business meeting

Fiduciary Responsibilities Of Board Members

Nonprofit organizations typically don’t pay income taxes, giving them a general advantage over other corporate entities. Additionally, donations to nonprofit entities can be tax deductible to the donor, which encourages outsiders to finance the organization’s goals and initiatives. However, with these advantages come specific responsibilities for board members, both at the federal and state levels.

Fiduciary Responsibilities: What You Need To Know
Legislative mandates require governing board members to maintain fiduciary responsibility at all times. Collectively, fiduciary responsibility is comprised of three specific obligations to the nonprofit entity, designed to ensure that all board members conduct themselves according to the law and the best interest of the organization. These three duties include:

Duty of Care
The duty of care responsibility of a nonprofit board requires members to perform all responsibilities in good faith, utilizing the diligence, skill, and caution that would reasonably be exercised by prudent persons faced with similar situations. Common duty of care responsibilities requires board members to:

  • Actively participate
  • Attend board meetings
  • Exercise judgment when voting
  • Have industry insight
  • Deliver strategic guidance
  • Oversee the management team

Duty of Loyalty
The duty of loyalty requires members to behave in a way believed to be in the best interest of the nonprofit. Board members should be especially careful when dealing with potential conflicts of interest. Every board member is expected to make decisions based on the best attainable results for the organization, and not individual personal gain. Common duty of loyalty responsibilities requires board members to make sure the charitable organization never:

  • Makes monetary or property loans to board members
  • Leases (for longer than five years), purchases, or sells property to or from a director without first obtaining court approval
  • Participates in unfair entity transactions or activities that impede the nonprofit’s mission

Duty of Obedience
The duty of obedience mandates that every board member must understand that they are bound by applicable state and federal regulations, including IRS issued regulations. Common duty of loyalty responsibilities requires board members to:

  • Read meeting minutes for accuracy, paying careful attention to vote recordings
  • Review all financial reports, 990s, and budgets
  • Read all board materials and ask questions as needed
  • Understand organizational policies, protocols, and bylaws

Understand Activities That Can Jeopardize Your Nonprofit Status
Beyond the individual obligations outlined, several specific activities can also directly impact an organization’s nonprofit status. Participating in a political campaign, lobbying for legislation, and not filing the required annual return (Form 990) for three consecutive years can lead to revocation of your organization’s not-for-profit status. For more information on maintaining your fiduciary responsibilities to your nonprofit organization, contact Leone, McDonnell, & Roberts, Professional Association today.