The phrase “spring cleaning” has a renewed meaning as many of us find ourselves home with extra time due to shelter-in-place orders. With business temporarily on hold, nonprofits have an opportunity to pause, self-evaluate, and conduct some “spring cleaning” to prepare their organizations to emerge from this crisis stronger. One opportunity for this spring cleaning is evaluating your nonprofit’s corporate recordkeeping practices.
Complete and well-organized corporate records are important both for efficient organizational performance and for legal compliance.
From a practical perspective, the corporate records are needed to answer questions from “What’s the legal name of your organization?” to “When did the organization incorporate and in which state?” to “When did your organization receive tax-exempt status?” These questions often arise when organizations are being considered by grantmaking foundations and other potential donors and when organizations are applying for exemption from state and local taxes.
Without up-to-date and organized records, finding the answer to these questions might involve calling retired directors and executives and digging through old computers and archived email inboxes. Too much delay could jeopardize the organization’s ability to respond to funding opportunities and receive applicable exemptions.
The Bigger Picture
The corporate records should be kept as part of a larger “document retention” system. The specific records that an organization needs to retain will depend on the organization’s workforce, activities, locations, and other variables.
An attorney can help your organization implement a comprehensive, tailored policy to clean up its recordkeeping practices. (See here for a guide to document retention policies and here for an example policy. Page 146 of the United States Conference of Catholic Bishops manual also includes a sample policy.)
Some of the key documents for the organization’s corporate records are listed below. Your organization can start “spring cleaning” today by identifying these documents and establishing a filing system for safekeeping.
1. Organizing Document and Amendments. Upon filing with the relevant secretary of state, corporations commissioner, or other state official responsible for oversight of entities, the organizing document established the legal existence of your lay apostolate. The organizing document can be referred to as the “Articles of Incorporation”, “Certificate of Formation”, the “Corporate Charter”, or another title, depending on your state. The organization should always keep a copy of the organizing document and copies of any amendments. All copies should include the file stamp from the relevant state official, indicating the date the documents were officially filed and the entity’s file number.
2. Signed Board Minutes. The corporate secretary, or another authorized officer, should take minutes at each corporate meeting. The minutes should be sent to the directors and approved at the next board meeting. After the board approves the minutes, the corporate secretary should sign a copy and add the minutes to the corporate records.
3. Signed Bylaws. The corporate records should include the corporate bylaws, including any amendments. The bylaws should indicate the date on which the document became effective and should be signed and dated by the corporate secretary and/or another officer, depending on applicable state law.
4. Tax-Exemption Determination Letter(s). The Internal Revenue Service’s Determination Letter indicates that the organization has received recognition of its tax-exempt status. The letter includes key information such as the effective date of the exemption and the organization’s federal tax filing obligations. The determination letter is needed for a number of state and local filings, as well as federal tax matters. Additionally, depending on your state, your organization also may have obtained a determination letter from your state taxing authority confirming your organization’s exemption from state income tax. This determination letter also should be kept in the organization’s records.
As part of the organization’s ongoing maintenance, the organization’s leaders should: (1) identify who will be responsible for recordkeeping, and (2) confirm that the individual is well-trained and educated about his or her responsibilities. In many organizations, the corporate secretary is responsible for maintaining the corporate records. The corporate secretary should be well-connected with the board of directors, the corporate executive, and the corporate accountant to ensure the records are constantly updated and accurate.
Most states have enacted laws which permit corporations to use electronic records for most of the corporate recordkeeping. An attorney can help your organization identify if keeping physical copies of any records is necessary.
As a risk management measure, your organization should keep electronic backup copies of all physical documents. In some cases, the organization may also choose to keep physical backup copies of certain key electronic documents, such as signed contracts, even if there is no applicable legal requirement for the physical record.
A best practice is to create the organization’s electronic repository through a shared file software. The organization can then grant file access to directors and officers as appropriate, to assist individuals in those roles in fulfilling their duties of oversight and diligence. This approach has the added benefit of allowing all users to work from a single document, preventing the confusion which can result when multiple versions of a single document are created. Popular shared file programs include Dropbox, Google Drive, and Microsoft OneDrive.
The above list includes just a few of the key documents which an organization should maintain as part of a more comprehensive document retention policy. An attorney can help your organization evaluate its specific corporate recordkeeping obligations and develop an appropriate document retention policy. Investing in an effective recordkeeping policy can keep your organization strong and can improve the organization’s candidacy for funding and donations.
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