Monday, September 25, 2023
Last month, I asked if anyone had any experience in affirmatively integrating AI into a drafting class, which is how I teach Nonprofits. I didn’t get a lot of responses, so I forged ahead blindly into unknown territory. As a result, I had an amazing teaching moment so, I just had to share.
The supplement book I use for Nonprofits has sample Articles of incorporation, derived from the form provided in IRS Publication 557, Tax Exempt Status for Your Organization. I asked my students to look at the provisions of the Model Nonprofit Corporation Act, West Virginia law, and the sample Articles regarding amendment Articles of Incorporation, including amending the purpose clause. West Virginia’s Act is based in large part on the 1989 version of the Model Nonprofit Corporations Act but specifically requires article amendments to have a 2/3 director vote (See WV Code 31E-10-1003(f)). The sample Articles in the supplement did not contain any clause regarding amendments to Articles. I asked the students to go use their favorite AI to generate a provision for amendment of Articles of Incorporation that they would add to the IRS’ form, and to report back. I did the same and we compared notes.
I used Chat-GPT3 – a number of students used Chat-GPT4 and some used Claude. Students quickly learned they needed to ask for a nonprofit, non-member corporation under the laws of West Virginia to narrow down the language. My attempt at this produced the following (reprinted in full but emphasis by me:)
Section [X]: Amendment of Articles
- These Articles of Incorporation may be amended or repealed, and new articles may be adopted, by the affirmative vote of a majority of the directors/trustees in office at any regular or special meeting of the board of directors/trustees.
- In addition to the approval required under Section 1, any amendment to these Articles of Incorporation that would materially and adversely affect the rights or interests of the organization's stakeholders, donors, or other constituents shall also require a notice period and approval as outlined in the organization's bylaws or as required by applicable law.
- Notice of any proposed amendment, repeal, or adoption of new articles shall be provided to the organization's directors/trustees as required by law and the organization's bylaws. Such notice shall include the text of the proposed amendment, repeal, or adoption and the date, time, and place of the meeting at which the proposed action will be considered.
- Any amendment, repeal, or adoption of new articles shall be filed with the appropriate governmental authorities as required by law.
- No amendment or repeal shall be made that would jeopardize the organization's tax-exempt status under Section 501(c)(3) of the Internal Revenue Code or its corresponding provision in any future federal tax law.
- The adoption of these Articles of Incorporation, as amended from time to time, shall constitute the agreement of the organization's directors/trustees and other constituents to be bound by the terms and conditions set forth herein and in any duly adopted amendments.
In witness whereof, the undersigned, being the duly appointed Secretary of [Organization Name], hereby certifies that the foregoing Amendment Clause is a true and correct copy as adopted by the board of directors/trustees on [Date].
[Signature of Secretary] [Printed Name of Secretary] [Date]
Please note that this draft is provided for general informational purposes and should be reviewed by legal counsel familiar with West Virginia nonprofit laws before being included in your nonprofit's Articles of Incorporation.
As you can imagine, this prompted a whole bunch of questions about substance and drafting alike. I had to explain a Secretary’s Certificate and all of the apparatus at the end of the proposed provision. We talked about Frankenstein drafting and how you’d need to coordinate these new provisions with other parts of your Articles and Bylaws, such as notice provisions and quorum and voting procedures. Of course, we also discussed that you shouldn’t let the IRS draft your state law documents to begin with.
But of note, Chat-GPT3 got West Virginia law wrong in allowing a majority vote on the amendment. If you didn’t know that – or you didn’t bother to check it – you’d have a state law compliance issue and some nice malpractice.
While the obvious error was an eye opener to students, what came next was even better. We talked about the provision that considered allowing donors, stakeholders, and constituents to approve article amendments, and the later statement that constituents were bound by the Articles. The students figured out pretty quickly what a nightmare such a procedure would be and how the language proposed by AI was terrible in any event. I have to admit that I felt pretty gaslit by AI in that moment - where was this language coming from? Why would AI suggest it? After all, AI theoretically pulls from collected knowledge so was there some state that required such a thing (most certainly not West Virginia, by the way) and I didn’t know about it?
So the students said… let’s ask it. And we did, in real time. I had no idea what the response would be and was somewhat filled with a foreboding dread of my imposter syndrome about to be laid bare, TBH. And here is the first part of its response to the question, “Why did you include the language in paragraph 6 about stakeholders?”
I apologize for any confusion caused by the inclusion of the term "stakeholders" in paragraph 6 of the previous drafts. In nonprofit corporations, especially those with non-membership structures, the term "stakeholders" might not be as commonly used as in for-profit businesses. The term "stakeholders" could refer to individuals, groups, or entities that have a vested interest in the organization's activities, impact, or outcomes. However, the use of this term might not be necessary or appropriate in all contexts.
After the laughter died down, we tried again, “Why do you need to show amendments to the articles to donors?” – again, the first part of the response:
I apologize for any misunderstanding. Generally, nonprofit organizations are not required to show their amendments to the articles of incorporation to donors. Donors typically contribute to nonprofits based on their mission, impact, transparency, and financial accountability. While transparency is essential, sharing amendments to articles of incorporation with donors is not a common practice.
It was a beautiful thing, in real time, to have AI apologize to the class for bad drafting - twice. But I couldn’t have asked for a better teaching moment!