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Yes. In Georgia, a nonprofit organization can be sued in much the same way as a for-profit business. While nonprofit status affects taxation and purpose, it does not provide blanket immunity from lawsuits. In most legal contexts, nonprofits are subject to the same liability rules that apply to other corporate entities, with only limited distinctions based on how they are formed, governed, and operated.
How Georgia Law Treats Nonprofit Liability
Under Georgia law, most nonprofits are organized as corporate entities that exist separately from the individuals who manage or serve the organization. As a result, the nonprofit itself can enter contracts, employ workers, own property, and be named as a defendant in a lawsuit.
From a liability standpoint, courts generally treat nonprofit corporations like other corporations. The organization can be held responsible for its obligations, actions, and omissions, regardless of its charitable purpose. Tax-exempt status does not prevent claims from vendors, employees, participants, or members of the public.
Common Situations Where Nonprofits Face Lawsuits
Nonprofits may be sued in a wide range of circumstances, many of which mirror common business disputes. These can include contract disagreements with landlords, service providers, or vendors, as well as employment-related claims involving wages, termination, or workplace policies.
Other frequent areas of exposure include personal injury claims tied to events or facilities, disputes involving donors or members, and allegations related to governance decisions.
Nonprofits also have some liability risks that for-profit businesses don’t need to worry about, such as regulatory enforcement actions due to noncompliance with state or federal requirements.
When Limited Liability Protections Can Be Lost
While incorporation generally limits personal liability, those protections are not absolute. Courts may look past the nonprofit entity in certain situations, particularly when the organization fails to operate as a distinct legal body.
Examples include ignoring corporate formalities, failing to maintain accurate records, or commingling nonprofit funds with personal or unrelated accounts. Liability concerns may also arise if individuals act outside the nonprofit’s authority or use the organization for personal benefit.
In more serious cases, courts may consider whether individual conduct justifies holding directors or officers personally responsible for specific actions rather than shielding them behind the organization.
Personal Liability Risks for Directors and Officers
Serving on a nonprofit board does not automatically expose individuals to personal liability for organizational decisions. Georgia law provides significant protection for nonprofit board members and officers who act in good faith and within the scope of their responsibilities.
However, protections are not unlimited. Directors and officers may face exposure when they breach fiduciary duties, approve unlawful actions, or personally participate in misconduct. Fiduciary obligations generally include acting with reasonable care, remaining loyal to the organization’s mission, and following governing documents and applicable law.
Volunteer status can be relevant, but it does not eliminate responsibility when legal duties are ignored.
How Indemnification Works for Georgia Nonprofits
Many nonprofits use indemnification provisions to protect directors and officers from personal financial loss related to their service. Indemnification typically allows the organization to cover legal fees or judgments arising from actions taken on the nonprofit’s behalf.
These protections are not automatic. Georgia law allows nonprofits to provide indemnification when it is properly authorized in the organization’s bylaws or governing policies. Indemnification generally applies only when individuals act in good faith and in the organization’s best interests.
Certain claims, including those involving intentional misconduct, may fall outside permissible indemnification.
The Role of Directors and Officers Insurance
Directors and Officers (D&O) insurance is commonly used to supplement statutory and bylaw-based protections. D&O policies are designed to address claims alleging mismanagement, governance failures, or breaches of duty.
Coverage varies by policy and may include exclusions for specific types of conduct or claims.
Insurance does not prevent lawsuits; it only addresses how defense costs and potential liability are handled once a claim arises. Many nonprofits view D&O insurance as just one part of a broader risk-management approach rather than a substitute for sound governance.
Helping Atlanta Nonprofits Manage Liability Risks With Sound Governance Practices
For Georgia nonprofits, liability exposure is often shaped by day-to-day operational choices. Clear bylaws, consistent recordkeeping, well-defined roles, and regular policy reviews all reduce risk.
Organizations may also want to revisit liability considerations when expanding programs, hiring employees, or entering new funding arrangements.
A nonprofit attorney can help evaluate exposure, align governance documents with current operations, and address risk issues before they become disputes. Local Atlanta nonprofits seeking legal review of their liability exposure can call (678) 921-4225 to consult with the Law Office of Cameron Hawkins.
