Your nonprofit rents office space from your company. The question sounds as simple as they come: how much should it pay?
Below market: the company is essentially subsidizing the organization with money. That's fine, as long as it's set up correctly, and it's even a nice thing, a business supporting a mission. Above market: the organization is overpaying an insider's company, which means mission money is flowing into that person's pocket. That's not a paperwork problem anymore, it's a problem with a name, which we'll cover in the next lesson. At market price, with a paper trail showing where that price came from: boring, but nobody can touch it.
Notice that it's the same office in all three cases. The only difference is the price, and whether there's a document behind it. Your MOU exists so that every question like this between your two structures already has a boring answer ready. This lesson teaches you to read it as carefully as an auditor would.
Arm's length means structuring any deal between your organization and your business as if two unrelated parties were negotiating, each looking out for their own side. Three things have to line up: a market price, a written document, and board approval that happens without you in the room. All three already live inside your MOU, which your legal team drafted, your job now is learning to read it.
The phrase paints an accurate picture: imagine two strangers sitting across the table from a deal. Strangers don't rent out an office "for whatever," they check the market, name a price, sign a contract. Strangers don't do work for each other on a "we'll sort it out later" basis, they send an invoice. The strange part of your situation is that the parties aren't actually strangers, you're sitting on both sides of the table. The principle doesn't ask you to pretend that isn't true. It asks the outcome of the deal to look exactly as if it were.
Three things need to stand behind every deal between your two worlds, as a result. A price that holds up from the outside: you checked listings for similar office space, rates for similar services. Paper that exists ahead of time, not produced after someone asks a question. And approval from board members who have no stake in the deal: you disclosed your interest and stepped out of the vote. You've already seen this move in the annual COI declaration from your conflict of interest policy, here it's applied to the most sensitive category of decision there is.
Your MOU is all three of these things, gathered into one document. Legal counsel wrote it, your job now is understanding it and living by it.
Open your actual MOU and walk through it alongside this section.
Who does what for whom. Not "the company provides support to the organization," that's fog you can hide anything behind later. Specifically: rent, services, equipment use. Forget this part, and the two structures start doing things for each other that aren't in the document, with no answer ready for "on what basis?"
How much, and why that amount specifically. The price, and where it came from: a market comparison, someone else's rate card. If the company deliberately offers you better-than-market terms, that gets written down too, as a business contribution, not as "we just decided to." Forget this part, and you end up paying a different price than the one on paper, or never revisiting the number for years while the market moves on without you.
What's off-limits. For your particular pair of structures, this section matters more than most: the organization doesn't hand participant data to the company, the company doesn't speak on the organization's behalf, resources paid for by the organization don't do work for the company's goals. Forgetting this part usually happens quietly: "it's such a small thing, a list of twenty people," and small things are exactly what add up to the problem in the next lesson.
Term and what happens after. When the document expires, how to renew it, how to wind it down. Forget this, and you're living for two years under paper that's technically no longer in force.
Signatures and approval. Who signed on each side, and whether the decision came from the board without you present. Forget this, and you end up with a document between two structures signed by one hand, with no approval behind it, and the entire point of the procedure is gone.
Here's the uncomfortable idea in this lesson. Your MOU doesn't work like a lucky charm in a desk drawer. What protects you isn't the fact that it exists, it's whether what it says matches what you actually do. Anyone who wants to examine your pair of structures isn't comparing the document to the law, they're comparing reality to the document. And if the two have drifted apart, that looks worse than if the document never existed at all, it means you knew the right way and did something else instead.
So build yourself an annual ritual, the same way you did with COI declarations. Once a year, open the MOU and honestly ask, section by section: does this match reality? Wherever it doesn't, you have two paths. Bring your behavior back in line with the document, stop doing whatever isn't in it. Or bring the document up to date with reality, through legal counsel, with fresh board approval, since you can't amend an MOU on your own.
Put the date of this ritual on your annual calendar right next to your 990 and your state filings. It matters just as much, nobody's just sending you a reminder about it.
Run through the checklist below once a year and honestly mark where reality matches your MOU, and where it's drifted.
Wrap up the result in a short note with three lists: what matches the document, what's drifted and you're bringing back in line, what's drifted and you're taking to legal counsel to update the document. File the note in the governance section of your Binder, next to the map from the two-worlds map.
If you don't have any active deals between your two structures right now and the MOU is purely a framework, the check takes ten minutes and just confirms that. "No overlaps this year, checked on this date" is a perfectly good answer too.
Can I write the MOU myself without a lawyer?
The document itself gets drafted by legal counsel as part of formation. Your job, covered in this lesson, is learning to read it and making sure your reality matches it.
What if the price in the MOU seems too high to me?
Raise it with legal counsel before signing, not after. The price needs to hold up against the market on both sides, not just be convenient for one.
How often does the MOU need to be revisited?
At least once a year, and definitely if the market has moved noticeably or the real relationship between your two structures has changed.
The boring answer from the start of this lesson (market price, a document, approval) is actually the best thing that can happen in this territory. Anything exciting here usually means trouble.
Next up, we cover exactly that: real patterns that get organizations into trouble, from overpriced rent to programs that quietly end up serving the business. You'll recognize them as the same document parts you just learned to read, broken.
The material in this lesson is educational and drafted for review by your attorney and CPA. This course does not replace professional advice and makes no promise of outcomes.