Missouri Association of School Business Officials

2013 Spring Conference

555 Maryville University, Dr. Suite 240St. Louis, MO 63141tel. 314.878.5600fax. 314.878.5607

221 West Lexington Suite 114

Independence, MO 64050tel: 816.874.8000fax: 816.874.8925

107 N. Main St., Ste. 2EColumbia, IL 62236tel: 618.281.2700fax: 618.281.2701

Presented by:

Mickes Goldman O’Toole, LLC

Foundations: Formation, Fundraising and Financing

E.J. MillerMickes Goldman O’Toole, LLC

St. Louis, Missouri

Why a Foundation? Provides vehicle for District to accept

targeted Contributions Receive Bequests, Invest and Manage

Testamentary Gifts Scholarship funds Annual Fundraisers/Golf Tournaments Targeted Fundraising/Specific District

Projects Capital Equipment Leasing Lease-back Financing

How to

Step 1 Missouri Non-profit Corporation Act Section 355.001 et seq. RSMo

The basic corporate documents required to form a Missouri Non-profit are the following:

Articles of Incorporation;By-Laws of the Corporation; Unanimous Consent of Board of Directors attesting to the adoption of By-Laws; and,Secretary’s Certificate.

Form a Foundation

Completing the Organizational Documents & Obtaining Tax Exempt Status

Step 2 Complete the Organizational Documents & Obtain Tax Exempt Status

To establish tax-exempt status, the corporation must prepare and file the following:

Form SS-4 to obtain an Employee Identification Number (EIN);

IRS Form 1023. This form is filed in order to qualify as a Section 501(c)(3) tax-exempt entity.

Completing the Organizational Documents & Obtaining Tax

Exempt StatusOther Tax filings:

Form 1746 Missouri Department of Revenue – Sales Tax Exemption;

Form 2643 Missouri Department of Revenue – to be filed in the event you expect to sell products and wish to be exempt from collection of sales tax;

Registration as charitable organization to be filed with Missouri Attorney General’s office.

Annual Compliance

Step 3

Annually, the Foundation must file the following:  IRS Form 990; Missouri Annual Charitable Organization

Report; Annual Corporate Registration Report.

Characteristics of a Non-Profit Organization

How is a non-profit different from a “regular” corporation?

Exclusive Purpose of Entity Must be Nonprofit May not have shareholders May not pay dividends or unreasonable compensation May not make other distributions for the profit of

private individuals

The Articles of Incorporation

The Basics – Information your attorney will need from you: The corporation’s name; A statement that the corporation is either

a public benefit corporation or a mutual benefit corporation;

The street address of the corporation’s initial registered office and the name of the initial registered agent;

The Articles of Incorporation

The name and address of each incorporator;

A statement as to whether the corporation will have members; and,

Provisions not inconsistent with the law regarding the distribution of assets on dissolution

Required Provisions for Non-Profit’s Articles of Incorporation

Purpose: The corporation is organized exclusively for charitable, educational, religious, or scientific purposes within the meaning of Section 501(c) (3) of the Internal Revenue Code.

Inurement of Income: No part of the net earnings of the corporation shall inure to the benefit of, or be distributable to, its members, directors, officers or other private persons except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered.

Legislative or Political Activities: No substantial part of the activities of the corporation shall be the carrying on of propaganda or otherwise attempting to influence legislation and the incorporation shall not participate in or intervene (including the publishing or distribution of statements) in any political campaign on behalf of any candidate for public office.

Required Provisions for Non-Profit’s Articles of Incorporation Operational Limitations: Notwithstanding any other

provisions of these articles, the corporation shall not carry on any other activities not permitted to be carried on (a) by a corporation exempt from Federal Income Tax under Section 501(c) (3) of the Internal Revenue Code of 1954 (or the corresponding provision of any future United States Internal Revenue Law) or (b) by a corporation, contributions to which are deductible under Section 170(c) (2) of the Internal Revenue Code of 1954 (or the corresponding provision of any future United States Internal Revenue Law).

Required Provisions for Non-Profit’s Articles of Incorporation

Dissolution Clause: Upon the dissolution of the corporation, the Board of Directors shall, after paying or making provisions for the payment of all of the liabilities of the corporation, dispose of all the assets of the corporation exclusively for the purposes of the corporation in such manner, or the such organization or organizations organized and the time qualify as an exempt organization or organizations under Section 501(c)(3) of the Internal Revenue Code of 1954 (or the corresponding provision of any future United States Internal Revenue Law), as the Board of Directors shall determine.

Bylaws:

The initial bylaws are adopted by the incorporators or the board of directors.

The board of directors of a nonprofit corporation must consist of 3 or more persons, with the number of directors specified in the articles of incorporation.

The board of directors may also be referred to as a “board of trustees, a board of regents or a board of overseers.”

The articles or bylaws must specify the terms of the directors.

