Pierce & Mandell, P.C.

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Boston, Massachusetts 02108-3002

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Business and Non-Profit Law

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Pierce & Mandell Attorney Sam Hoff Explains the Distinctions in Tax-Exempt Status Choices

Joseph Coupal - Tuesday, December 05, 2017

501(c)(3) v. 501(c)(6): What Every Non-Profit Incorporator Needs to Know

Sam Hoff, Pierce and Mandell, P.C., Boston, MABy Sam Hoff

One question that we often receive from clients seeking to form a new non-profit corporation is “Should I apply for 501(c)(3) or 501(c)(6) tax-exempt status?” The short answer is that it depends! The type of tax-exempt status that a corporation can obtain is influenced by its stated purpose, if it intends to engage in political activity, its Board structure and membership, and several other factors. Understanding the differences between 501(c)(3) and 501(c)(6) tax-exempt status, which are explained in greater detail below, is critical in order for your corporation to operate legally and efficiently.

Before exploring the differences between 501(c)(3) and 501(c)(6) tax-exempt status, it’s useful to understand the difference between forming a non-profit corporation and obtaining tax-exempt status. The formation of a corporation occurs at the state level, according to state law. In Massachusetts for example, a corporation is formed by filing Articles of Organization with the Massachusetts Secretary of State and registering with the Massachusetts Attorney General’s Office, the Department of Revenue, and the Department of Unemployment Assistance. Once the corporation is formed, it may apply for tax-exempt status at the federal level with the Internal Revenue Service (“IRS”) by filing Form 1023 if it seeks 501(c)(3) tax-exempt status, or Form 1024 if it seeks 501(c)(6) tax-exempt status.

501(c)(3) tax-exempt status. An organization that is organized and operated exclusively for the purpose(s) of religion, charity, science, public safety, literature, education, amateur athletics, and/or the prevention of cruelty to children or animals may file IRS Form 1023 to apply for 501(c)(3) tax-exempt status. To qualify, the organization must generally be a corporation, trust, or fund. An individual or partnership will not qualify. Contributions to corporations with 501(c)(3) tax-exempt status are deductible as charitable contributions on the donor’s federal income tax return.

The assets of a corporation with 501(c)(3) tax-exempt status must be permanently dedicated to one or more of the “exempt” purposes stated above. This means that, should the corporation dissolve, its assets must be distributed in a manner that benefits the exempt purpose(s). The assets cannot be distributed to members of the corporation or private individuals or for any purpose other than the corporation’s exempt purpose(s).

A corporation with 501(c)(3) tax-exempt status may not engage in political activity, such as campaigning for or against a national, state, or local candidate, and generally may not devote a substantial part of its activities to lobbying.

501(c)(6) tax-exempt status. An organization that is a non-profit business league, chamber of commerce, real estate board, or board of trade may file IRS Form 1024 to apply for 501(c)(6) tax-exempt status. No part of the net earnings of a corporation with 501(c)(6) tax-exempt status may inure to the benefit of any private shareholder or individual. The corporation must be primarily engaged in activities or functions that are the basis for its exempt purpose(s). It must be supported by membership dues and other income from activities substantially related to its exempt purpose(s).

Unlike a corporation with 501(c)(3) tax-exempt status, contributions to a corporation with 501(c)(6) tax-exempt status are not deductible as charitable contributions on the donor’s federal income tax return. Such contributions may be deductible, however, as a trade or business expense if they are ordinary and necessary in the conduct of the donor’s business. Further, a member may be able to deduct the dues that he or she pays to the corporation from his or her taxes depending on what the dues are used for.

Unlike a corporation with 501(c)(3) tax-exempt status, a corporation with 501(c)(6) tax-exempt status may generally engage in political activity and lobbying and work toward the enactment of laws which advance the common business interests of the corporation’s members.

So, which is the correct tax-exempt status for you? As you can see, a variety of factors go into the determination of whether your new non-profit corporation should apply for 501(c)(3) or 501(c)(6) tax-exempt status. If you find yourself wondering which tax-exempt status is correct for your corporation and how to obtain it, the experienced Business Law and Non-Profit Organizations attorneys at Pierce & Mandell are here to assist you.

