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Keeping it Legal. Brandon J. Kavanagh Mangum, Wall, Stoops & Warden, PLLC. Non-Profit “Corporate” Responsibilities. Not all non-profits are corporations (trusts, unincorporated associations, etc.) but general “corporate torts” standards apply.
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Keeping it Legal Brandon J. Kavanagh Mangum, Wall, Stoops & Warden, PLLC
Non-Profit “Corporate” Responsibilities • Not all non-profits are corporations (trusts, unincorporated associations, etc.) but general “corporate torts” standards apply. • Three overall duties of Board members and Officers and what they mean. • Duty of Care • Duty of Loyalty • Duty of Obedience
Duty of Care • Board members and Officers are expected to act with a duty of care: • Act as a reasonably prudent person would do in similar circumstances – the RPP standard. • A reasonably prudent person does not know everything in every situation, but takes reasonable steps to make reasonable decisions.
Duty of Care • Business Judgment Rule - You do not have to be right every time so long as you were reasonable in how you make each decision. • Be a good steward of funds and assets. • Rely on experts in their areas of expertise to help you make the best possible decisions.
Duty of Loyalty • Each Board member and Officer is to act in the best interests of the non-profit entity. • Board members should not act for their own personal benefit (private inurement). • Board members should not act for the benefit of third parties (private benefit).
Duty of Loyalty • Avoid conflicts of interest based upon family or financial interests. • If conflicts of interest exist, disclose them up front. • If a conflict exists for you, do not participate in the decision or discussions if at all possible. • Create and follow a conflict of interest policy.
Duty of Obedience • Obey Federal laws and regulations with a focus on IRS rules and regulations on being tax exempt. • Obey state and local laws regarding non-profit corporations and entities. • Obey your internal “laws” in your articles of incorporation, bylaws, & policies/procedures.
What Happens If You Do Not Fulfill Your Duties? • Your entity could lose its tax exempt status. • The entity and each Board member/Officer or other improperly benefitted person/entity could face IRS intermediate sanctions. • Pay back the money at issue • Pay a penalty (20%? 200%?) • Both C. The entity and the Board/Officer can be sued and investigated (IRS/DOJ/Az AG/Donors and Grant Sources).
“Governance, Not Management” • Non-profit entity standard of many watchdog groups. • Set mission and goals for the organization and make sure policies and actions support them. • Evaluate progress and make overall changes as necessary. • Governance does not mean micromanaging of staff/respect the chain of command.
Work With Your Board • A majority vote controls the actions of the Board, and therefore the actions of the entity. • Offer your opinions and comments, but respect a vote if it goes against you. • If you get new information, feel free to share it with the Board to discuss reconsideration – but decisions cannot be constantly in flux.
We (Attorneys) Are Here to Help • As questions come up, work with legal counsel to get advice (perhaps in executive session or before the meeting). • An attorney for your entity cannot give legal advice to individual Board members or officers without sharing with the others as the entity itself is the client.
Questions? Thank you.