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Key legal issues that nonprofit board members should be aware of

On Behalf of | Nov 22, 2021 | Business Law |

Serving on the board of a nonprofit organization is a significant personal commitment. Organizations often rely heavily on a board’s leadership and expertise.

Directors need to play an active role in structural and financial oversight. In order to serve in their roles effectively, they need to familiarize themselves with some of the most important legal aspects of not-for-profit business management.

Fiduciary duty

All corporate directors have a fiduciary duty to represent the interests of the corporation. The same is true for directors of nonprofit entities, but the interests of a nonprofit organization may differ from that of a for-profit business entity. Decision-making at the directorial level must support the organization’s mission and charitable purpose.

Regulatory compliance

Nonprofit status requires compliance with several important state and federal regulations. Establishing and maintaining accreditation may require ongoing filings with the Secretary of State and the IRS. Directors of a nonprofit that engages in fundraising must ensure that the organization has a current solicitation registration with the state.

Governance

The way that nonprofits conduct their activities is subject to statutory regulations. However, a nonprofit’s own governing documents including its certificate of incorporation and bylaws create key managerial obligations. It is essential to draft these documents with care and execute formal amendments as necessary.

Board members could incur liability in the course of their service to a nonprofit, and they may be personally liable for claims against an organization. They must take steps to protect themselves and the organizations that they serve by getting good guidance, assuring compliance with all applicable law and obtaining adequate insurance coverage.