SJC Ruling Provides New Remedies for Shareholders of Deadlocked Corporations

Joseph Coupal - Monday, November 13, 2017

Sam Hoff, Pierce & Mandell, P.C.By Sam Hoff

In its recent ruling in Koshy v. Sachdev, the Massachusetts Supreme Judicial Court issued an early holiday gift to any shareholder of a deadlocked Massachusetts corporation. Thanks to the SJC’s ruling, such shareholders now have available to them several alternative forms of relief which may allow them to regain control of their corporation, as opposed to taking the “extreme” measure of dissolving their corporation.

The facts in Koshy are all too familiar to any shareholder who has experienced the frustration of corporate deadlock before. Two friends, Koshy and Sachdev, co-founded a corporation which provided computer aided design services. They split the corporation’s shares 50/50 and served as its only two directors. After some initial growth and success, Koshy’s and Sachdev’s relationship began to deteriorate. They differed in opinion on a variety of issues including strategic business decisions, the amount and frequency of distributions, and managerial hiring. Their inability to compromise with one another on these issues eventually caused business to grind to a halt. Koshy and Sachdev each attempted to buy the other out and, as a last resort to get out of business with Sachdev, Koshy brought suit claiming that the corporation was deadlocked and must be dissolved. A Superior Court judge found that no deadlock existed, and Koshy appealed the finding.

Koshy is the first case in which the SJC has been called to interpret Section 14.30 of the Massachusetts Business Act (the “Act”). The Act allows any shareholder who holds 40% of the combined voting power of a corporation’s outstanding stock to petition the Superior Court to dissolve the corporation in the event that its directors are deadlocked. The SJC determined that the Act applies only in cases of “true deadlock” and set forth four factors which are relevant in determining whether true deadlock exists:

(1)Whether irreconcilable differences have resulted in a “corporate paralysis,” which is defined as a stalemate between the directors concerning a primary function of management (e.g., payroll, client services, hiring and retention of employees, and/or corporate strategy).

(2)The size of the corporation at issue, with deadlock more likely to occur in a small or closely held corporation, particularly one where ownership is divided on an even basis between two shareholder-directors.

(3)Any indication that a party to a lawsuit has manufactured a dispute in order to engineer a true deadlock.

(4)The degree and extent of distrust and antipathy between the directors.

Where true deadlock exists, relief is available under the Act so long as the shareholders cannot work around the deadlocked directors and irreparable injury is threatened to or being suffered by the corporation as a result of the true deadlock. The SJC found this to be the case in Koshy. Further, the SJC found that the relief available to shareholders of a deadlocked corporation is not limited to the “extreme” measure of dissolution, but includes alternative remedies such as a court-ordered buyout of one shareholder by another or the sale of the corporation to a third-party buyer. The appropriate remedy must be determined by the Superior Court on a case-by-case basis.

From a legal standpoint, the SJC’s ruling in Koshy is a major break from the prior understanding of the Act, as it opens the door for alternative equitable forms of relief. The key takeaway for shareholders of Massachusetts corporations is that they need not resign themselves to the dissolution of their corporation should it become truly deadlocked. This is especially good news for shareholders of small or closely-held Massachusetts corporations, many of whom have built their business from scratch and are personally invested in the goodwill and future success of the corporation. It is understandable that any such shareholder may be reluctant to dissolve his or her corporation. In light of the SJC’s ruling in Koshy, they may now bring suit and argue before the Superior Court that they should be allowed to regain control of their corporation and continue business by buying out their fellow shareholder(s).

Being a shareholder of a deadlocked corporation can be stressful and harmful to your bottom-line. If you find yourself in this situation, please contact the experienced business litigation attorneys at Pierce & Mandell to learn more about your rights and secure the future of your corporation.

Pierce & Mandell Attorneys Help Merge Golf Associations

Joseph Coupal - Tuesday, August 01, 2017

Pierce & Mandell, P.C., Hannah S. SpinelliBy Hannah S. Spinelli

In a historic move, on May 10, 2017 The Women’s Golf Association of Massachusetts, Inc. (“WGAM”) and Massachusetts Golf Association, Inc. (“MGA”) signed a merger agreement turning the two non-profit organizations into one golf association effective January 1, 2018. The interests of both groups will be united and efforts combined to promote the game to all members, male or female. The merged organization will retain the “MGA” name.

