Insights
Publications

What Every Prospective Nonprofit Board Member Needs to Know

2/23/2015 Articles

You have been asked to serve on the board of a nonprofit organization. Should you accept? Prospective board members should carefully consider an invitation to join a board. Before accepting, a potential board member should understand the responsibilities and duties of board membership. In addition, it is important for a potential board member to conduct due diligence regarding the organization’s structure, programs, key staff positions and financial status.

Roles and responsibilities.
While the board is not typically involved in day-to-day activities of a nonprofit, it is charged with overseeing the organization and making key decisions, such as adding or removing board members, hiring and firing key officers and employees, engaging outside professionals and authorizing significant financial transactions, policy changes and new program initiatives.

In carrying out these management and decision-making functions, board members have important legal and fiduciary responsibilities that require a commitment of time, skill and resources.

First and foremost, a board member must attend meetings and read materials provided at, or in advance of, meetings. A board member must also be familiar with the organization he or she represents, including its mission, activities, organizational structure and key staff positions. In addition, a board member should have a basic working knowledge of the reporting obligations and primary tax laws that affect the organization. You should ask yourself whether you have the time and inclination to meet these threshold requirements before accepting a board seat.

Fundraising.
One key responsibility of the board is to ensure that there are adequate resources to carry out the organization’s work. Flowing from this, most nonprofit organizations expect their board members to actively participate in fundraising, including by making personal financial contributions that are generous in light of each board member’s personal circumstances.

Protection from liability.
Recent publicized scandals remind us that nonprofits can be ripe for embezzlement and other financial improprieties. This may cause you to wonder whether board members may be subject to personal liability. The short answer is, in some cases, yes.

Board members can minimize their risk of personal liability through their own actions, for example, by making thoughtful and deliberate decisions, creating a “paper trail” to show due diligence, completely avoiding even the appearance of a conflict of interest and engaging legal counsel and other professionals as necessary.

Insurance can also offer protection. As a potential board member, you should ask not only about the existence and types of insurance (e.g., D&O, fraud, forgery), but also about the level of insurance. Coverage should be in amounts sufficient to encompass both defense costs and liability exposure. You might consider requesting a copy of the organization’s insurance policies to further analyze their extent, scope and any exclusions.

Look before you leap.
Here are some things to consider in determining whether you want to become a member of a particular organization’s board:

  • Is the organization registered and in good standing in all jurisdictions where it is operating?
  • Who are the current board members and what are their affiliations?
  • When, where and how often are board meetings held? How long do they last? What is a typical agenda?
  • Is there a formal orientation and manual for board members?
  • What are the standing committees and what do they do? How are committee members elected or appointed? Will you be expected or able to serve on a committee at some point?
  • Are there any conflicts of interest that you think you might have?

The organization should supply you with the following documentation pertaining to the operations of the nonprofit:

  • IRS 501(c)(3) Tax Exemption Determination Letter
  • Statement of Mission or Purpose
  • Bylaws, or other internal governance rules
  • Federal Information Returns (e.g., Form 990)
  • Most recent financial statement and annual report, if one exists
  • Minutes of the three or four most recent board meetings
  • Current, board-approved budget
  • Conflict of interest, whistleblower and document retention policies

If the organization resists providing these materials, or says it does not have them when it should, this is a warning sign and you should think carefully before joining the board.

Firm Highlights

News

Farella Announces 2024 Leadership Council on Legal Diversity Pathfinders: Taylor Rottjakob and John Ugai

Farella Braun + Martel is proud to announce that senior associates  Taylor E. Rottjakob and John M. Ugai have been named 2024 Leadership Council on Legal Diversity (LCLD) Pathfinders. Pathfinders have been identified as...

Read More
Publication

Charitable Bequests With Guest Stephanie Hood

Welcome to EO Radio Show – Your Nonprofit Legal Resource . I'm delighted to have as my guest Stephanie Hood, my colleague here at Farella Braun + Martel, and a member of our top-notch...

Read More
Publication

Navigating Charitable Bequests: Risks and Rewards for Early Planning

Charitable bequests are an essential aspect of philanthropic planning for high-net-worth individuals. When engaging in conversations with philanthropic clients, it is crucial to assist them in determining suitable assets for charitable giving. Not all...

Read More
News

Farella 2024 Partner Elevations: Cynthia Castillo and Greg LeSaint

Northern California legal powerhouse Farella Braun + Martel is pleased to announce the election of two lawyers to partnership effective Jan. 1: Cynthia Castillo and Greg LeSaint. “We are thrilled to elevate Cynthia and...

Read More
Publication

Navigating Charitable Bequests: Risks and Rewards for Early Planning

Charitable bequests are an essential aspect of philanthropic planning for high net worth individuals. When engaging in conversations with philanthropic clients, it is crucial to help them determine suitable assets for charitable giving. Not...

Read More
Publication

Steps for the Long-term Success of Your Brand & Business

Family wineries face certain common issues when it comes to succession planning, and there are steps you can take to help ensure the longevity and success of your brand and business. Step 1 &ndash...

Read More
News

Farella Braun + Martel Earns 2024 Best Law FirmsĀ® Rankings

Read More
Publication

Nonprofit Quick Tip: State Filings in North Carolina and South Carolina

Welcome to  EO Radio Show - Your Nonprofit Legal Resource . Episode 75 is the tenth in a series of Quick Tip episodes focusing on the details of state registration of nonprofit corporations. With...

Read More
Publication

Charitable Planning With Guest Stephanie Hood: Navigating Complex Rules and Traps for the Unwary

Welcome to  EO Radio Show - Your Nonprofit Legal Resource . This week, I am delighted to have Stephanie Hood return as my guest. Stephanie is my colleague at Farella Braun + Martel and...

Read More
Publication

IRS Moves to Target Wealthy Taxpayers in Historic Compliance Drive

This month, the IRS announced that it is using the long-term funding approved by Congress through the Inflation Reduction Act of 2022 to shift its attention to wealthy taxpayers in an effort to “identify sophisticated...

Read More