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“Nonprofit” does Not Mean “501(c)(3)”

Non-Profit Organization

As it is the giving time, I took some time to give a donation through the Friends of Hawaii Charities, Inc. page. As I was going through the process, this triggered my busy-filled brain that I was going to do a series of one-sheets and posts about nonprofits, tax-exemption status, and the meaning of 501(c)(3) . . . Which as you can see I have not done.

So I figured let’s just do a short post on one aspect:  namely, terminology and use of phrases of “nonprofit,” “non-profit corporation,” and “501(c)(3)”.

Be Specific: The Importance of the Right Word

Sometimes the “officialness” of a word tends to confuse rather than help. However, for attorneys, especially transactional ones, like myself, we often correct clients that conflate a “corporation” with an “LLC.”  They are NOT the same entity.  Further, this translates into a shareholder owns stocks/shares in a corporation whereas a member owns membership/ownership interest in their LLC.  While this can get confusing to the average businessperson, we attorneys use it to understand what type of situation we are facing for the purposes of ownership, rights, obligations, taxes, etc.

So this brings me to the point of this post.  I hear many times people use the word “nonprofit” to mean the same thing as “501(c)(3)” and vice versa.  While a 501(c)(3) is a nonprofit, not all nonprofits are 501(c)(3) organizations.  (If you remember nothing else of this post, just remember that sentence!)

What is a Nonprofit?

Many people think that “nonprofit” means that the organization does not make money. While, in a sense true, that does not paint the whole picture.  Like many lay people’s interpretation of the mechanics of law that is oversimplified.  The designation of being a nonprofit does NOT mean that the organization does not intend to make a profit.  What it means is that the organization has no owners (like shareholders or members of for-profit corporations or LLCs) and that the revenues earned by the organization do not inure to any particular owner.  In fact, there are some large revenue-generating nonprofit organizations out there, and one has had some headlines recently is the National Football League (NFL).

Yes, the NFL is a nonprofit; specifically, under the US Tax Code, it is a 501(c)(6).  I will get to the 501(c) thing in a minute.  I’d like to finish this thought on “nonprofit” before segueing to the 501(c).  Because business entity formation happens at the state-level (here in Hawaii you go through the Department of Commerce and Consumer Affairs, and in other states through the secretary of state), nonprofits first step toward 501(c)(3) status is to become a nonprofit corporation.

At that point, after your Articles of Incorporation are filed, you have a non-profit corporation in your state, BUT you are NOT a 501(c) tax-exempt nonprofit organization.

What are 501(c)s? and Specifically What is a 501(c)(3)?

After you have a non-profit corporation most organizations try to determine whether or not to seek further 501(c) status due to their purpose.  Notice that I mentioned that the NFL is a 501(c)(6), which is a Business League,  but in total there are about 29 different types of 501(c)s of varying use.  The most well-known is what everyone thinks of as a nonprofit, which is an organization organized for charitable (or similar purposes) and has 501(c)(3) status.

If the nonprofit corporation has a charitable purpose, its board of directors will seek 501(c)(3) status form the IRS. This tax-exempt status confers a benefit to people who donate money to the organization.  If you look at the website that I made a donation to this is the language they use:

Your donation is made to Friends of Hawaii Charities and is tax-deductible because Friends of Hawaii Charities is a 501(c)(3) tax-exempt charitable organization.

For charitable organizations, that is the key feature of a 501(c)(3) tax-exempt status, allowing the donors to get a tax deduction.  To receive this special status the nonprofit corporation has to meet certain criteria, and even after it gets its 501(c)(3) status the organization needs to abide by standards set out in the tax code.  For example, 501(c)(3) organizations cannot support political candidates and conduct extensive lobbying whereas the 501(c)(4), civic leagues, aka “Super PACS,” are not barred from these activities (yet).

Last Word: Know the Terms

I hope this clears the confusion when you use the words “nonprofit” and “501(c)(3)”. Nonprofit is just a general catchall and consider the fact that the term can just as easily apply to a casual association as well as a formal organization (i.e. one that has filed Articles of Incorporation to become a nonprofit corporation).  Then, you take your non-profit corporation and apply for 501(c)(3) tax-exempt status.  If that does not help, as always seek an attorney or professional and they may explain it better than me.

P.S. If you are feeling giving, be sure to check out the Friends of Hawaii, Inc. site and give to a Hawaii nonprofit through Friends of Hawaii, Inc., which is a 501(c)(3) charitable organization!

Social Media & the Law Update 09-18-13: Upcoming PNM Class, FB ‘Like’ Constitutionally Protected

FB 'Like' Constitutionally Protected

LEGAL DISCLAIMER: The following information is provided to be just general information, and therefore, should not be taken as specific legal advice that pertains to any particular situation.  The reader should not base any decisions on the information here to act or refrain from acting regarding a legal problem.  If you believe you have a legal problem please seek legal advice from a licensed attorney in the relevant jurisdiction.
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Exciting news everyone!  My Pacific New Media (PNM) class on Social Media and the Law is next week!  So there is still plenty of time to sign-up.  Here is the general info:

Sep 25, 2013 • Wed • 7:00-9:00pm • 1 mtg • UHM Krauss 012 • $50 (SMCHI $45)

What will I be covering?  Well, as it is a general survey class, I will touching upon areas where the law has inserted itself in the social media sphere, such as today’s more exciting news.

