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Thinking of starting a nonprofit in Seattle? NAC can help.

Last night I attended a great free workshop, To be or not to be: forming a nonprofit in Washington State presented by NAC, the Nonprofit Assistance Center. Now, I'm not planning on starting a nonprofit myself (way too busy starting a law firm), but lately I've been working with several nonprofit clients to get their 501(c)(3) status and I wanted to get a better sense of the resources that were available for them in the Seattle area. I especially wanted to find some resources for more of the non-legal aspects of starting and running a successful nonprofit. 

The workshop was everything I hoped for. The speakers were knowledgeable and engaging and the information presented was very thorough and accurate. While there was a great deal of information to absorb, every participant went home with a copy of the presentation and a binder of materials so they could go back and learn more at their own pace. The workshop also included several breakout sessions where participants met in small groups to work on exercises and begin putting their new knowledge to use right away. Everyone in the well-attended session seemed to find it very useful and left with a lot of food for thought.

This workshop is best suited for those who are still in the planning stages, but will be useful for any stage from the very earliest idea to applying for 501(c)(3) status. You will learn not only the basics of forming a nonprofit corporation in Washington state, but also the preliminary planning and preparation you need to do first in order to be successful.  The NAC website is under construction right now, so you may want to call them to get information about their upcoming classes. If you just can't wait, I've included links to one of the resources used at the workshop that I've previously used and found very helpful:

WAACO and KCBAYLD's Washington Nonprofit Handbook

While every budding nonprofit socialpreneur should sit down and talk with an attorney at some point, that's often not the ideal place to start. NAC provides some great free resources to help you get to the point where you're ready to work with an attorney. 


Jumpstart Your Business panel this Wednesday in Bellevue

Tomorrow I'll be speaking at the Jumpstart Your Business panel in Bellevue, Washington. This is a free monthly speaker series featuring a panel of professionals in the areas of

  • Business Law
  • Insurance
  • Investment Planning
  • Loans
  • Web Design
  • Computer Support
  • Marketing
  • Accounting
  • Payment Processing

Each speaker gives a brief presentation on a featured topic followed by an open question-and-answer session. This month's topic is what businesses should look for and be aware of in the next year. You can learn more and rsvp at Biznik or Meetup


Free Washington Small Business Fair this Saturday in Renton

This Saturday, September 24th there will be a free small business fair at Renton Technical College. The fair is absolutely free with no pre-registration required. You just show up. The event features over thirty one-hour seminars on topics such as Which Business Entity is Best for You, Drive Traffic to Your Website, What about that Darn Sales Tax, and How to Get the Most Out of Quickbooks. Whether you are just starting a business or have been in business for a while you should find a seminar to interest you. There will also be an exhibitor hall where government and nonprofit agencies will have informational booths. No private businesses or selling is allowed so you can relax and learn without worrying about when the next sales pitch will come your way.

View the event brochure and seminar schedule at


Why forming a corporation isn't enough

A recent case out of Washington illustrates why the act of forming a corporation is never enough by itself to protect you and your assets.

Attorney’s firm held liable for failing to pay employment taxes

An attorney formed a corporation to run his law practice. He classified himself as an independent contractor despite being the sole shareholder and performing all the legal services on behalf of the corporation. The IRS argued that the attorney was an employee and the Ninth Circuit upheld a tax court decision that held the corporation liable for failing to withhold and pay employment taxes.

It gets worse — the owner and his wife held liable for the corporation’s debt

While having his firm held liable for employment taxes would have been bad enough for this attorney, it didn’t stop there. The attorney and his wife sought a tax refund in the Court of Federal Claims. The IRS counterclaimed and sought to hold the attorney personally liable for the employment taxes and penalties and interest owed by the corporation, and his wife liable as a holder of community property. The IRS won. 

The Alter Ego Theory

How can the attorney be personally liable for money owed by the corporation? Isn’t that why business people form corporations in the first place? The reality is that there are several theories under which the corporate form can be disregarded. The government was able to hold the attorney and his wife personally liable because the attorney treated the corporation like his alter ego. In other words, the attorney acted like the corporation was an extension of himself, and not like it was a separate business entity. He abused the corporate form, purposely used the corporate form to evade its duty to pay taxes, and because the corporation had no assets, holding him personally liable was the only way to prevent an unjustified loss by the government.

What factors did the court consider?

  • The attorney was the sole shareholder and officer. He and his wife totally controlled the corporation.
  • The corporation was just a shell. It had no bank account. It had no assets, furniture, or leases.
  • The corporation was dependent on the attorney and his wife for credit and liquidity.
  • The corporation held no meetings, not even to elect officers.
  • The corporation wrote checks to the attorney, his wife, and their personal creditors.
  • These payments were characterized as loans, but no 1099s or W-2s were issued.
  • The attorney admitted the corporation was a disregarded entity.


What about the wife?

Why was the judgment enforceable against the community? Because Washington is a community property state. Under community property law, the debts of one spouse can often be held against the other. In this case, the wrongful acts benefited the community, so the community was liable. (Corporate funds were used to pay the personal creditors of the couple.)

The moral of the story

Corporations aren’t magic. A corporation only protects its shareholders if the corporation plays by the rules. Filing the articles of incorporation with the Secretary of State is only the very first step in protecting your personal assets from your business liabilities. And protecting your business assets from your personal liabilities. If any of the factors listed above sounds like how you run your business, consult an attorney to learn how you can better protect yourself.