By: Javan Kline
Serving on a nonprofit board can provide you with an opportunity to give back to your community, pursue a passion, and network with others. While serving on a board can be incredibly gratifying, keep in mind that you have legal duties!
Duty of Care
A director is required to act in good faith and with the care that an ordinarily prudent person would use in similar circumstances. (ORC § 1702.30(B)).
A director should remain active and informed and should exercise independent judgment. For example, a director should regularly attend board meetings, cast votes at board meetings, maintain minutes of board meetings, review relevant documentation of the organization (e.g., financial documentation, contracts), conduct adequate research when necessary, hire outside professionals when needed, evaluate performance of officers of the organization, and put into place necessary policies (e.g., conflict of interest policy, document retention policy, and a whistleblower policy).
Duty of Loyalty
A director shall perform the duties in a manner the director reasonably believes to be in the best interests of the organization. (ORC § 1702.30(B)). In other words, a director should act in the best interest of the nonprofit and not themselves.
A nonprofit organization should establish a conflict of interest policy (the IRS provides a sample Conflict of Interest policy in its IRS Form 1023 instructions). The IRS does ask whether the organization has adopted a conflict of interest policy on the IRS Form 1023.
With respect to this duty, directors should avoid or be extremely cautious of dealings between the organization and the director individually, the director’s family, or the director’s business. In the event there is any conflict of interest, the director should adequately disclose such conflict to the board and follow other procedures as set forth in the conflict of interest policy. In addition, if the director may personally benefit, the director should abstain from voting on such dealing.
Duty of Compliance
A director must be true to the organization’s mission and purpose. A director should maintain a strong understanding of the organization’s governing documents (e.g., articles, regulations, policies, etc.)
In addition, a director should be familiar with laws and regulations impacting nonprofit organizations, including tax laws and charitable solicitation laws. A director should make sure that the necessary registrations and filings are being made and kept current. This may include filings with the Ohio Secretary of State, the Ohio Attorney General, other state agencies if the organization has employees, other states, and the IRS.
Duty to Manage Accounts
A director is responsible for the financial stability of the organization and maintaining adequate accounting and financial records. A director should make sure the organization: (1) establishes an annual budget that is monitored and revised as necessary; (2) maintains records of revenues, expenses and transactions; (3) has safeguards in place for oversight of funds; (4) prudently manages and invests assets; (5) monitors fundraising initiatives; (6) seeks bids and spends funds wisely when purchasing goods or services; and (7) maintain board minutes documenting board discussion and approval of spending and investments.
For additional information, see http://www.ohioattorneygeneral.gov/Files/Publications-Files/Publications-for-Non-Profits/GuideforCharityBoardMembers