Organizational Structure

Legal Duties-Board Governance for Nonprofit Organizations

Originally Posted: March 15, 2024
Author: 

Amy Kriz, CPA

American Petroleum Institute (API)
Topics: 
Board of Directors

Non-profit board members play a critical role in ensuring the success and integrity of their organizations. To fulfill their responsibilities, board members must understand and uphold legal obligations common to all boards: duty of care, duty of loyalty, and duty of obedience. These duties provide a framework for ethical and responsible governance within a non-profit organization.

Duty of care requires board members to act with diligence and prudence when making decisions on behalf of the organization. Board members should make informed choices by thoroughly reviewing relevant information, asking questions, and seeking expert advice when necessary. This doesn’t mean that a board member is expected to make perfect decisions all the time, but he/she must make educated decisions. This is achieved by coming to meetings, reading background materials provided, asking questions when something is not clear, and always weighing the risks and benefits for the organization on all decisions.

Duty of loyalty stresses that board members prioritize the organization’s interests above any personal or conflicting interests. Personal interests may include interests derived by family members or associated business relations. Failing to acknowledge conflicts of interests is a common example of a breach of duty of loyalty. The board must adopt appropriate policies to manage conflicting situations. Annual disclosure of personal affiliations and interests and recusal from discussing a case and voting when a conflict arises are the primary good practice measures for every board member.

Duty of obedience requires board members to ensure the organization operates in accordance with its mission, bylaws, and applicable laws and regulations. The board should have a deep understanding of the organization’s purpose and ensure that its activities align with its stated mission.

Duty of obedience also expects board members to follow the laws that govern non-profit tax-exempt organizations as well as any legal documents — articles of incorporation, bylaws, policies, resolutions — the organization and the board have adopted and instituted.

There are several resources available to a charitable non-profit board:

  • Legal Counsel: Non-profit organizations often seek legal advice from attorneys who specialize in non-profit law. This is extremely helpful to board members as they navigate complex legal matters and interpret regulations.
  • Government Agencies: Government agency resources include websites, publications, and helplines that provide guidance on legal requirements, reporting obligations, and compliance issues.
    • Helpful links:
      • IRS - https://www.irs.gov/charities-and-nonprofits
      • DC Government - https://otr.cfo.dc.gov/page/exempt-organizations
  • Non-profit Associations and Networks: Many non-profit associations and networks offer resources and training to support boards. They provide access to best practices, webinars, workshops, and educational materials that help board members.