Nonprofit boards are primarily held accountable by state Attorneys General, the IRS, and, in practice, their own governing documents and stakeholders (donors, beneficiaries). While they govern the organization, they are not self-governing; they must comply with legal fiduciary duties—care, loyalty, and obedience—to avoid personal liability.
Accountability is central to nonprofit board service. After all, boards are accountable to the organization's constituencies; boards are accountable for complying with governmental regulations; and boards are responsible for holding the CEO/executive director accountable.
Advising California Nonprofit Corporations, a leading text in the field, at 8.101 advises that the prevailing view of legal commentators in California is that the business judgment rule protects directors from personal liability for the results of their official actions as long as (a) the decision made, or action take ...
As insiders, a board usually will include the company's chief executive officer (who is often the board's chairperson) and sometimes other senior officers or managers. Directors may have specific roles and titles. Those can include: Chairperson or president: This individual leads and manages the board of directors.
Board members are the fiduciaries who steer the organization towards a sustainable future by adopting sound, ethical, and legal governance and financial management policies, as well as by making sure the nonprofit has adequate resources to advance its mission.
The "33 rule" for nonprofits usually refers to the IRS Public Support Test, requiring 501(c)(3) public charities to show they receive at least one-third (33 1/3%) of their support from the general public or other public charities over a five-year rolling period, distinguishing them from private foundations by ensuring broad community reliance. This is crucial for maintaining public charity status, involves reporting on Form 990 Schedule A, and can be passed through meeting the 10% "facts and circumstances" test if the main test is missed.
The three primary legal duties of board members are the Duty of Care, the Duty of Loyalty, and the Duty of Obedience, collectively known as fiduciary duties, requiring them to act prudently, prioritize the organization's interests over personal gain, and ensure adherence to laws and the organization's mission, respectively, to avoid personal liability.
The board should be accountable to shareholders (the owners) regulators, the courts, accreditation bodies, clients, customers, and financial institutions. Directors should ensure that they are managing any conflicts of interest and are compliant with their legal obligations.
Mistake #1: Communicating Poorly
If boards don't communicate clearly and frequently with residents, confusion, frustration, and conflict can arise. To ensure strong communication, it's important for boards to be available and transparent about projects, updates, and concerns.
The chairman of a company is the head of its board of directors. The chairman's authority is laid out in the organization's bylaws. The chairman presides over the board of director meetings and conducts its business in an orderly fashion. The chairman typically manages the board's agenda.
Directors can be personally liable for company debts and penalties if they breach their duties. Common areas of liability include insolvent trading, breaches of environmental law, and failures in work health and safety.
Board member compensation overview
It can range from $25,000 to $100,000 and more and is paid in cash, stock or a combination. Per-meeting fees: Smaller private companies, advisory boards, and nonprofits may also pay board members to attend meetings, usually $1,000 to $5,000 per meeting.
These lawsuits can be brought by donors, vendors, competitors, employees, government regulators and others, and they are not limited to suing the nonprofit organization. As a member of the board, you could also be sued personally and be responsible for the cost of hiring your own attorney to defend yourself.
7 Responsibilities of Nonprofit Board Members
Various methods have been developed over time to ensure that non-profit organizations are accountable to the authorities. They include disclosure of financial statements, evaluations, audit reports, internal controls feedback mechanisms, and assessments to name a few.
Some of the biggest complaints and behaviors that we see that both cause tension AND are signs of a bad board member include: regularly missing meetings. pursuing a personal agenda. refusing to help fundraise. failing to handle confidential information securely.
If a director is alleged to have breached fiduciary duties, engaged in misconduct, or failed to adhere to legal and regulatory standards, they may be personally liable. Take for example a board member who approves misleading financial statements.
Review the Organization's Bylaws and Policies
By following the procedures outlined in the bylaws and policies, organizations can ensure due process is upheld during the removal or discipline of a board member. This action safeguards the rights of the organization and the questionable board member.
Nonprofits are held accountable by multiple groups, primarily their Board of Directors (fiduciary duty), government regulators like the IRS and State Attorneys General, and the public/donors who demand transparency and ethical conduct in fulfilling the mission, with tools like the annual IRS Form 990 ensuring financial and operational disclosure.
In short, this means they are required to act reasonably, prudently and in the best interests of the organization, to avoid negligence and intentional misconduct, to avoid conflicts of interest that are harmful to the organization, and to abide by all applicable laws, rules, and the organization's governing documents.
4. With respect to Board decisions, members of the Board who become aware of circumstances that pose an actual or potential conflict of interest must recuse themselves from the decision-making process and take no part in the discussion or the vote.
Bylaws are a legally binding document of policies that govern nonprofit organizations (NPOs). Nonprofit bylaws outline how the organization (and by extension, the people who run it) will operate on a high level.