The Nonprofit FAQ

Do I need a lawyer to form a nonprofit? How much should it cost?

Ina Frank wrote in 1994: Generally, anyone who can write clearly and follow directions can, with input from volunteer leadership, draft all the documents necessary. Then, you only need a lawyer to review things twice: Before you send the packet to the state and again (with the additional documents required) to the federal government. Many people will feel a need for legal review of the documents at those times. Best deal: Ask a lawyer friendly to your cause to do it pro bono (free). This assumes you have tightly drawn documents to give him/her so not many changes would be expected. Next best: Call your local Bar Association pro bono or similar committee, United Way, Community Foundation or friends at other established nonprofits for names of civic or philanthropy-minded lawyers who might do it for free. Failing that: Negotiate a reasonable fee -- say, $500 or less. How else can we find a lawyer or accountant who's not part of our organization to do some work for free? Depends on the work and the community. For lawyers, call your local Bar Association for referrals. Some of them have lawyers who donate a limited amount of time to certain local nonprofits, depending on the activities of the nonprofit. Your local United Way may also be able to refer you. Accountants: Try the local CPA society. For example, Chicago has a group call CPAs for the Public Interest. You might see if your community has something similar. Putnam Barber adds: The National Office of Accountants for the Public Interest is at 1012 14th Street NW, Suite 906, Washington, DC 20005. They can tell you whether there is a nearby chapter of the group. Most state bar associations and CPA associations have committees that focus on the nonprofit side of the professions' work. Another avenue to identify potential sources of local assistance -- paid or pro bono -- would be to contact the chair or one of the members of such a committee. On October 18, 2002, Don Griesmann posted this advice about finding a lawyer in NONPROFIT (http://www.rain.org/mailman/listinfo/nonprofit): If you do not know a lawyer there are several places to seek some out. If you are incorporating a nonprofit the first preference is to find an attorney who has experience and interest in tax exempt law and nonprofits. The second choice is to find either an experienced and interested corporate lawyer or a tax lawyer. The last choice is a lawyer with interest in your endeavor who will put in the necessary time to learn and to process the papers with all due haste and timeliness. If you do not know any attorney to help you, there are several steps you can take. You can use all of these listed or any variations. Check the Yellow Pages of your telephone book under "Lawyers". Read the ads. Check the section where there is a listing or grouping by type of law. Select several possible candidates. Ask around in the community about them in the context of your needs. Call some nonprofits or the United Way for names of attorneys known to help nonprofits. Contact your state or regional association of grantmakers (http://www.givingforum.org/aboutrags/facts.html). The National Council of Nonprofit Associations (NCNA) may have an associate office in your State. Offices are listed at http://www.ncna.org/. Your State office may be able to assist you in locating an attorney. Frequently the nonprofit association has a list of lawyers available as part of membership. Call the local Lawyers Referral Service (LRS) listed by that name in the Yellow Pages. Generally the LRS has a listing of lawyers by type of law they practice. The lawyers usually select the listing themselves as areas of law they handle or are interested in. It does not set expertise. The LRS will give you one or more names of attorneys signed up for tax-exempt, nonprofit, and corporate or tax law. The normal process is that you can have a half-hour free consultation with an attorney about what you want. The LRS will charge a referral fee that is either paid to the LRS directly or to the attorney who sends it to the LRS. Get a receipt. The fee is usually $15-25. Ask the LRS receptionist if the LRS requires the member attorneys to have malpractice insurance and to report any ethical or malpractice claims to them. If the LRS requires these, it is helpful for you to know that. It is still advisable to ask around about the lawyer you will have referred to you. Plan your meeting with the attorney. Do your homework. Prepare questions. What is her/his experience, what are the costs for the attorney time, will there be a retainer agreement or letter of scope of service with deadlines and payment plan? Will charges be by the hour or for the project, such as one fee for getting the State incorporation processes complete another for the bylaws and then another charge for the IRS designation? Associates and paralegals bill at a lower rate; ask about their role. Assess the lawyer. I recommend two people from your group go so that after the meeting you can talk about whether this is the lawyer for your project. See http://www.lawyers.com/, "Twelve Questions to Ask Your Lawyer" and other material, for some helpful discussion about hiring a lawyer. Click on "Legal Tips" on the left. On the next page you will find links to a variety of tips and the "Twelve Questions to Ask Your Lawyer" link is on the left. There is an outside possibility you can secure a pro bono attorney. "Pro bono" means for the public good, at no cost. Many attorneys provide pro bono work but not always for nonprofits. If your group will be providing service to a low-income community, call the local legal services program, sometimes also called legal aid. Many legal services programs and sometimes the LRS will have a pro bono program. If your group qualifies and there is an attorney familiar with tax exempt law on the panel, you may have a free attorney. You can find the name of the legal services program near you through http://www.rin.lsc.gov/rinboard/rguide/pdir1.htm. If there is a law school in your community, it may have a community law clinic or a professor who is interested in the same issues you are and who may help. If there is a possibility, still talk about a retainer agreement and/or letter of scope of service - they are important for details about what you will receive and what the ultimate product will be. The difficulty may occur in access to the pro bono lawyer. When you pay for time, access can be better, but you pay for each contact. When the service is free access may be less. My experience is that most pro bono attorneys do an excellent job, develop a retainer agreement or a letter describing the scope of service with time deadlines and provide other helpful advice. You and the group will have to understand that a free lawyer comes at a cost as to access. You do not want to be perceived as a pain in the neck. Your group will still be responsible for all filing fees with the State and the IRS. Realize, however, you are probably going to pay for legal assistance. You may secure a pro bono attorney but you have to be prepared in case you do not succeed. The cost of filing all the legal papers with the State and the IRS along with paying an attorney can rise quickly. Planning early on for these initial costs is part of developing a business plan. I would not look for a lawyer over the Internet. I like to meet the lawyer representing me. I would research the lawyers I am interested in over the Internet. I especially would verify with the state bar or highest court that the lawyer is in good standing. CAVEAT: I am required to tell you that I am an attorney in the state of New Jersey and it has not been my intention to give you legal advice. I may have given you legal information, but not legal advice. In this context, I should probably add that I do not handle any cases; I have no clients; I have never charged for legal work. I believe I have no conflict talking about how to access attorneys, because I know I am not available. Donald A. Griesmann, Esq. Posted 12/31/94 by Ina Frank; revised 1/19/00; 10/18/02 -- PB