Minnesota Nonprofit Corporations — Bread and Butter Regulatory Considerations

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Cory D. Halliburton

Cory D. Halliburton

Attorney

214.984.3658
challiburton@freemanlaw.com

Cory Halliburton serves as general counsel and business adviser to a nationwide nonprofit / tax-exempt client base, as well as for multi-state professional service companies. He is a results-oriented attorney, with executive-level strategy and an understanding of the intersection of law and business judgment. With a practical upbringing, he pushes for process-driven results in internal governance, strategy and compliance with employment law, and complex or unique contracts and business relationships.

He dedicated the first ten years of his practice to mainly commercial litigation matters in West Texas and the Dallas-Fort Worth Metroplex. During that experience, Mr. Halliburton transitioned his practice to a more general counsel role, with an emphasis on nonprofit and tax-exempt organizations, advising those organizations through formation, dissolution, litigation, governance, leadership succession, employment law, contracts, intellectual property, tax exemption issues, policy creation, mergers and other. He has served as borrower’s counsel for tax-exempt bond and loan transactions near $100 million aggregate; some with complex pre-issue construction, debt payoff and other debt financing challenges.

Mr. Halliburton also serves as outside legal and business advisor for executive professionals in multi-state engineering firms, with a focus on drafting and counsel on significant service agreements, employment law matters, and protection of trade secrets.

Minnesota Nonprofit Corporations — Bread and Butter Regulatory Considerations

Most of the 50 states (and the District of Columbia) have a specific statutory regime for nonprofit corporations. Some states, such as Delaware, regulate nonprofit corporations under general corporate statutes. Over the last 15 years, I have represented nonprofit organizations across the US, which has allowed me the need, opportunity, and desire to become familiar with many of those different regimes, including those of Alabama, California, Colorado, Delaware, District of Columbia, Florida, Georgia, Illinois, Kansas, Minnesota, North Carolina, Oregon, Texas, Washington (and likely others that I cannot now recall).

This Freeman Law Insights blog focuses on the legal and regulatory scene in the State of Minnesota, commonly known as The Bread and Butter State, The North Star State, or The Land of 10,000 Lakes, depending on your preference.

Minnesota Nonprofit Corporations Act and Incorporation Considerations.

The Minnesota Nonprofit Corporations Act, Chapter 317A of the Minnesota Statutes, is pretty solid, easy to maneuver and understand, and is sufficiently comprehensive. It is very similar to Texas’s legal regime for nonprofit corporations, Chapter 22 of the Texas Business Organizations Code, and Texas’s statutory regime is one of the best in the nation that I’ve seen.

Whether, in any particular situation, one state’s statutes are better than another is difficult to pinpoint in a vacuum. But, it is always worth evaluating the laws of the state of incorporation in order to at least gain a high-level understanding of those state law requirements for the organization.

If an organization is principally located in Minnesota, but elects to be incorporated in another state, then the organization will likely have two sets of laws to consider – one for internal affairs and governance (usually the laws of the state where incorporated) and another for external matters (usually the laws of the state where the business is transacted, unless agreed otherwise by third-party contract). And, the organization would likely need to register to do business in the states where it “does business” sufficient to require registration, which will require a registered office and a registered agent in each state where registered.

The State of Minnesota’s form for articles of incorporation for a nonprofit corporation expressly state that the form does not meet the tax exemption requirements of the Internal Revenue Code.

Due care should be taken by any nonprofit corporation in Minnesota who will want to seek tax exemption from the IRS. The articles of incorporation should be drafted and adopted so as to honor both Minnesota law for the nonprofit corporation and the Internal Revenue Code for tax exemption. Similarly, the organization’s bylaws should appropriately capture governance requirements of the Minnesota Nonprofit Corporations Act, including for conflict of interest transactions, officer requirements, conduct of directors, records inspection, action without a meeting, indemnification, and other.

Minnesota Charitable Solicitation Registration

Minnesota, unlike states such as Texas, requires annual state filing and charitable solicitation registration. The latter applies for any organization that solicits and receives $25,000 or more in a year from within Minnesota, whether or not the organization is incorporated in Minnesota. Roughly 40 states have a solicitation registration regime, and Minnesota is one of them. Generally, the charitable solicitation registration requirement applies to any charitable organization that solicits contributions in Minnesota. See Minn. Stat. § 309.50, et. seq.; Minn. Stat. § 309.52 (“No charitable organization, except as otherwise provided in section 309.515, shall solicit contributions from persons in this state by any means whatsoever unless, prior to any solicitation, there shall be on file with the attorney general upon forms provided by the attorney general, a registration statement containing, without limitation, the following information: . . .).

Certain organizations are exempt from the registration requirements, such as charitable organizations that do not raise $25,000 in a year and also meet other listed factors; certain religious organizations; certain educational and fraternal organizations; and private foundations with limited external solicitation activities. See Minn. Stat. § 309.515(a)-(g); see also Minnesota Charitable Solicitation Registration information.

Minnesota Annual Filing Requirements

Minnesota also requires a state annual filing (like an IRS Form 990) for organizations that raise or hold more than $25,000 annually. Basically, the organizations that are required to file a solicitation registration must file the annual filing. See Minn. Stat. § 309.53 (Annual Report Requirements); MN Attorney General Charitable Organization Annual Report Form.

In Minnesota, an organization organized for purposes described in section 501(c)(3) of the Internal Revenue Code may apply for an exemption from paying Minnesota sales tax on the organization’s purchases. Not all organizations qualify. This request is made to the Minnesota Department of Revenue using Form ST16 (Form ST16, Application for Nonprofit Exempt Status-Sales Tax (state.mn.us)), also available here: https://www.revenue.state.mn.us/.

Insights.

Minnesota has a sound nonprofit corporation statutory regime. Nonprofit corporations incorporated under Minnesota law should evaluate and understand the charitable solicitation registration and annual filing requirements. Each organization should consider engaging (and budgeting for engagement of) a competent legal advisor and certified public accountant knowledgeable of Minnesota’s state law and filing requirements as well as of the federal regulatory and filing requirements. While the requirements may seem more than desired, the Bread and Butter organization will hopefully gain a nice, steady cadence for complying with these regulatory matters, which, over time, should remove the sting and burdensomeness of administration.