Governing Documents

Every nonprofit organization is "governed" by certain documents in which the founders establish its purpose and provide a general sense of how it will conduct its business.  A nonprofit is legally bound to operate in a manner consistent with these documents.  Failure to do so can result in state sanctions or loss of tax exempt status.

All nonprofit board members and senior staff should be familiar with the NPC's governing documents and should understand how these documents impact the operation of the organization.  Also, knowledge of the governing documents is needed before a board can make thoughtful changes to an organization's bylaws, mission statement or policies and procedures.  

Authorizing Statute - 38 USC 7361-7366

In 1988, Congress passed PL 100-322 (codified at 38 USC 7361) which allowed VA medical centers to establish nonprofit research corporations (NPCs), forming a unique partnership that dramatically broadened VA's ability to accept and administer private and non-VA public funds to support VA's research program.

This legislation provided VA medical centers with a flexible funding mechanism to administer non-VA research funds. Making these corporations separate, state-chartered entities was important in delineating the separation between VA and the corporations, and in providing the oversight of local management. Making them subject to federal oversight provided assurance that they would be operated in accordance with the highest standards of fiscal and administrative management.

The initial purpose of the VA affiliated NPCs was to facilitate research at the VA medical centers where they have been established. Subsequently, Congress expanded their authority to include supporting VA’s patient and staff education and training missions. All funds administered by the NPCs must be used to support VA research related activities or education and training.

President Obama signed the Caregivers and Veterans Omnibus Health Services Act of 2010 as Public Law 111-163 on May 5, 2010 which provided for long-sought updates and clarifications of the NPC authorizing statute.  

VHA Handbook 1200.17

Congress has largely left it up to VA to develop guidance for the NPCs.  VA General Counsel's interpretation of the authorizing statute was updated after the 2010 revision of the authorizing statute.  All board members and senior staff should be familiar with Handbook 1200.17. 

Articles of Incorporation

This is the legally binding document used to establish state corporations. In the articles, the initial board outlines the corporation’s intended purpose. Upon approval by the state, the proposed organization becomes a state incorporated organization with legal permission to conduct business in the state, subject to the state’s incorporation laws. The original approved articles, stamped with the state seal, should be stored with other permanent records in a secure location.

Each state has different requirements for articles of incorporation and NPCs should include only what is required by law. Before drafting these documents, contact the state agency that is responsible for incorporation. This may be the Secretary of State, Department of Commerce, Department of Assessments and Taxation, or the State Comptroller, etc. Request a packet of information that details the state's incorporation process and contains the necessary forms. Also, many states have an association of nonprofits. Go to the web site of the National Council of Nonprofit Associations to determine whether your state has such an association. This organization will have detailed printed advice about setting up a nonprofit in the state, and may offer assistance in drafting articles of incorporation and bylaws.

Helpful resources

• National Council of Nonprofit Associations - http://www.ncna.org/
• Sample Articles of Incorporation

Bylaws 

An organization’s by-laws are legally binding and detail how the organization is structured and governed. The content of bylaws are determined by state law.  NPCs are encouraged to review them on a periodic basis, or at least every three years, to ensure that they are consistent with the organization’s operations and state laws. Again, before drafting or revising the bylaws, contact the responsible state agency.

Best practices suggest that nonprofit bylaws should include the following even if they are not required by state law.

Suggested Bylaw Contents

General Information

• Official name of the organization
• Primary office location
• Organization's purpose(s)
• Tax exempt limitations (i.e., no participation in political campaigns or private inurement.)
• Procedures for amending the bylaws
• Procedures for dissolving the organization
• Disposition of assets upon dissolution
• Member Information (if organization has members)
   

Qualification and classes for membership, including rights and privileges

• Procedures for admission as a member
• Dues obligations of members
• Transfer of membership
• Resignation of members
• Removal of members
• Notice required for membership meetings
• Quorum requirements
• Frequency of meetings and meeting procedures
• Circumstances under which members may be expelled
• Voting procedures
   

Board of Directors Information

• General powers of the directors
• Number of directors
  • Director's backgrounds (i.e., medical center Director, Chief of Staff, ACOS for Research and/or Education, two outside directors, etc.)
• Terms and term limits of directors (generally three year term limits)
• Nomination and election of directors 
• Resignation of directors
• Removal of a director (i.e., with or without notice, failure to attend 3 consecutive meetings, etc.)
• Process for filling vacancies
• Notice required for board of directors meetings
• Frequency of meetings and meeting procedures (i.e., four per year)
• Quorum requirements
• Descriptions and powers of standing committees (if any)
• Meeting procedures (i.e., actions without a meeting, meeting by telephone, etc.)
• Compensation (i.e., statutory VA members may not be compensated for their board services))
• Action taken without a meeting (i.e., consent in writing to waive a meeting, vote, etc.)

Officers

• Qualifications for holding office
• Duties of officers (i.e., chair, vice-chair, secretary and treasurer)
• Process for selecting or appointing officers
• Terms and term limits (i.e., two years)
• Provision for a executive director (if not an officer)
• Circumstances under which officers may be removed
   

Fiscal Matters

• Audit (only needed if different from the statutory requirement)
• Indemnification and insurance
• Investments (only needed if different from the statutory requirements)

Special Note:  It is not necessary for an organization's bylaws to specify rules of order.  However, if they do specify rules of order (i.e., Robert's Rules of Order), then the organization should be very careful to follow those procedures.  Any action taken by the board that does not follow those rules of order may not hold up in a court of law.

