I’m Now a Board Member of a Nonprofit Corporation. What’s My Duty and Liability?

Nonprofits are a LifeCycle Trifecta!

Remember that Chance card in Monopoly that reads, “Congratulations! You’ve been appointed to the Board of Directors. Please, pay $500”? How about the saying, “No good deed goes unpunished”? Or the favorite doctor’s soothing saying, “Relax, this won’t hurt a bit.” Well, speaking from a lot of education, training, and experience, serving on a nonprofit’s board is not that bad.

Being appointed to the board of a nonprofit corporation is the trifecta of LifeCycle planning issues where your personal life, work life, and legal life overlap. Why? You serve for personal reasons; the nonprofit, properly run, should act like a real business; and you have some legal rights and responsibilities.

Let’s take a look at this using Maryland law.

In Maryland ,  all business and affairs of a corporation, whether or not in the ordinary course, are managed by or under the direction of a board of directors. The directors of a corporation must  act: (1) in good faith; (2) in a manner the director reasonably believes to be in the best interests of the corporation; and (3) with the care that an ordinarily prudent person in a like position would use under similar circumstances. So, if you pretty much always to the “Right Thing,” then you should be okay.

But, who can you depend on to advise you of what the “Right Thing” is?

Again, under Maryland law, you can rely on three groups of people to advise you with relative safety. A director may rely on any information, opinion, report, or statement, including any financial statement or other financial data, prepared or presented by::

1. An officer or employee of the corporation whom the director reasonably believes to be reliable and competent in the matters presented;
2. A lawyer, certified public accountant, or other person, as to a matter which the director reasonably believes to be within the person’s professional or expert competence; or
3. A committee of the board on which the director does not serve, as to a matter within its designated authority, if the director reasonably believes the committee to merit confidence.

Stay safe from liability as a director, by asking these three things.

You, as a director, would not be acting in good faith if you have or should have any knowledge concerning the matter in question which would cause your reliance on any of these “safe” informers to be unwarranted. So, to protect yourself and the nonprofit at the same time, do these things:

1. Ask lots of questions about anything you do not truly understand from top to bottom, side to side, and front to back.
2. Ask about any informer’s education, training, and experience to make yourself sure about the reliability and competence of anyone informing you about anything.
3. Ask for anyone telling you anything to explain the actual data supporting anything they are discussing with you.

If you make sure everyone else in the nonprofit is reliable, competent, and has data to support their opinions, then, under Maryland law, you should have no liability in any action based on your acts as a director.

Call us if you’re not sure.

Whenever you have any question at all, however, about anything anyone tells you or wants you to do in a nonprofit, feel free to call your LifeCycle Lawyer! That’s what we are here for. So contact us and tell us, “How can we help you?”