Legal Issues in Non-Profit Organizations

Many legal issues affecting commercial industries apply to non-profit organizations regarding the law. While these institutions are founded on good intentions, a lapse in the protocol is non-justified, and board members have every right to consider meticulous care to research the regulations that might impact their operations. Any breach of the legal requirement to run the organization results in severe penalties, which might result in closure. The three common legal issues that non-profits experience include employee misclassification, political lobbying, campaigning, and state law compliance.

The challenge of employees’ misclassification manifests in the form of independent contractors. The associated legal issue arising from the misclassification is that if an employee receives an independent contract treatment with the organization, they may never enjoy compensation benefits (Matthews, 2018). The lack of classifying this issue can result in a lawsuit, particularly in the event of an injury, which contributes to other misclassification challenges that might involve penalties and tax liabilities. For example, in the Marie v. American Red Cross case, the organization misclassified the employees as volunteers (Matthews, 2018). When such is the case, even a seemingly insignificant misnomer might result in serious legal issues with the state.

To avoid employee misclassification issues, every non-profit must differentiate between the two classifications to set apart the distinct protocols. Moreover, the board members must ensure that they can distinguish the terms of the initial contract signed between the organizations upon research. The employees must have no bearing on the issue (Matthews, 2018). The non-profit must define a worker’s classification as an independent contractor through a practical investigation based on the following requirements. One is employee benefits and contracts relative to the performed work, and two, the expenses and tools are essential for the workers’ responsibility (Matthews, 2018). Lastly, a worker must be classified based on their approach to completing their work.

The second legal issue faced by non-profit organizations is political lobbying and campaigning. Whether board members show support to or are in opposition to any political candidate, they are not obliged to use the non-profit s platform to share their opinion about their preferences. The potential violations may lead to excise taxes imposition or tax-exempt status revocation, whose penalties are steep for the organizations (Matthews, 2018). No non-profit organization is permitted to contribute to or intervene in any political campaigns on behalf of the candidate. Such involvement in political affairs may result in the firms repurposing their charitable operations towards benefiting a specific member or might lead to funds misappropriation in any way, which is inherently immoral for the institutions (Matthews, 2018). In such instances, when found guilty, the non-profit face serious legal repercussions if funds are misused. For example, the Sierra Club, an environmental organization, was found guilty of receiving $26 million from one of the largest companies in the country, representing a significant conflict of interest (Matthews, 2018).

Through research, board members must acknowledge that any politically charged public statement, written or verbal, is against legal requirements which have the potential to result in the established outcomes. To avoid the legal issues of political campaigning and lobbying, non-profit organizations must keep their affiliates and professions separate (Matthews, 2018). Board members that speak on behalf of the institutions must always practice discretion. Under no circumstance are they to issue a public statement representing any politician.

Lastly, every non-profit must comply with state laws, particularly in the U.S., where every state has a different legal requirement. Issues such as workers’ compensation and payroll are significant factors the organizations must look into, and employees active in new states may require particular consideration. Non-profits must take up any potential concerns by the board members with the trusted professionals whose responsibility is to delegate. An example of non-profit non-compliance is the issue of the Red Cross receiving facts and figures misrepresentation criticisms for their work in Haiti, which represents a danger for many organizations that operate outside their domicile state (Matthews, 2018). One way to avoid such issues is to review the legal state requirements before soliciting in new places and maintaining accuracy in the reporting processes.

Board members are responsible for ensuring they inspect new state regulations before expanding their operations, failure to which the organizations are bound to experience severe consequences for their involvement in improper conduct. Moreover, if the operations of the non-profit qualify as doing business in a specific state, it has to register as a foreign corporation (Matthews, 2018). The earned money in the state will later require detailed annual reporting. Therefore, the institutions must practice careful record-keeping, which is critical in maintaining operation legality.

Failure by non-profit organizations to follow the legal requirements results in conflicts, which lead to severe consequences. Seeking permitted consultations with the appropriate professionals is critical in guiding the institutions to avoid potential legal issues that affect commercial and non-profit organizations. The three issues addressed show that non-profits risk facing severe penalties if found guilty of operating against the law. Therefore, board members must research the appropriate requirements before engaging in any activities.


Matthews, K. (2018). 3 Common Legal Issues Nonprofit Boards Experience. NonProfit PRO. Web.

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1. LawBirdie. "Legal Issues in Non-Profit Organizations." April 11, 2023.


LawBirdie. "Legal Issues in Non-Profit Organizations." April 11, 2023.