Nonprofit Governance Directors Fiduciary Duties

Under the model act, it states that all corporate powers must be exercised by, or under the authority of the nonprofit’s board of directors. The board also carries the responsibility to protect the public’s interest in the nonprofit, as well as review and approve the finances of the organization.

Nonprofit 101: Forming a Nonprofit & Applying for Tax Exemption with Erin Bradrick
Erin Bradrick is Senior Counsel at NEO Law Group and a contributor to the Nonprofit Law Blog. Erin’s practice focuses on corporate, governance, charitable trust, and tax matters solely for nonprofit and exempt organizations.

In this CLE class clip, Erin discusses nonprofit governance and directors’ fiduciary duties.

You can watch the complete Nonprofit Law CLE class here:
Nonprofit Law CLE

Some states only require one director on a nonprofit board. California for example, only requires a board to consist of one individual. Even though that is legal, it is typically recommended that for any organization attempting to apply for tax exemption under 501 3c have a minimum of three directors. This keeps the IRS from being skeptical of your organization from the onset.

The main fiduciary duties that a director owes to an organization includes Duty of Care, Duty of Loyalty, and Duty of Obedience.

Duty of Care
The Duty of Care requires a director to discharge their duties with the care that a person in a like position would reasonably believe appropriate under similar circumstances. Meaning a director needs to obtain adequate information in order to make informed decisions.

Duty of Loyalty
Duty of Loyalty requires a director to act in a manner that they believe to be in the best interest of the organization. The director is expected to give undivided allegiance to the corporation, thus putting the interests of the corporation above even their own interests.

Duty of Obedience
Not actually a fiduciary duty, however the Duty of Obedience means that a director has a duty to ensure the nonprofit carries out the corporation’s purposes and that they comply with all applicable laws.