contractor can be reasonably simple. However, for smaller arts non-profits with few or no staff, this decision can be confounding and perhaps a costly mistake.

While calling a new hire an “independent contractor” can save an organization a fair amount of money in taxes, benefits, and reimbursements to start off, that decision could possibly cost the non-profit organization enormous IRS fines — not to mention tax burdens for the employee.

The most basic and easy-to-use criteria for determining whether your newly hired staff member is an independent contractor or an employee is the IRS’s Factor Test, available at https://www.irs.gov/businesses/small-businesses-self-employed/inde pendent-contractor-self-employed-or-employee.

These factors include criteria like what level of instruction will the person have and will they have a weekly, biweekly or monthly pay schedule. To be classified as an employee, a new hire only needs to meet a few of these many factors.

The IRS explains that these factors fall into three categories that provide evidence about the degree of control and independence the new hire will have. The three categories are Behavioral, Financial, and Type of Relationship. An executive director should be well acquainted with these factors before bringing new staff on and determining their employment status.

3- Intellectual Property (IP): Copyrights and Trademarks.
Like any other legal entity, non-profits have the right to own and profit from their intellectual property. However, any arts non-profit should be aware of many important IP issues that could impact its legal health.

Copyright protects original works of authorship fixed in a tangible medium of expression, including books; publications; software;
website design; photos; art, including pictorial, graphic, and sculptural works); music; sound recordings; dramatic works; motion pictures; architectural work; choreography; and, in some cases, data.

A trademark is a name, word, phrase, symbol, logo, design, or sound used in connection with a good or service, and used to indicate the source of the goods/services and to distinguish them from the goods/services of others.

Your non-profit organization must be careful in the manner in which way this material is used and maintained. There are such important issues as inurement, private benefit, taxable expenditures (IRS Section 4945), ownership, ‘Self-Dealing’, the exploitation of IP owned by the non-profit, and the hiring of a for-profit entity to create intellectual property.

4- Advocacy vs Lobbying
This question comes up a great deal–exactly what is the line of demarcation between advocating for your organization with your local government, your state arts council, and in Washington, and lobbying?

From the Center for Non-Profits in New Jersey: “non-profits are expressly prohibited from intervening in a political campaign of any candidate for public office, and from engaging in partisan
activity of any kind. In addition, non-profits may not use government funds, such as government grants or contracts, to lobby, including the use of federal funds to lobby for federal grants or contracts.”

Non-profit organizations face many crucial issues, and therefore it is more important than ever that they become involved in the arts funding public policy debate. But, in actuality, federal laws exist to encourage non-profits to lobby within certain specified limits. Knowing what constitutes lobbying under the law, and what the limits are, is the key to being able to lobby legally and safely.

Non-profits are permitted to lobby–within limits. According to the Center for Non-Profits, “federal law clearly states that a 501(c)(3) publicly supported charity may devote no more than an ‘insubstantial’ portion of its activities to lobbying.” Also, the IRS does not view attempts to influence administrative rules, regulations or other executive branch actions as lobbying. The best brief source to explain the difference between lobbying and advocacy can be seen at http://www.njnon-profits.org/NPsCanLobby.html.

ArtPride New Jersey, for example, annually attends National Arts
Advocacy Day in Washington D.C. joined by many non-profit arts organizations from around the country to meet with members of
their state’s Congressional Delegation. New Jersey Congressman Leonard Lance (NJ-7) is the co-chair of the Congressional Arts Caucus and he and other members of Congress are very open to hear updates on arts-related issues from non-profit arts organizations.

ArtPride New Jersey also has training and resources for the boards and staff of non-profit arts organizations on this topic. This training helps arts advocates better understand their role in the legislative process. Check to see if your state’s arts advocacy organization provides such training, too.

A great resource can be found from the National Assembly of State Arts Agencies is http://www.nasaa-arts.org/Learning-Services/Past-Meetings/mar06 nasaa-advocate.pdf.

5- Leasing space for arts non-profits (tips from the non-profit Center and the accounting firm of SquarMilner).

Every arts non-profit needs space to conduct their work in providing services for their clients and constituencies. They must answer the questions: “Should we lease?” “Should we buy space?” Indeed these are very tough questions based on the size of your organization, whether you have the cash for the standard 30+ percent down payment, where your client base is located, and what type of services your organization provides.

Leasing may be a better option for many arts organizations today, especially newly formed arts non-profits that may want more flexibility for the short-term. If your organization provides services for your client base that is mostly done in cyber-space in the virtual world, then your organization may not need as much space as a regular ‘brick and morter’ non-profit.

Leasing also requires very little in the way of up-front costs. Depending on the landlord, concession packages that include allowances and a period of free rent may reduce out-of-pocket costs to virtually zero.

There are some alternatives to a conventional lease that can help make leasing work for your non-profit:

● Seek out a sub-market lease. Some property managers look for a tax write-off by offering space to a non-profit at a steep discount. In these situations, the landlord or property manager can often take a tax deduction for what that space would have earned in rent, allowing them to save on taxes. Municipalities also work out such deals, offering non-profits space in return for a token amount, such as $1 a year. Others offer free space in exchange for the non-profit taking care of building maintenance and utilities. When entering into such agreements, though, non-profits need to carefully analyze their responsibilities as far as building maintenance, damages and other potential issues.

