The statement of purposes.

Why it's important to accurately reflect - and periodically review - your association's lawful reason for being.

Earlier this year it was reported that the attorney general of the state of New York had instituted a proceeding aimed at withdrawing the state nonprofit corporation status of two associations in the tobacco industry. The thrust of the state's complaint is that the organizations are not operating in ways that are consistent with their purposes as described in the governing documents of the organizations.

The proceeding instituted by the New York attorney general arose as part of the vast tort litigation between the states and the tobacco industry. At this writing the outcome has not been determined. But whatever the outcome in that singular proceeding, associations should take the cue that purpose clauses in their articles of incorporation, bylaws, and other governing documents are much more than boilerplate. Make it a practice to periodically review, and if necessary amend, your association's statement of purposes to reflect the actual and lawful reasons for the existence of the association.

Reasons for purpose statements

The well-thought-out, accurately stated purposes for which an association has been formed are expected to appear in the association's articles of incorporation, bylaws, and other governing documents. Purpose statements also are sometimes used in membership solicitations, in submissions to the government, and in other places where the aims of the association are communicated.

Association purpose statements often are crucial in making determinations about an association, such as (a) whether it can qualify as a nonprofit corporation under state law (the issue in the tobacco industry association proceeding in New York state), (b) whether it is exempt from payment of federal or state taxes, (c) whether it can attract individuals or entities that support the purposes of the association, and (d) whether it is organized or operated in ways that restrain competition.

Internal Revenue Service audits of tax-exempt organizations often start with a review of the governing documents, particularly including the purpose statements. Likewise, in governmental or private investigations or litigation, the association's statement of purposes can be an initial focus.

Language considerations

Particularly when it appears in an association's articles of incorporation (sometimes called a corporate charter), the purpose statement is a relatively permanent pronouncement. Often a vote of the membership is required to amend an association's articles of incorporation. This version of the purpose statement might appropriately be kept more general than specific. A more detailed version of the purpose statement, consistent with that in the articles, might appear in the association's bylaws or other governing documents. Consider this version, too, a continuing one that is not expected to be changed with each new administration or initiative of the association.

Appropriate purpose statements might include these phrases:

* To promote the interest, welfare, or common good of the industry, profession, or field.

* To deal by lawful means with common problems or concerns of the industry, profession, or field.

* To foster lawful cooperative action in areas affecting the business or professional activities of members of the association.

* To act as advocate and representative of the membership before government bodies.

* To establish policies and conduct activities for the advancement of the entire industry, profession, or field.

* To promote the industry's products or the profession's services, provide education, foster professional and ethical endeavors, gather and disseminate information, develop standards, and so forth.

Certain words have questionable antitrust implications when used in association purpose statements. While certainly not illegal in themselves, they may suggest to skeptical reviewers some potentially improper, anticompetitive intent. Thus they should be used only very carefully or avoided completely if in ambiguous contexts. The words include restrict, eliminate, require, profits, limit, ban, dictate, margins, prohibit, destroy, proscribe, markups, control, boycott, prescribe, production, regulate, fix, prices, market, influence, allocate, fees, customers, clients, and patients.

Note also that there are different and additional considerations in developing the statement of purposes for an association depending upon which category of federal income tax exemption is held.

An association's statement of purposes should clearly announce the intention of the organization to act consistently with its nonprofit corporate status and with its tax-exempt status, as well as to observe scrupulously the letter and spirit of all of the applicable federal and state antitrust and trade regulation laws and requirements.

Jerald A. Jacobs, a partner at Jenner & Block in Washington, D.C., is ASAE's general counsel.