| Your board of directors is one of the most important | | | | are (and continue to be) operated for exclusively |
| assets your nonprofit has. Assuming they understand | | | | tax-exempt purposes. While there are no fines |
| their role and are there for the right reasons, your | | | | associated with falling short of the mark, your board |
| board members provide invaluable talent, direction and | | | | does not want to be tagged as the ones responsible |
| oversight. They volunteer their time and expertise, | | | | for causing the organization to lose its tax-exempt |
| usually for little more than a pat on the back. They also | | | | status. Your board members are also directly |
| assume a certain level of liability in exchange for their | | | | responsible for setting appropriate compensation |
| efforts. The old phrase, "No good deed goes | | | | arrangements at arms-length. The IRS can and will |
| unpunished," is not something you want to see come | | | | hold individual board members personally liable if they |
| true. Let's explore how to protect those who give of | | | | find what they consider excessive compensation, |
| their time to your organization. | | | | particularly if not set at arms-length. Under Intermediate |
| Understanding the issues. The first step to properly | | | | Sanctions, these penalties can be substantial. |
| protecting your board members is to educate them as | | | | 3. General liability: This involves issues like gross |
| to what they are responsible for. It is discouraging to | | | | negligence. Board members can be held liable for bad |
| see the level of ignorance that many boards operate | | | | things they didn't take steps to prevent or eliminate. |
| under. We frequently encounter boards where some | | | | Examples include not screening childcare workers or |
| members are merely placeholders who are doing a | | | | not fixing that faulty handrail on the stairway of your |
| favor for the founder. They rarely participate in | | | | facility. |
| substantive discussions or planning, nor are they | | | | Get protection. The best and most important |
| consulted with by the program director. They have no | | | | protection is education. Knowledge is empowering. The |
| idea that there is any liability to them, but there is. This | | | | more your board knows, the better. The existence of |
| liability usually falls into three categories: 1) corporate | | | | liability sometimes scares away otherwise qualified, |
| (state), 2) federal (IRS) and, 3) general liability. Let's take | | | | potentially valuable board members, but it need not. I |
| a closer look at each: | | | | serve on 3 nonprofit boards, fully understanding the |
| | | | liability that comes with that. Why am I willing to do it? |
| 1. Corporate liability: Board members are the legal, | | | | Because I know what I am responsible for. And as a |
| governing body of a nonprofit corporation. They | | | | result, I am able to fully exercise my responsibility in a |
| collectively represent the organization and its interests. | | | | way that best benefits the organization I serve while |
| Each nonprofit corporation is incorporated in a | | | | reducing my real liability exposure to nearly nothing. |
| particular state, according to that state's corporate law. | | | | What else can you do? It is a good idea to look into |
| Board members are responsible to make sure the | | | | liability insurance for your officers and directors. It is |
| corporation follows state law and that it follows its | | | | relatively inexpensive and can go a long way toward |
| bylaws. It is not terribly uncommon to hear of court | | | | providing protection to those who serve. If your |
| cases involving other board members, or members of | | | | organization already has general liability coverage |
| the public, accusing the organization of not abiding by | | | | (which it should), your board members may already be |
| its bylaws. And, if the corporation is an employer, the | | | | covered...or may be added at little additional cost. Just |
| board members have a fiduciary responsibility to | | | | having that coverage is often enough to provide |
| ensure that employment taxes and related things are | | | | assurance to your board members that you |
| properly handled. | | | | appreciate their commitment enough to cover their |
| 2. Federal liability: Fiduciary liability carries over into the | | | | backs financially. |
| federal arena. In addition to fiduciary issues, the IRS | | | | Don't let the concern of liability keep great directors |
| also holds the board accountable for operating under | | | | from serving your organization! Liability is manageable. |
| the regulations and limitations of Section 501(c) of the | | | | Like everything else, the more you know, the more |
| Internal Revenue Code. This means that your board is | | | | you can do. |
| responsible for ensuring your organization's programs | | | | |