●  Consider co-location. Faced with tight budgets, some non-profits are sharing space (and costs) with other non-profits. While the benefits can be considerable, these arrangements can result in complex managerial and legal relationships. It’s best to build the necessary flexibility into the lease at the outset.

●  Look for grants. Some funders will specifically assist non-profits in securing appropriate office space. Grants may be available to partially or fully fund a lease, while other funders may help with office equipment, supplies and overhead (such as utilities, phone service and an Internet connection).
Many non-profits like the idea of owning a building. Yet leasing makes sense in a number of cases. Regardless, make sure all tax, legal and financial considerations are evaluated by an attorney and tax professional.

If your arts organization determines after much analysis that the best option is to lease space, you are much better off using a professional to help find the best facility for your organization.
(from the Non-profit Centers Blog):

-Utilize the expertise of a tenant broker
Real estate brokers make calls to landlord representatives to locate an array of spaces in the marketplace that are available to fit your needs. Quite often the best space for you has yet to appear on the market but is in the works. Find an expert broker to help you negotiate the best terms possible so you can save money and ensure your lease has the flexibility to accommodate your growth and success as a business.

You may not want to spend the time it takes to canvas the market for space or work with a broker to negotiate terms, but you should. Real estate is one of the greatest costs in a business budget so it is worth spending some time to see where savings can be realized. Your business is unique, so you need a lease that is tailored to how you plan to use your space now and in the future.
Typically, broker fees are part of market prices. If you do not use one, the landlord will often pay their own broker more rather than allowing you to save these costs.

-Plan ahead
The time it takes to locate space and complete leasing arrangements largely depends on the specific needs of your organization and the specific space as well as the current market conditions. Here are some typical guidelines:
●  Property tours and space identification – 1 to 3 months
●  Letter of intent negotiation – 1 to 6 weeks
●  Lease negotiation – 3 weeks to 3 months
●  Improvements to space – 1 to 6 months
-Budget accordingly

Non-profits vary in size, budget, and location. As far as space goes, it’s best to budget about 200 square feet per person.
Read below for more information about additional costs you may want to consider.
-Be strategic
Ask your broker to research and analyze all of the properties you are interested in. Your broker can easily look up pricing, leasing term, amount of space available, debt on the property, and other information that can help you negotiate the best deal.
It is important to identify all key decision makers at the outset.

Answering the following questions will help streamline the process:
●  Will your board of advisors or directors need to approve the property location and tour the spaces? Will they need to review the lease?
●  Does your organization need to gain approval from a national headquarters?
●  Do the employees need to be involved in the touring process?
●  Do you have an attorney or fiscal sponsor that will need to
review and approve the lease?
●  Will there be a property search committee to help in the
process?
-Be informed

There are many factors to consider when budgeting for space rental, some of which carry additional costs.
First and foremost is the type of lease you are in. There are three types of leases available: Full Service Gross, Triple Net, or Modified Gross.

Full Service Gross means that your quoted rental rate is inclusive of all taxes, common area maintenance fees, and insurance costs associated with the property. However, you must consider that most Full Service leases will not include
your internet and phone service charges and some may or may
not include janitorial costs as well.
●  Triple Net means that your quoted rental rate is only a portion
of what your monthly cost for the space will be. You will also pay “triple net“ fees that will cover the property taxes, common area maintenance fees, and insurance for the property. This additional fee generally ranges from $3 to $15 per square foot in addition to your base rent. You will also be responsible for your janitorial costs, phone, and internet charges.
●  Modified Gross has a base rent just like a Triple Net lease, but you will only be responsible for paying your own utility costs like water, electric, gas, etc. You will also be responsible for phone, internet, and janitorial costs as well.
-Other costs could include:
●  Costs for building the space ( known as “tenant improvements”), which may include contractor fees, labor, materials, architect fees, permitting costs, etc.
●  Employee and guest parking fees
●  Moving costs
●  New furniture
-Be mindful of common misconceptions

We are going to stay in our current space and renew our lease, so we don’t need a broker.

Market conditions and rental rates are constantly changing. What your organization negotiated five years ago might not be the best deal for your organization today. By working with a broker to review your current lease and renewal options, you might be able to negotiate a better lease rate, discover options to expand your current space, or even get funds to improve the space with new carpet and paint, for example.

Someone on my board of advisors/directors is a residential and/or commercial real estate agent, so we will just have them find/negotiate our new space.

Board members are great assets to organizations and can provide excellent guidance and direction for a myriad of issues. In many cases, however, organizations need to be cognizant of conflicts of interest when using the services of board members. Double check your bylaws and bid protocols before requesting the volunteer services of your board members. If you hire an outside broker to work in conjunction with the board member, they will be able to provide a more objective perspective and take some of the burden away from the volunteer member whose time may be limited.
We have a good relationship with our landlord, and he/she is giving us a great deal so we do not need a broker.

