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Non-Profit Governance: Understanding Your Corporate Responsibilities

Learn about the duties of board members and officers in non-profit entities. Discover the importance of duty of care, loyalty, and obedience in maintaining legal compliance. Find out the consequences of failing to fulfill these responsibilities and how to work effectively with your board. Legal assistance is always available for guidance and advice.

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Non-Profit Governance: Understanding Your Corporate Responsibilities

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  1. Keeping it Legal Brandon J. Kavanagh Mangum, Wall, Stoops & Warden, PLLC

  2. Non-Profit “Corporate” Responsibilities • Not all non-profits are corporations (trusts, unincorporated associations, etc.) but general “corporate torts” standards apply. • Three overall duties of Board members and Officers and what they mean. • Duty of Care • Duty of Loyalty • Duty of Obedience

  3. Duty of Care • Board members and Officers are expected to act with a duty of care: • Act as a reasonably prudent person would do in similar circumstances – the RPP standard. • A reasonably prudent person does not know everything in every situation, but takes reasonable steps to make reasonable decisions.

  4. Duty of Care • Business Judgment Rule - You do not have to be right every time so long as you were reasonable in how you make each decision. • Be a good steward of funds and assets. • Rely on experts in their areas of expertise to help you make the best possible decisions.

  5. Duty of Loyalty • Each Board member and Officer is to act in the best interests of the non-profit entity. • Board members should not act for their own personal benefit (private inurement). • Board members should not act for the benefit of third parties (private benefit).

  6. Duty of Loyalty • Avoid conflicts of interest based upon family or financial interests. • If conflicts of interest exist, disclose them up front. • If a conflict exists for you, do not participate in the decision or discussions if at all possible. • Create and follow a conflict of interest policy.

  7. Duty of Obedience • Obey Federal laws and regulations with a focus on IRS rules and regulations on being tax exempt. • Obey state and local laws regarding non-profit corporations and entities. • Obey your internal “laws” in your articles of incorporation, bylaws, & policies/procedures.

  8. What Happens If You Do Not Fulfill Your Duties? • Your entity could lose its tax exempt status. • The entity and each Board member/Officer or other improperly benefitted person/entity could face IRS intermediate sanctions. • Pay back the money at issue • Pay a penalty (20%? 200%?) • Both C. The entity and the Board/Officer can be sued and investigated (IRS/DOJ/Az AG/Donors and Grant Sources).

  9. “Governance, Not Management” • Non-profit entity standard of many watchdog groups. • Set mission and goals for the organization and make sure policies and actions support them. • Evaluate progress and make overall changes as necessary. • Governance does not mean micromanaging of staff/respect the chain of command.

  10. Work With Your Board • A majority vote controls the actions of the Board, and therefore the actions of the entity. • Offer your opinions and comments, but respect a vote if it goes against you. • If you get new information, feel free to share it with the Board to discuss reconsideration – but decisions cannot be constantly in flux.

  11. We (Attorneys) Are Here to Help • As questions come up, work with legal counsel to get advice (perhaps in executive session or before the meeting). • An attorney for your entity cannot give legal advice to individual Board members or officers without sharing with the others as the entity itself is the client.

  12. Questions? Thank you.

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