The Non Profit Board of Directors A Legal Perspective

1. The Non Profit Board of DirectorsA Legal Perspective

2. An Introductory Quiz • Who owns your organization? • What is the difference between a "Not For Profit Organization" and a "Non Profit Organization”? • Which is your organization?

3. Why Are We Studying This?

4. Why Are We Studying This? • Help us better understand our role as board members. • Help us better understand the standards to which we will be held accountable.

5. The Non Profit Board: A Legal Perspective The Corporation The Non Profit Corporation The Board of Directors The Director of the Non Profit Corporation Obligations of Directors Directors’ Rights Knowledge of Illegal Activities Directors’ Risk Taxation Director Orientation

6. The Corporation An artificial creation of a government • Usually by a state

7. The Corporation A legal construct that allows a group of people to act as one person • Own Property • Conduct Business Transactions • Assume Liability

8. The Corporation In much the same manner that marriage allows two people to: • Own Property • Conduct Business • Assume Liability

9. The Corporation Corporations are formed as a result of a specific act of government. • State Corporate Law • Articles of Incorporation or Charter • By Laws

10. The Corporation Corporations do not exist merely at the desire of their members . . . . . . rather they exist with the compliance with regulations of government.

11. The Non Profit Board: A Legal Perspective The Corporation The Non Profit Corporation The Board of Directors The Director of the Non Profit Corporation Obligations of Directors Directors’ Rights Knowledge of Illegal Activities Directors’ Risk Taxation Director Orientation

12. The Corporation A very special type of corporation • NY Not For Profit Corporation Law • Articles of Incorporation • By Laws

13. The Non Profit Corporation A very special type of corporation • Receives dispensations from state and federal governments • Governed by the state not for profit law

14. The Non Profit Corporation Dispensations from state and federal governments: • Exemption from state and federal corporate income tax • Exemption from state sales tax • Exemption from federal fuel tax

15. Types of Non Profit Corporations • Public benefit corporations • Mutual benefit corporations • Religious corporations

16. The Non Profit Board: A Legal Perspective The Corporation The Non Profit Corporation The Board of Directors The Director of the Non Profit Corporation Obligations of Directors Directors’ Rights Knowledge of Illegal Activities Directors’ Risk Taxation Director Orientation

17. The Board of Directors

18. The Board of Directors • The Board of Directors Acts as a Body • The Board of Directors Acts for the Benefit of Others

19. The Board of Directors The Board of Directors Acts as a Body • The power of the Board of Directors is instilled in the Board as a group • Individual members of the Board of Directors individually have no power, except where specified by the by laws of the corporation

20. The Board of Directors As a body the Board: • Makes decisions for and about the corporation • Specifies actions to be taken by the corporation • Engages in business transactions

21. The Board of Directors The Board of Directors Acts for the Benefit of Others . . . In a for-profit corporation • stockholders

22. The Board of Directors The Board of Directors Acts for the Benefit of Others . . . In a not for profit corporation • constituency which elects or appoints him/her • constituency of service • constituency of accountability

23. Governance • Governance is the contemporary descriptor of the role of the Board of Directors.

24. Governance ~ Traditional Definition • Make and administer the policy and affairs of the corporation

25. Governance ~ Contemporary Definition • The framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in the firm's relationship with all its stakeholders.

26. Governance ~ Contemporary Definition This framework consists of: • Explicit and implicit contracts between the firm and the stakeholders for distribution of responsibilities, rights, and rewards

27. Governance ~ Contemporary Definition This framework consists of: • Procedures for reconciling the sometimes conflicting interests of stakeholders in accordance with their duties, privileges, and roles

28. Governance ~ Contemporary Definition This framework consists of: • Procedures for proper supervision, control, and information-flows to serve as a system of checks-and-balances Source: www.businessdictionary.com

29. Corporate Structure Officers, employees, and agents of the corporation carry out actions determined by the Board of Directors

30. Corporate Structure ~ Officers Individuals who hold positions of authority that are defined in the by laws Execute decisions of the board, in representation of the corporation: • Sign contracts • Sign loan agreements • Buy and sell property

31. Corporate Structure ~ Chief Executive Highest ranking manager or administrator • In charge of overall operation of corporation • Officer, board member, or employee

32. Corporate Structure ~ Employees Individuals who work for the corporation • Perform the corporation’s activities • Compensated or volunteer

33. Corporate Structure ~ Agents Individuals who represent the corporation • Usually through a contractual relationship • Corporation bears responsibility Some examples: • Accountant • Attorney • Billing company

34. Self Assessment What is our corporation supposed to do, and for whom?

35. The Non Profit Board: A Legal Perspective The Corporation The Non Profit Corporation The Board of Directors The Director of the Non Profit Corporation Obligations of Directors Directors’ Rights Knowledge of Illegal Activities Directors’ Risk Taxation Director Orientation

36. The Director of the Non Profit Corporation • A director acts as a part of a board • A director directs, but does not perform, the corporation’s activities • A director acts on behalf of one or more constituencies

37. Selecting a Director of a Non Profit Corporation • Election by the membership of a corporation • Self-perpetuating boards • Appointment by another organization • Ex officio

38. The Purpose of Service Maximizing something for somebody • Mission Statement identifies the something and the somebody

39. Parties to whom the Director is Accountable • Constituency that elected them • Beneficiaries ~ may not necessarily be the same group that elected the directors • State Attorney General

40. Parties to whom the Director is Accountable State Attorney General • Speaks for the beneficiaries of a charitable trust • Supervises the solicitation of funds for charitable purposes

41. Self Assessment • Does the corporation have a mission statement? • When was the statement last reviewed? • What parties or officials can question what we do as directors of the corporation?

42. Self Assessment • What group of members elected me? • How was I elected?

43. Self Assessment • If I was elected by a voting membership, how is that membership defined? • Where can I find out: in the by laws? the Articles of Incorporation? • Are the records of voting membership kept in good order? By whom?

44. Self Assessment • When does my term of office expire? • Can I be re-elected? • Does my term run until a specific date, or until my successor is chosen?

45. Self Assessment • Can I be removed from my position as director? • By whom? • On what basis?

46. The Non Profit Board: A Legal Perspective The Corporation The Non Profit Corporation The Board of Directors The Director of the Non Profit Corporation Obligations of Directors Directors’ Rights Knowledge of Illegal Activities Directors’ Risk Taxation Director Orientation

47. Obligations of Directors Directors are subject to three primary obligations • Duty of Care • Duty of Loyalty • Duty of Obedience

48. Obligations of Directors These standards are derived from a century of litigation • primarily involving business corporations • equally applicable to nonprofit corporations

49. Duty of Care The duty of care asks the director: • To be reasonably informed • To participate in decisions • To do so in good faith and with care

50. Duty of Care Practicality of Duty of Care • Attend meetings of the Board of Directors • Exercise independent judgment on all corporate decisions • Be informed of matters of the corporation