Pierce & Mandell, P.C., led by Bob Pierce, Bill Mandell, and Hannah Schindler Spinelli, represented WGAM in the merger and worked to ensure that WGAM’s mission and events (both competitive tournaments and instructional clinics) would be maintained for women within the newly merged MGA. In the official merger announcement, Cathleen Beach, WGAM’s Executive Director, championed the news, stating, “[t]his is an important moment for golf in Massachusetts. Together we will be stronger, more efficient and will reach even more golfers across the state.”

Merger of the two organizations creates an opportunity to maximize resources available to all Massachusetts golfers. MGA President Tom Bagley stated in the merger announcement: “After years of collaborating informally, it became clear to both Associations that we could better utilize all our resources – staff, volunteers and finances – if we work together.” As Tom further indicated, the goal moving forward will be for the merged association to serve all golfers in the Commonwealth. In other prior public remarks, the MGA’s Executive Director, Jesse Menachem, added, “[t]he MGA will greatly benefit from having women even more active in all facets of the organization.” On behalf of WGAM, President Leslie Logan stated, “We are confident that women's golf in Massachusetts will thrive under the new structure. Our membership, championships, events and scholarship programs will be better served by our two organizations coming together.”

By way of background, the MGA came into existence in 1903 and, throughout its time, has grown to include over 360 member clubs, annually sponsors 12 championships, and currently has more than 87,000 member golfers, growing into one of the larger golf associations in the country. MGA’s primary focus has been promoting the game to its member clubs, its individual members, and the general golfing public in the Commonwealth, as well as encouraging the growth of amateur golf.

The Women’s Golf Association of Boston was formed in 1900, before changing its name to WGAM in 1929, with the goal of fostering and promoting interest in women’s golf, and that it did: WGAM currently organizes 24 competitions throughout the year, offers scholarships for junior female golfers, and encourages women of all ages to participate in the sport.

Effective January 1, 2018, the MGA will preserve the traditions of each separate association and continue to grow through collaborative efforts promoting the game of golf. The two organizations initially announced plans to merge after signing a “Letter of Intent to Merge” on November 7, 2016 and each organization formally approved the merger in April, 2017.

Pierce & Mandell, P.C.’s business and real estate attorneys are skilled in all aspects of mergers and acquisitions, and can guide businesses, large or small, for profit or non, through the process to ensure a smooth and successful transaction.

Tom Kenney Comments on the Supreme Court’s Recent Decision to Trim Remedies for Copyright Owners

Joseph Coupal - Friday, August 26, 2016

by Thomas E. Kenney

For copyright owners, a copyright registration provides substantial benefits.  A copyright registration grants the owner the right to collect “statutory damages” against the infringer – ranging from $750 to $30,000 per violation.  Additionally, a registrant may recover from the infringer the attorneys fees it incurred in prosecuting litigation against the infringer.  Traditionally, copyright owners have been able to use the threat of statutory damages and attorneys fees to quickly and efficiently stop infringers and effectuate beneficial settlements.

However, the copyright landscape is changing.  Recently, in Kirtsaeng v. John Wiley & Sons, Inc., the United States Supreme Court made it more difficult for copyright owners to recover their attorneys fees from infringers.  Previously, many courts awarded attorneys fees to the prevailing party in copyright cases as a matter of course – declining to award attorneys fees in only the rarest of cases.  The Kirtsaeng Court rejected that practice, ruling that a Court should award attorneys fees to the prevailing party only where the losing party’s position was “objectively unreasonable” – meaning that the party did not have a good faith basis to deny that it infringed or to vigorously defend against the lawsuit.

The impact of this shift is unclear.  Will infringers resist monetary settlements – knowing that copyright owners are less likely to recover attorneys fees and thus less likely to pursue litigation once the infringer ceases its infringing activities?  Will copyright owners need to consider accepting a prompt cessation of infringing activities and forego insistence on a monetary recovery?  Only time and experience will tell.

A company’s brand and goodwill, represented by its intellectual property, often are its most valuable assets. Pierce & Mandell counsels clients on all aspects of intellectual property law, including registration of copyrights and trademarks, as well as intellectual property disputes and litigation.Contact Tom Kenney at 617-720-2444 or tom@piercemandell.com to discuss protection of these vital business assets.

