What are the Legal Duties of Nonprofit Board Members?
Under the law that guides nonprofit corporations, nonprofit board members have the legal responsibility to meet their duties of care, loyalty, and obedience. The three legal duties of nonprofit board members are explained with examples below.
Duty of Care
The duty of care describes the level of competence that is expected of a board member and is commonly expressed as the care that an ordinarily prudent person would exercise in a like position and under similar circumstances. This means that a board is expected to exercise reasonable care when they make a decision on behalf of the organization, as they would in their personal and professional life.
Duty of care requires that you pay attention to the organization’s activities and operations. Board members are expected to make decisions with the organization’s best interest in mind.
Examples of a Breach of Duty of Care
Examples of a breach of the Duty of Care include:
- Excessive meeting absence.
- Failure to ask questions about a proposed action.
Put simply, a board member can only do their job effectively if they have been present at board meetings and received and digested the information required to make informed decisions.
Duty of Loyalty
Duty of loyalty means board members are expected to put the interest of the organization before their own personal and professional interests. It is a conflict of interest policy embedded in the nonprofit law regarding charitable board members. This duty is intended to make sure that the organization is foremost in decision-making by board members. That includes an expectation that board members recuse themselves if there is a vote that could benefit them or their family or with which you have a conflict. The laws set an expectation of loyalty to the organization first and foremost.
Please note, it is still a best practice for organizations to have a formal conflict of interest policy. Board members should complete a form each year disclosing conflicts, and a committee or subcommittee of the board then reviews those forms and makes a recommendation of how the board should move forward.
Examples of a Breach of Duty of Loyalty
The most common breach of the duty of loyalty is not disclosing or addressing a conflict of interest. Some real-life examples of this may be when an organization engages in any of the following conflicts without a bidding process, disclosure, or a board discussion:
- Choosing and hiring a company owned by a board member who has a professional stake or will receive a commission. For example, if the board hires an HVAC company owned by a board member who then receives pay from the organization for the work performed.
- Renting meeting space from the family of the board member or to the family of a board member.
The above examples may be acceptable if the conflict is disclosed ahead of time, a board discussion is held, and a proper and equitable bidding process is conducted. It is important to note that what may be allowable under the law may be different than what is considered appropriate in public opinion.
Examples that will likely not be acceptable in either venue include:
- Any of the above without a process, discussion, or vote.
- Allowing family members to stay rent-free in organization-owned space when others are charged and pay a fair market rate.
Duty of Obedience
The duty of obedience requires board members to comply with the applicable federal, state, and local laws, adhere to the organization’s bylaws and policies, and serve as guardians of the organization’s mission. It also includes honoring donor intent. Some states have additional requirements or different titles. We encourage you to look up the laws of your own state.
Examples of a Breach of Duty of Obedience
A few real-life examples would include:
- knowing that the homeless shelter is supposed to have multiple places for egress but allowing one exit to remain blocked.
- accepting a donation for a specific project but spending that money on something else.
- not following the financial policies requiring separation of duties when handling money.
Duties of care, loyalty, and obedience are part of providing oversight which is one of the three responsibilities of a board of directors. To learn more about the responsibilities of board service, download our board service infographic.
101 Resource | Last Updated August 21, 2023
Resources: Guide for Charity Board Members; Right from the Start: Responsibilities of Directors of Not-for-Profit Corporations; The Attorney General’s and Secretary of State’s charitable rules in your state.
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