4th Circuit Court of Appeals Rules the “Liking” on Facebook is Constitutionally Protected

For instance, like how a Facebook ‘Like” is protected by the 1st Amendment of the U.S. Constitution (i.e. it is a freedom of speech).  Today, the 4th Circuit Court of Appeals issued a ruling in favor of a former deputy sheriff who had been fired from his job due to “liking” the Facebook page of the man running in opposition to his boss.  Basically, the court felt that by “Liking” a campaign page, it was the “Internet equivalent of displaying a political sign in one’s front yard, which the Supreme Court has held is substantive speech.”  Further, the court, in its unanimous ruling, as to this Facebook issue, stated that, “On the most basic level, clicking on the ‘like’ button literally causes to be published the statement that the User ‘likes’ something, which is itself a substantive statement[.]”

To read the complete ruling, check it out here.

Other Topics at my Class

As stated in my post on Trademark Usage, I attended the ABA’s Annual Conference, so I sat in on a seminar on “Social Media Terms of Use: Case Law Round Up”.  Many of the issues discussed at that seminar are ones I will be focusing on for my PNM class, such as various social media platforms’ terms of use, policies, etc . . . . I have a Slideshare that covers basics on the differences between Policies and Contracts.   What many users fail to realize that Terms of Use are generally binding and enforceable contracts, but that a Privacy Policy tends to be just a company’s call toward a prescribed action.  This is something that social media marketers, consultants, small business owners, and those who use social media as one of their primary marketing tools should consider.  Finally, if you are a responsible decision maker for your organization/business, you really consider having internal dialogue on handling social media in general (whether it be employees, PR, marketing, etc . . .).

Anyway, that is just a sliver of one of the many topics to be covered in my class.  So if you are interested in signing up click here.

Mahalo!

-RKH

What’s the Purpose of a Trademark? How is it Used?

What's the Purpose of a Trademark

LEGAL DISCLAIMER: The following information is provided to be just general information, and therefore, should not be taken as specific legal advice that pertains to any particular situation.  The reader should not base any decisions on the information here to act or refrain from acting regarding a legal problem.  If you believe you have a legal problem please seek legal advice from a licensed attorney in the relevant jurisdiction.
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So it’s amazing how time flies when you have a lot of work to do.  I have been very grateful for these past couple of months for the clients that have come through my door (or via electronic means), but more work means less time for blogging and sharing information to all you interested soon-to-be or current business owners.

Anyway, as some people know I was fortunate last month to attend the American Bar Association’s Annual Conference in San Francisco.  I attended many Intellectual Property, Business Law, and a couple of Employment Law seminars.  When I can, I will update my blog or provide one-sheet resources on the information I obtained from these seminars to share with all of you.

So today’s post is about the use of trade and service marks.  A prior Draw the Law post covered the difference between a trade name and trademark and I have a one-sheet on What is Trademark?.

Purpose of Marks

Before we get to the using of a trademarks, let’s first consider that the purpose of a trademark.  The point of a trademark is to distinguish one company’s set of goods and/or services from another company’s.  Basically, it is meant to avoid confusion to consumers, so they can readily ascertain from the mark which company the goods and/or services are originating from.

So How are Marks Used in Commerce?

A mark can be used on goods (products), which would make it technically a “trademark”.  Specifically, this would mean the mark is applied, engraved, embroidered directly on the goods, POS displays, the use of labels or tags affixed to the good, or shipping labels when sending the goods through commerce.  It is not just merely advertising, but must have a Point of Sale component.

In the case of a mark used in connection with services, clearly there is no tangible part to a service.  Therefore, service marks are found on websites, brochures, advertising (but not printer’s proofs), on or at locations associated with the services, such as vehicles used with the service, or on the uniforms of employees while they perform the service.

How do I Properly Use my Trademark?

You can use ℠ for service marks, ™ for trademarks, and registered trademark symbol (the ‘R’ that has a circle around it) ONLY for registered marks (it is a violation of the law to use the registered symbol when your mark is NOT registered).  Further, the mark should be distinguished from regular text, through the use of quotation marks, larger print, all capital letters, or through colorization of the wording.  Also your grammar lessons are important for trademark usage.  A noun should ALWAYS follow a mark.  The mark should NEVER be used as a verb.  For example, it is a XEROX copier and NOT xeroxing. Or perfect for the web as another example, it is NOT you googled the answer, but it is rather you ran a GOOGLE search.  Finally, the correct spelling should be used and moreover, the mark should not be pluralized.

The point of all this proper usage is to avoid a loss in rights in the mark.  Many trademarks of famous brands have become generic, and generic terms are not entitled to trademark protection.  Consider that the word “escalator” used to be a registered trademark, but the Otis Elevator Company has lost that mark due to it becoming generic.  Therefore, you should be actively policing your trademark usage and avoid losing rights that you worked so hard to create with your brand.

That’s it for this time.  I hope to be back soon with more information to share.

Mahalo for stopping by!

-RKH