Tom Kenney quoted in Boston Globe article regarding Commonwealth School trademark litigation

Joseph Coupal - Friday, June 17, 2016

Pierce & Mandell partner Tom Kenney, who chairs our Trademark and Copyright Practice Area, was recently quoted in a Boston Globe article on pending litigation between Boston’s The Commonwealth School and Springfield’s Commonwealth Academy. Tom discussed one of the cardinal principles of trademark protection and trademark litigation: who prevails is often determined by the extent to which the parties market to the same or a similar customer base. Read Tom’s comments and the full article here.

Redskins’ Trademark Registrations May Survive

Joseph Coupal - Tuesday, January 19, 2016
By Thomas E. Kenney

There is an old adage in sports that sometimes a team wins even when it doesn't play. While the Redskins lost in the opening round of the playoffs, they recently scored a victory in their fight to retain their REDSKINS registered trademarks - in a court case in which they are not even a party.

In late December, the Federal Circuit Court of Appeals ruled on the trademark application filed by "The Slants" - a rock band whose members are Asian-Americans. The United States Patent and Trademark Office (“USPTO”) refused to register THE SLANTS trademark because it determined that the mark was disparaging to a substantial composite of Asian-Americans.  

However, the appeals court overruled the USPTO, holding that the statutory provision prohibiting registration of disparaging trademarks was an unconstitutional infringement of the applicants' first amendment rights.

Although the Redskins were not a party to The Slants' appeal, the decision could greatly assist the Redskins in their quest to salvage their own eponymous trademark registrations. The Redskins' marks were canceled by the USPTO pursuant to the same statutory provision invalidated by the appeals court in The Slants' case. Even though the Redskins' appeal is pending in a different appeals court - The Fourth Circuit - that court may well follow the ruling of Federal Circuit and determine that the USPTO’s cancellation of the REDSKINS trademark registrations was unconstitutional. Unquestionably the issue ultimately will be decided by the United States Supreme Court.  We will blog further updates when developments warrant.

The lawyers at Pierce & Mandell routinely represent clients seeking to secure trademark registration for themselves or to deny such protection to their competitors and potential competitors. We offer a free consultation to anyone interested in learning more about their trademark rights.

The Trademark Owner’s Dilemma - Vigorous Enforcement of Rights or Bullying by Thomas E. Kenney

Joseph Coupal - Friday, July 17, 2015

by Thomas E. Kenney

U.S. trademark law is deeply rooted in Common law, but even after Congress enacted federal law prescribing trademark rights in 1870, those rights have been repeatedly tested and redefined. But trademark protection is a door that swings both ways, writes Pierce & Mandell attorney Thomas Kenney  in a recent article which appeared in the July 2015 edition of Massachusetts Lawyers Journal.  “The trademark owner’s dilemma — vigorous enforcement of rights or bullying?”“The trademark owner’s dilemma — vigorous enforcement of rights or bullying?”

“A trademark owner not only enjoys the exclusive right to use its marks in commerce, but also has the right (and in fact the obligation) to stop others from using similar marks in a manner that causes consumer confusion,” Kenney writes. “However, a trademark owner is not permitted to misuse its trademark rights so as to intimidate another business into abandoning a mark that does not conflict with the trademark owner’s mark.  As a result of these competing principles of trademark law — a trademark owner is obligated to vigorously enforce its rights but at the same time must respect the fact that those rights are limited and not monopolistic — a trademark owner frequently is left in a quandary. What measure of enforcement is sufficient to protect its rights without crossing the line? Adding to that tension is the developing concept of ‘trademark bullying.’”

The Trademark Owner’s Dilemma - Vigorous Enforcement of Rights or Bullying by Thomas E. Kenney

Joseph Coupal - Wednesday, May 27, 2015

An article entitled “The Trademark Owner’s Dilemma - Vigorous Enforcement of Rights or Bullying” by Thomas E. Kenney recently appeared in the Spring 2015 edition of Massachusetts Bar Association’s Complex Commercial Litigation Section Newsletter.

