Nonprofit Corporate Board Service

September 25th, 2019 - Lisa M. Keeler

Bellingham and Whatcom County are full of nonprofit service opportunities, including one our firm regularly supports and on whose Board I currently serve:  civil legal aid through LAW Advocates. I am frequently asked about nonprofit corporate board service and see issues arise when individuals don’t know what legal duties and responsibilities they have on a nonprofit board.

General duties of care and loyalty

The board of directors is responsible for managing the affairs of the nonprofit corporation. RCW 24.03.095. There is a reasonableness and good faith standard for board directors. They are to perform their duties in good faith and in a manner believed to be in the best interests of the corporation with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. RCW 24.03.127. So long as the director acts in good faith after a reasonable inquiry when needed, they can rely on the information, opinions, reports, or statements of reliable and competent officers and employees, professionals’ or experts’ advice within their areas of competence, and duly designated committees of the board that merit confidence. RCW 24.03.127. For specific responsibilities a board of directors may have (e.g. maintaining financial records), see the link to the Secretary of State guide below.

An officer (president, vice president, secretary, or treasurer) with discretionary authority shall also act in good faith, with the care of an ordinarily prudent person in a like position under similar circumstances, and in a manner she reasonably believes to be in the best interests of the corporation. RCW 23B.08.420. Officers are also entitled to rely on the information, options, reports, or statements of employees and professionals/experts in the same manner as directors. RCW 23B.08.420.

Corporations may not make loans to its directors or officers, and if a director votes for or assents to the making of such a loan, they are jointly and severally liable to the corporation for the amount of the loan until repaid. RCW 24.03.140. And directors should take care to disclose and possibly not vote on board action where there is a conflict of interest between the director and the nonprofit corporation.

Protections for directors & officers

There is a general immunity from suit for Boards of directors/officers of nonprofit corporations for discretionary decisions made in official capacity, unless there is gross negligence (essentially the failure to exercise slight care). RCW 4.24.264. And there are also many legal provisions about how and when a corporation is required to indemnify (in short, take responsibility for the liabilities of or defend against claims against officers and directors). RCW 24.03.035; RCW 23B.08.500-600. An officer should not be liable for any official action taken as an officer if she complies with her duties in RCW 23B.08.420 described above.

What do to when considering Board service

Before you agree to or begin nonprofit Board service, there are number of helpful things you can do to get informed, including:

  • Review all the corporate documents, such as Articles of Incorporation and Bylaws, or any policies of the Board, to make sure you know the official purposes of the organization, your role, and any relevant procedures that would apply to your service;
  • Ask about the time commitment involved, including required committee service, and the length of terms and number of terms permitted;
  • Review the most recent Annual Report describing things like its mission, impact, volunteers, supporters, financial health, and future plans;
  • Ask about the finances and financial health of the organization and maybe ask to see the most recent financial reports or balance sheet;
  • Review any strategic plan of the nonprofit, and ask about any future projects, plans or changes;
  • Ask about any fundraising responsibilities, or expectations of financial support by Board members, or additional expected volunteer service at events;
  • Ask about whether the nonprofit corporation has director and officer liability insurance coverage (sometimes called D&O insurance).

Washington State has a great resource for nonprofits with helpful learning materials about Board work and service called the Washington Nonprofit Institute which can be found here. There are some basic trainings available including ones that discuss the role and the purpose of Boards for nonprofits.  The Secretary of State also published a Board Service guide here.

It’s wonderful and rewarding to give time and talents to a nonprofit as a Board director or officer, but it’s important to know what you’re getting into ahead of time.

Disclaimer: This article and blog are intended to inform the reader of general legal principles applicable to the subject area. They are not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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