Changes to Laws Governing Non-Profits

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					                                                                                                                                                                                                              JANUARY 2005

Changes to Laws Governing Non-Profits                                                                              BY
                                                                                         Jennifer Adams, Associate
The California Legislature has taken dramatic steps                                                                          it must (1) establish an audit committee consisting
to ensure California non-profit corporations and                                                                              of “outsiders” to the organization, and (2) prepare
fundraisers required to register with the Attorney                                                                           audited financial statements, which must be made
General do not engage in any fraudulent activities.                                                                          available to the public and filed with the Attorney
The Nonprofit Integrity Act of 2004 became effective                                                                          General within nine months following the end of its
January 1, 2005, and applies to all charities that are                                                                       fiscal year.
required to register with the Attorney General, as well
as commercial fundraisers and fundraising counsel.                                                                           The audit committee must be appointed on
                                                                                                                             January 1, 2005, or as soon thereafter as the
The Act consists of two basic parts; provisions                                                                              board meets (no later than March 31, 2005).
relating to corporate governance and provisions                                                                              The audit committee is responsible for making
relating to fundraising. Keep in mind most, if                                                                               recommendations to the board as to the hiring and
not all of these rules apply equally to charities                                                                            firing of a CPA, making recommendations and, if
organized as a trust, such as private foundations,                                                                           permitted, negotiating the independent auditor’s
as well as those organized as a corporation.                                                                                 compensation, confirming the organization’s
                                                                                                                             financial affairs are in order, reviewing and
Corporate Governance                                                                                                         accepting or rejecting the audit, and approving the
Registration with Attorney General—Previously,                                                                               non-audit activities performed by the auditing firm.
charities had six months following the date it
first received assets to register with the Attorney                                                                           Fundraising
General. The new law gives a charity only 30 days                                                                            Most of the provisions relating to fundraising apply
to register following its initial receipt of assets.                                                                         to “commercial fundraisers” and “fundraising
                                                                                                                             counsel,” those who are hired for compensation
Financial Statements—All public charities must                                                                               to either directly or indirectly develop a plan and
maintain their financial records on the basis of                                                                              implement a plan of action for raising funds for
generally accepted accounting principles and, if a                                                                           a charity. Many of the new provisions require
charity has audited financial statements prepared, the                                                                        that contracts with commercial fundraisers and
audited financial statements must be made available                                                                           fundraising counsel be in writing, contain certain
to inspection by the Attorney General and the public.                                                                        cancellation rights, and provide that the charity
                                                                                                                             ultimately has control over the fundraising
Compensation Review—The board must review and                                                                                activities and the money contributed.
approve the compensations, including benefits of
the president or CEO, and the treasurer or CFO, to                                                                           The fundraising provisions which apply to charities
assure they are just and reasonable.                                                                                         contain restrictions which are relatively “common-
                                                                                                                             sense” and are designed to prevent a charity from
Auditing Standards—If a charity receives $2                                                                                  making false or misleading statements about the
million or more in gross receipts in any given year,                                                                         use of its donations, its activities, or the source
This Legal Alert publication does not constitute legal advice to be applied in any specific circumstance or situation. Any such advice is conditioned upon the specifics of a particular case and, therefore, cannot be addressed generally.
Continued from front
of its funds. The board of directors and anyone                                                                              Please contact Klein, DeNatale, Goldner if you have
associated with an organization’s fundraising                                                                                any questions regarding the specifics of the new law
activities should be made aware of restrictions in                                                                           or how it applies to your charitable organization.
the new law.

Prop. 64: Californians Limit Frivolous Lawsuits
                                                                                  Kelly Griffin-Lazerson, Associate

Proposition 64 was overwhelming approved                                                                                     Proposition 64 dramatically alters the existing
by California’s voters in November. The ballot                                                                               legal climate of “I suffered not, but I’ll sue you
argument in favor of Proposition 64 urged voters                                                                             anyway.” Effective November 2, 2004, only persons
to “protect small businesses from frivolous                                                                                  who have suffered an actual injury (loss of wages,
[shakedown] lawsuits” that “make businesses want                                                                             money or property) can bring a UCL action. Persons
to move to other states where lawyers don’t have                                                                             who have suffered actual injury and who pursue
a legal extortion loophole. When businesses leave,                                                                           “representative” claims on behalf of others, however,
taxpayers who remain pick up the burden.”                                                                                    are now required to meet the procedures required
                                                                                                                             for class action lawsuits. These procedures require
The passage of Proposition 64 came as no surprise,                                                                           a showing of each of the following by the plaintiff:
and made significant amendments to California’s                                                                               (1) an ascertainable, manageable class of plaintiffs;
Unfair Competition Law (UCL). The UCL prohibits                                                                              (2) a well-defined “community of interest” among
persons from engaging in unlawful, fraudulent                                                                                class members; and (3) litigating as a class action is
or unfair business practices. Prior to Proposition                                                                           a “superior method of resolving the dispute” which
64’s new amendments, employers were sued by                                                                                  “substantially benefits the litigants and the courts.”
non-employees or outside groups for alleged unfair
business practices including meal and rest period                                                                            While Proposition 64 is a step in the right
violations, misclassification of exempt employees,                                                                            direction, it does not eliminate the “representative-
the failure to post all required employee notices, or                                                                        type” action from being filed against employers.
failure to pay all wages due. These litigants, who                                                                           Employers must be vigilant in their employment law
suffered no actual injury themselves, pursued such                                                                           compliance through regular audits and working with
claims on behalf of all of the employer’s current and                                                                        experienced employment law counsel at the forefront
former employees.                                                                                                            to avoid the possibility of employment law claims.

Partners                                       Leonard K. Welsh                                 Thomas C. Fallgatter                             Associates                                       Lisa Holder
Anthony J. Klein                               Kevin C. Findley                                 José A. Guerrero                                 Jennifer A. Adams                                Steven J. Lee
Thomas V. DeNatale, Jr.                        Suellen Anderson                                 Kenneth A. Holland                               Mark H. Atkins                                   Daniel C. Lorenzen
Barry L. Goldner                               T. Scott Belden                                  Krystyna L. Jamieson                             Tenielle E. Cooper                               Laura Olivier
J.L. Rosenlieb                                 Catherine E. Bennett                             Paul Lafranchise                                 David P. Eron                                    Arthur J. Saalfield
David J. Cooper                                Dawn Bittleston                                  Nancy L. Oehler                                  Elizabeth Estrada                                Janice Scanlan
Claude P. Kimball                              David D. Blaine                                  Jean M. Pledger                                  Kelly A. Griffin-Lazerson                         Heather J.C. Stanley
William A. Bruce                               Craig D. Braun                                   Timothy G. Scanlon                               Andrew M. Hensler                                Matthew Wilson
Ned E. Dunphy                                  James M. Duncan

Practice Areas                                              Employment Counseling &                                      Oil & Gas                                                   Liability
Agricultural                                                Litigation                                                   Partnership & Corporate                                     Probate, Estates, Wills, Trusts
Bankruptcy                                                  Environmental                                                Patent, Trademark,                                          Public Agency Counseling
Business & Commercial Litigation                            Family                                                       Copyright & Licensing                                       Surety, Insurance & Bonds
Construction, Real Estate                                   Insurance Defense                                            Pension                                                     Tax Planning
& Land Use                                                  Municipal                                                    Personal Injury & Products                                  Unfair Competition

This Legal Alert publication does not constitute legal advice to be applied in any specific circumstance or situation. Any such advice is conditioned upon the specifics of a particular case and, therefore, cannot be addressed generally.