 

 

 

 

Medical Marijuana Gets a “Top to Bottom” Review Under New Public Health Commissioner - Boston

Joseph Coupal - Thursday, April 09, 2015

By: Curtis B. Dooling

On April 8th, the Massachusetts Department of Public Health (“DPH”) announced extensive changes to the Medical Marijuana Dispensary Program, according to The Boston Globe and other media accounts. The changes, announced by DPH Commissioner Dr. Monica Bharel, follow what she described as a “top to bottom” review of an application process that has been plagued with difficulties since the program was authorized in 2012. DPH’s revisions shift the focus of the application process from its current form, which has followed a competitive procurement model, to a licensure based analysis similar to other health care facilities. The revised application process will launch on May 15, 2015 and will process applications on a rolling basis.

The application review will focus on security issues and the background of those involved in the proposed dispensary. Dr. Bharel noted that this shift will result in a more efficient, straightforward application process which DPH will strive to make more transparent.

Starting immediately, DPH will post and update the status of dispensaries in the approval and development pipeline and the number of registered and certified patients on its website. Those applicants with pending applications will not need to reapply. DPH will clarify the process to resubmit applications that were previously rejected.

In light of the fact that marijuana is legal in four states and the District of Columbia, Public Health Council member Harold Cox addressed ongoing legalization efforts and suggested that DPH should be proactive in understanding what is happening in the states with legalized marijuana and how potential legalization would affect Massachusetts’s program.

Further complicating the DPH effort to rehabilitate the licensing process is a growing movement to legalize marijuana in Massachusetts, either through legislation or a ballot referendum in 2016. Legislation has been filed to legalize marijuana and to regulate it in the same fashion as alcohol. The legalization effort has been gaining ground since last year, although many public officials have publicly opposed legalization.

The implementation of medical marijuana accessibility in Massachusetts is likely to have a broad impact on a variety of businesses involved in healthcare, real estate and administrative licensing. Attorneys at Pierce & Mandell follow this shifting landscape assiduously, and are poised to assist any of our clients with questions regarding business opportunities or legal obligations arising out of the implementation of and access to medical marijuana in Massachusetts.

The DPH press release is available here.

Hall and Oates Say “No Can Do” To Use of “Haulin’ Oats” For Granola

Joseph Coupal - Friday, March 06, 2015

By Thomas E. Kenney

Enjoying a rather modest return to the spotlight after spending years in the “where are they now” category, aging pop/soul duo Daryl Hall and John Oates is back to doing what famous people do – suing others.  On Wednesday, Hall and Oates’ partnership, Whole Oats Enterprises, sued a Brooklyn based company, Early Bird Foods & Co., LLC, for trademark infringement based on Early Bird’s use of the name “Haulin’ Oats” in connection with the sale of granola.

While at first blush the lawsuit appears to be another example of a celebrity’s over-inflated ego getting the best of sound legal reasoning – similar to Chubby Checker’s preposterous lawsuit against HP and Palm over the “Chubby Checker” anatomical measuring app. – there is a twist (no pun intended) to the Hall and Oates lawsuit that may add some teeth to the case.

Another party, a woman in Tennessee named Tracey S. Levine, has been using the mark “Haulin’ Oats” since 2012 in connection with the sale and delivery of oatmeal.  Ms. Levine was granted a U.S. Trademark registration for the mark in June of 2013.  In February of 2015, after Early Bird declined Whole Oats’ demand that it cease use of the “Haulin’Oats” name, Whole Oats wisely entered into an agreement with Ms. Levine by which Ms. Levine assigned her “Haulin’ Oats” trademark to Whole Oats, and agreed to pay a royalty to Whole Oats for her continued sale of oatmeal under that mark.  It is not clear whether this arrangement has made Ms. Levine a “Rich Girl.”

Thus, while Whole Oats’ assertion that Early Bird’s use of “Haulin’ Oats” in connection with the sale of granola infringes the DARYL HALL JOHN OATES and HALL & OATES trademarks is spurious at best, Whole Oats does have what appears to be a viable claim that Early Bird is infringing the “Haulin’ Oats” trademark for oatmeal – now owned by Whole Oats.  Assuming the assignment is valid, Whole Oats has a legitimate shot at prevailing in this litigation on that basis.

The moral of this story? Fame fades, but trademark rights don’t have to.  The lawyers at Pierce & Mandell have many years of experience protecting and enforcing trademark rights, and have the skills necessary to help you develop a strategy for maximizing the value of your brand.


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