10 Essential Steps to Start a Nonprofit (cont’d)

STEP #7: EDUCATING YOUR BOARD

When I see articles on starting a nonprofit I rarely see “educate your board” yet this step is crucial.  Educate about what?  Why?

Educate about what? Inform about liabilities board members might face, educate about their duties and rights, educate on actions that could jeopardize the organization, particularly its tax-exempt status .  This list is not exhaustive.

Why?  Board members need to know what they are required to do, what laws govern their actions, how they can unwittingly get into trouble, among other reasons “why.”  In some situations, although uncommon, board members can face personal liability.

People have good intentions when forming a nonprofit that will pursue a charitable cause.  There are legal responsibilities and potential liabilities if you don’t do what you are supposed to as a board member.  Unfortunately, awareness of these duties and liabilities often comes after there’s an issue.

Board member responsibilities, in general (can be in addition to state law requirements):

  1. Duty of Care: duty to exercise reasonable care when he or she makes a decision for the organization. Reasonable care is what an “ordinarily prudent” person in a similar situation would do.
  2. Duty of Loyalty: A board member must never use information gained through his/her position for personal gain and must always act in the best interests of the organization.
  3. Duty of Obedience to the Mission: A board member must be faithful to the organization’s mission.  He or she cannot act in a way that is inconsistent with the organization’s goals. The board member is trusted by the public to manage donated funds to fulfill the organization’s mission.

Board members should have bylaws in place that govern the functioning of the organization.  They should be apprised of potential legal pitfalls that could impact them or the organization.  There should be short primers provided on open records laws, aka “Sunshine Laws,” and how they impact board meetings and public attendance; a primer on insurance, waivers and releases for events, protocol to be followed if someone is injured at an organization event; fundraising do’s and don’ts, liability with alcohol at fundraisers; political activity and what is permitted; among many other topics relevant to nonprofits.

Sitting on the board of a charitable organization can be rewarding, and board members do have a responsibility to educate themselves on what liability they could face.  Moreover, nonprofits should educate their boards on personal and organizational liability so board members can act accordingly, and avoid making decisions that unknowingly put themselves or the organization at risk.

If you have questions about board member liability, contact me at julie@juliemillslaw.com.

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