Application for tax-exempt status

In order to qualify as a VA-affiliated nonprofit organization, NPCs must apply for tax-exempt status under section 501(c)(3) if the IRS Code. In an application for tax-exempt status, an organization informs the IRS about its intended activities in detail sufficient to persuade the IRS that the revenues derived from those activities should be exempt from taxation. It also selects the preferred 501(c)(3) sub-classification. 

If audited, the IRS will compare the application with the nonprofit’s actual activities to evaluate whether the nonprofit is fulfilling its tax-exempt purpose. As a result, the application should be carefully worded to accurately reflect what the NPC will do. If the organization conducts activities that are inconsistent with its IRS-approved tax-exempt purpose, the NPC runs the risk of having its tax-exempt status revoked. The application is a public document (see BPP section on Openness) and should be stored with other permanent records in a secure location.

To apply for tax-exempt status, go to the IRS web site at http://www.irs.gov and download Package 1023, Application for Recognition of Exemption. This contains instructions and forms. It is also useful to obtain Publication 557, Tax-Exempt Status for Your Organization. This will help identify the correct sub-classification within 501(c)(3) tax-exempt status. NAVREF recommends selecting 9c on page 6 of the application. This provides that the NPC is a “medical research organization operated in conjunction with a hospital” and qualifies it for tax exempt status under sub-classifications 509(a)(1) and 170(b)(1)(A)(iii). This is an accurate representation of the NPC’s purpose and NPCs are generally able to meet the support tests relevant to this sub-classification.

A nonprofit must submit an application for tax-exempt status within 15 months of being incorporated. A VA-affiliated nonprofit must actually obtain tax-exempt status within four years of incorporation. A nonprofit may begin operating as a nonprofit, and accepting grants and donations, as soon as it submits its application for tax-exempt status to the IRS.  Helpful link:  Internal Revenue Service http://www.irs.gov/

Mission Statement 

Developing a mission statement and then advancing that mission through programs are fundamental board responsibilities.

A mission statement defines the purpose of an organization. It should be a concise and clear statement. Its length may vary from one sentence to a short paragraph. Its content should be easily repeatable and known to all board members and NPC staff. Some nonprofits print the mission statement on their letterhead and business cards, and keep it posted in the board meeting room and the nonprofit office for ready reference.

In developing the mission statement, individuals tasked with setting the mission should consider what the organization does, whom it serves, and how the organization achieves its mission. The mission statement serves as a guide to set priorities, to plan for the organization, and to help the board and staff make decisions.

A clear mission statement is a useful tool that the board and staff can use to evaluate new or ongoing initiatives and programs. In order to reach approval, all activities must first pass the mission test: Is the proposed activity or program consistent with the mission of the organization?

For example, when deciding whether to provide funding for an educational activity held at a local university or in conjunction with a community health fair, the board might ask, “Is this consistent with our mission statement?” If the mission states that the purpose of the organization is to support VA-approved research and education at the VAMC, then the answer is likely to be “no,” unless education of VAMC patients or staff can be documented during the events.

In developing an NPC mission statement, focus on how the nonprofit supports VA research, education and training. For example:

• The NPCs provide a flexible funding mechanism for private and public grants to support VA-approved research as well as education and training activities at affiliated VAMCs.
• NPC funded research projects bring additional resources to VA in a time of increasingly constrained federal funding.
• The NPCs bring additional resources to VA that ultimately benefit veterans' medical care. Nurses and doctors hired to administer research projects also provide care for veterans during the course of studies.
• Computers, copiers, and medical equipment are among the many purchases made by corporations to support research projects, but which also enhance care for veterans.
• Corporation funded research increases veterans' access to the latest drugs and technology. By participating in development of new treatments, veterans are offered new treatments in a closely supervised setting.
• The NPCs help to attract high caliber physicians to careers in VA. The additional funds made available through grants and donations to the corporations greatly increase opportunities for VA researchers to secure research funding
• Corporations are able to provide seed funding for young investigators or bridge funding for active investigators to ensure continuation and growth of the research program.

Sample NPC Mission Statements

• Atlanta Research & Education Foundation Established on July 14, 1989, the Atlanta Research and Education Foundation, Inc., is a nonprofit corporation that was created to advance the research and educational activities of the staff at the Atlanta Department of Veterans’ Affairs Medical Center.
• Veterans Medical Research Foundation of San Diego Those who courageously serve in our nation's military deserve exceptional care.  The Veterans Medical Research Foundation's mission is to enhance the health of veterans of all generations through research and education.
• Seattle Institute for Biomedical and Clinical Research.  To improve the health and well-being of Veterans through research and education conducted at the VA Puget Sound Health Care System.
• Northern California Institute for Research and Education - The Veterans Health Research Institute has one mission and one goal.  Veterans Health.  We are the leading nonprofit research institute in the United States devoted to advancing Veterans health research.  

Mission Statement Maintenance

At least every three years, and more often if there is a sense that the mission statement no longer serves the best interests of the organization, the board and NPC staff members should review the organization’s activities as well as its long term goals. Then the mission statement should be evaluated and adjusted if needed to reflect new programs or objectives. For example, after Congress expanded the NPCs’ purpose to include both research and education, NPCs that decided to support both activities should have modified their mission statements to reflect their expanded scope of interest. Once the final wording of a revised mission statement is agreed upon, the full board should vote to formally approve the statement.