If your landlord says he is giving you a good deal, engage a broker to market-test that it is true. Remember, the landlord is in the business of making money from real estate. Even if you are aware of what another tenant is paying, you do not know enough about their agreement to know how that price compares to one you could obtain. Agreements take into account lots of factors like financial strength, lease terms, improvements, etc. Your broker can do the work to arrange what may be a better deal for you.

6- Social media policy for arts non-profits

Issues To Address In Your non-profit’s Social Media Policy
The world wide web still remains a crazy, unpredictable, “wild west” world of information, entertainment, social media, and inspiration. For the non-profit arts organization, it is more than just inspirational memes, socializing on Facebook, viral videos of cute babies or cats playing the piano on Youtube. Your non-profit arts organization should develop a social media policy to deal with possible actions by your employees, to protect your intellectual property, serve the social media needs of your clients, and meet standards and expectations from your stakeholders.

Here are legal issues that your organization needs to be concerned with regarding social media policies:

1. Copyright and trademark infringement. There is a possibility that your arts-non profit could could be hauled into court for copyright infringement due to an article, photo, music, or video it posted on one of its sites without the permission of the copyright holder. It is not necessarily the case that attribution to offer protection against charges of infringement. The Fair Use Doctine is copying of copyrighted material done for a limited and “transformative” purpose, such as to comment upon, criticize, or parody a copyrighted work or for educational purposes. Generally, these types of uses can be done without permission from the copyright owner. Fair use is a defense against a claim of copyright infringement. If your organization’s use qualifies as a fair use, then it would not be an illegal infringement. See http://www.copyright.gov/fls/fl102.html for the best site for what constitutes fair use.

2. Arts non-proftis that make their home within a state and use a website or online sources to ask for contributions must register with that state. Also, non-profits located outside of a state must register if they use their website online sources to directly target people in that state, or receive contributions from the state on a repeated and ongoing basis or a substantial basis through its website. Organizations should note that email solicitations automatically trigger registration requirements, just as a letter or fax would. See http://www.afpnet.org/ResourceCenter/ArticleDetail.cfm?ItemNumb er=3309 for information on the Charleston Principles Guidelines at the Association of Fundraising Professionals website as a good source of information.

3. Your organization’s volunteers or active independent supporters could take actions that your non-profit might be responsible for. Be aware that if your organization did not screen, prepare, or satisfactorily manage their work. Be aware that when you are allowing volunteers to act in the arts non-profit’s name or brand, and providing limited or undefined limits to their actions.

4. Make certain that your arts non-profit’s employees, management and volunteers don’t use social media sites to distort what services the organization provides or divulge private information of clients. Your organization should provide a volunteer and employee handbook to guide all actions. The handbook should make crystal clear what is permissible in your representatives' utilization of social media. Be specific in your guidelines and don’t depend ‘common sense’ to avoid problems.
5. If your organization collaborates with other non-profit arts groups be sure you understand all legal commitments and liabilities that may arise. Be aware that you may be creating a legal partnership but not intend to.

6. Be very specific as to the organization’s ownership and complete control of Facebook, LinkedIn, Twitter, Instagram, Youtube and other social media accounts with regard to the organization's name, brand, and mission. New platforms of social media are being added almost every day. Your organization’s employees need to be directed as to which accounts are owned and controlled by your arts non-profit. Such policies should be in writing and acknowledged by your employees. Be aware that if an employee was given no specific guidance, this could result in the employee freely publishing anything of personal interest, with your arts non-profit being held responsible and deemed responsible for harm caused by something published.

7. Be aware of policies set by the National Labor Relations Board with regard to Social Media Policies and employees. (http://www.nlrb.gov/news-outreach/fact-sheets/nlrb-and-social-med ia).

I hope this article is of some benefit to you and your arts non-profit. This is by no means a complete list of all the areas of law an arts non-profit organization might confront in its journey to provide services to its stakeholders. If your organization has specific questions, it is strongly advisable that you seek legal counsel with regard to any particular situation.

  

DISCLAIMER:

THIS ARTICLE  IS FOR EDUCATIONAL PURPOSES ONLY.  THE LEGAL SITUATION FOR YOUR NON-PROFIT ORGANIZATION IS UNIQUE;  LEGAL SITUATIONS  ARE VERY FACT SPECIFIC AND UNIQUE TO EACH INDIVIDUAL
ORGANIZATION.

THUS, WHILE THIS ARTICLE  WAS PREPARED BY AN ATTORNEY, THE ACCURACY OF THE INFORMATION AND THE PROCESS IS NOT WARRANTED. THIS INFORMATION  SHOULD BE CONSIDERED A GUIDE AND SHOULD NOT BE CONSIDERED A SUBSTITUTE FOR ACTUAL, ONE-ON-ONE LEGAL ADVICE.

FOR ACTUAL LEGAL ADVICE, YOUR ORGANIZATION SHOULD CONTACT AN ATTORNEY.

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