Friends of the Library-Part I: Incorporation

There are a number of legal issues that a group of hard-working, helpful volunteers must consider prior to establishing themselves as the official Friends of the Library. Over the course of the next two months, Trustees Corner will feature two articles focusing on the legal requirements of establishing and operating Friends of the Library groups to help them work effectively and efficiently with public libraries across Michigan. The first article will focus on the establishment options of the group. The second article, to be featured in the October Access issue, will focus on legal requirements tied to fundraising and gaining 501(c)(3) status.

One of the most important goals a Friends of the Library group must achieve is to establish a proper relationship with the public library with which it is associated. Each party should understand the legal status of the other, as well as respect each other's powers and duties. This relationship can either make or break the Friends of the Library. Care should be taken to establish a reporting structure, a policy on gifts to the library and authorization for any activities undertaken in the name of or on behalf of the library.

In Michigan, as in most other states, there are two basic organizational structures to be considered when establishing a Friends of the Library group: unincorporated association or corporation. The choice of one or the other depends on an analysis of factors such as cost, liability and certainty.

A) Unincorporated Associations

Many associations made up of volunteers, especially those organized for short-term projects, are unincorporated associations. Generally, the personal liability of members of unincorporated associations on contracts made by, for and on behalf of the association is "joint and several." This means that all the members, collectively, or any one member may be liable for the entire value of the contracts of the association. The remaining members, for instance, may be liable for payment on a contract for printing costs if the association itself fails or is unable to pay off the debt of the group. Members of unincorporated associations may also be liable for any civil wrongs that they participate in, authorize or even simply assent to by vote or otherwise. These acts may include, but are not limited to, undertakings that amount to discrimination, wrongful hiring or termination, negligence and lack of supervision.

Even unincorporated associations should be carefully organized with appropriate articles and bylaws. Since the potential for liability for members is omnipresent, the unincorporated group should always seek the advice of legal counsel to ensure that the documentation is complete and proper.

B) Michigan Nonprofit Corporations

In general, the officers, directors and members of nonprofit corporations are not personally liable for the acts of the corporation or each other. Any liability is generally limited to the assets of the corporation. The Michigan Nonprofit Corporation Act, MCL §450.2101 - §450.3192, allows nonprofit corporations to assume much of the liability of their directors and to indemnify their officers and directors for certain acts.

This is accomplished through the proper drafting of the corporation's articles of incorporation and bylaws. The costs associated with drafting these documents are comparable to those for the unincorporated association. There is a nominal cost for filing the articles of incorporation with the Corporation, Securities and Land Development Bureau of the Michigan Department of Consumer and Industry Services.

In comparison with an unincorporated association, however, the legal results of establishing a Friends of the Library group as a Michigan Nonprofit Corporation are very certain. The Michigan Nonprofit Corporation Act is quite extensive and very specific in its regulation of the operation of covered entities. Additionally, there is a great deal of case law. Legal counsel will be able to predict with more certitude the outcome of different situations and the implications of different options in establishment and operation. Most Friends of the Library groups in Michigan have chosen to become incorporated under the Michigan Nonprofit Corporations Act.

C) Filing to Become a Michigan Nonprofit Corporation

Becoming a Michigan nonprofit corporation is neither difficult nor expensive. The questions asked on the application will prompt the organizers of a Friends of the Library group to ask all the important questions about the purpose and structure of the organization. The statement of purpose is extremely important and should be drafted with the advice of legal counsel in order to avoid unwanted results or implications.

It is at this stage in the process that a decision must be made between a membership corporation or a directorship corporation. A membership corporation is one in which each member generally has the right of one vote on all matters brought before the corporation. While this may seem to embody the democratic ideal, it often becomes cumbersome as nonprofit corporations grow and decisions need to be made in a more efficient manner. Most nonprofit corporations that expect to involve numerous members in their activities choose the directorship form of organization. Legal counsel for the Friends of the Library will be able to explain the fine points of the options as well as draft the appropriate articles of incorporation and bylaws.

By Dragomir Cosanici, Library Law Specialist
Library of Michigan
September 2003

updated 04/27/2006