Govern the conduct and operation of the Foundation

Sample Bylaw Provisions which Mirror Articles

Powers.  All corporate powers shall be exercised by … the board of directors of this corporation.  The board of directors shall have and is vested with all and unlimited powers and authorities, …; provided, however, that (a) the board of directors shall not authorize or permit this corporation to engage in any activity not permitted to be transacted by the articles of incorporation or by a corporation organized under the Missouri Nonprofit Corporation Act, (b) none of the powers of this corporation shall be exercised to carry on activities, otherwise than as an insubstantial part of its activities, which are not in themselves in furtherance of the purposes of this corporation, and (c) all income and property of this corporation shall be applied exclusively for its nonprofit purposes.

Sample Bylaw Provisions which Mirror Articles Cont‘d.

This corporation shall not engage in any activity which may not be engaged in by a corporation which is exempt under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or the corresponding provisions of any future federal internal revenue laws then in effect.

 No substantial part of the activities of this corporation shall be the carrying on of propaganda, or otherwise attempting, to influence legislation.  This corporation shall not directly or indirectly participate in, or intervene (including the publishing or distributing of statements) in, any political campaign on behalf of (or in opposition to) any candidate for public office.

No part of the net earnings or other assets of this corporation shall inure to the benefit of any director, officer, contributor, or other private individual, having, directly or indirectly, a personal or private interest in the activities of this corporation, except that this corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments in furtherance of the purposes set forth in this Section 3.2.

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Officers and Operational Concerns

Nonprofit corporation must have a chairperson or president or both, a secretary, a treasurer, and such other officers as are appointed by the board. Superintendent is typically an ex-officio member.

Officers of tax-exempt organizations who are not compensated for their services shall be personally immune from liability arising out of the conduct of the affairs of the corporation.

The immunity does not apply to intentional conduct, wanton or willful conduct or gross negligence.

D&O Insurance

Application for Tax Exempt Status

To qualify for tax-exempt status, a corporation must file an application for exemption on Form 1023 within 27 months from the last day of the month in which the corporation is incorporated.

If a charitable organization files within 27 months from formation, tax-exempt status will be retroactive to date of formation.

Application for Tax Exempt Status

If the application is filed after that date, exempt status will be effective only as of the date a complete application is filed, not as of the date of incorporation.

IRS will issue a ruling or determination letter holding a nonprofit corporation to be exempt in advance of its actual commencement of operation if the application is timely filed.

Instructions for Form 1023Sample Form 1023

501(c)(3) Non-Profit Manual

Reporting for Tax-Exempt Corporations

Exempt nonprofit corporations are generally required to file annual information returns on Form 990 in lieu of income tax returns. We recommend you post Form 990 on Foundation website.

Many organizations that do not normally have annual gross receipts in excess of $25,000 are exempt from filing Form 990, but we shall recommend you file these in any event.

Practical Examples of Foundations in Action – Fundraising Activity

Advance Funding Commitments can serve to enhance a Bond Issue

Band Uniforms Stadium enhancements Science labs Artificial turf Scholarships

Practical Examples of Foundations in Action – Lease Financing

Special uses of Foundations:

Lease Financing A means of legally borrowing money for the

long-term; No election required unless an increase in the

operating levy is necessary due to lack of sufficient revenues from current sources

Practical Examples of Foundations in Action – Project Finance

Lease-Back Transactions (Certificates of Participation) Legal structure requires an agreement with a not-

for-profit organization for Missouri School Districts when project involves land acquisition, new construction or improvements to permanent facilities

Tax exempt interest to investors – low interest rates Results in slightly higher interest rates and

costs of issuance compared to General Obligation Bonds

Practical Examples of Foundations in Action – Statutory Authority

Chapter 177: School Property and Equipment

Section 177.088: Facilities and equipment may be obtained by agreements with not-for-profit corporation

“The board of any educational institution may enter into agreements…with a not-for-profit corporation…in order to provide for the acquisition, construction, improvement, extension, repair, remodeling, renovation and financing of sites, buildings, facilities, furnishings and equipment for the use of the educational institution for educational purposes.”

Practical Examples of Foundations in Action – The Financing Mechanism

Base Lease The District agrees to convey a leasehold interest in certain real property

located in its boundaries in order for the Not-For-Profit Corporation to sublease the property back to the District on an annually renewable basis in consideration of base rental payments to be made semiannually by the District. The term of the base lease usually runs five years beyond the final maturity of the financing; however, it collapses once the final payment of the Project Lease occurs.

Project Lease The Not-For-Profit Corporation will lease the encumbered facilities back to

the District and will issue Lease Certificates of Participation through a Trustee Bank under the Trust Indenture. The Lease Certificates of Participation are in the Project Lease Agreement.

Special thanks to L.J. Hart & Company for their input and assistance with the Lease-Back Financing section.

Edward J. Miller, Jr.ejm@mickesgoldman.com

(314) 878-5600

For more information on School District Foundations, please contact me:

555 Maryville University, Dr. Suite 240St. Louis, MO 63141tel. 314.878.5600fax. 314.878.5607