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Nonprofit organizations rely on their boards to provide leadership, oversight, and direction. But while serving on a board is often seen as a way to give back to the community, it is also a legal responsibility. Board members are stewards of the organization’s mission and assets, and they are legally accountable for how the organization operates.

Whether your nonprofit is small and grassroots or well-established and growing, strong governance can protect your organization and the people who lead it.

The Three Core Fiduciary Duties

Board members are legally required to fulfill three primary fiduciary duties. These responsibilities are the foundation of nonprofit governance and apply to all directors, regardless of the organization’s size or mission.

1. Duty of Care

Board members must act in good faith and with the care that an ordinarily prudent person would exercise in a similar position. This includes:

• Preparing for and attending board meetings
• Reviewing financial reports and strategic plans
• Asking questions and making informed decisions

The duty of care requires active participation. Failing to stay engaged or making decisions without sufficient information can result in poor outcomes and even legal consequences.

2. Duty of Loyalty

This duty requires board members to act in the best interest of the organization, avoiding conflicts of interest and prioritizing the nonprofit’s mission over personal or professional gain.

A conflict of interest policy should be in place and enforced. If a board member stands to benefit financially from a decision, they must disclose the conflict and recuse themselves from any related vote.

3. Duty of Obedience

Board members must make sure that the organization adheres to its stated mission, complies with applicable laws and regulations, and follows its own bylaws and internal policies.

This includes maintaining the nonprofit’s tax-exempt status by ensuring funds are used for charitable purposes and reporting requirements are met.

Legal Liabilities and Common Risks

Even in volunteer roles, board members can face legal exposure under certain circumstances.

Misuse of funds:

Boards are responsible for overseeing budgets and making sure financial controls are in place. Using donations for unauthorized purposes or failing to monitor spending can lead to serious consequences, including investigations by the Georgia attorney general, other state regulators, or the IRS.

Failure to comply with bylaws:

Bylaws are legally binding and serve as the governing document of your organization. Skipping required procedures, such as holding an annual meeting or properly recording board votes, can invalidate actions and put the nonprofit at risk.

Employment disputes:

Boards involved in hiring, firing, or managing executive leadership must ensure compliance with labor laws. Discrimination claims, wrongful termination lawsuits, and workplace safety violations can create liabilities for the organization and the board.

Negligence or inaction:

Failing to investigate suspected fraud, ignoring complaints of misconduct, or not responding to legal threats can be seen as negligence. Board members may be held personally liable if their inaction causes harm.

To mitigate these risks, every nonprofit should carry Directors and Officers (D&O) insurance. This coverage protects board members from personal liability related to board decisions made in good faith.

Smart Policies That Strengthen Governance

Beyond fulfilling basic legal duties, boards can take proactive steps to create a culture of accountability and transparency. The following policies are considered best practices for board governance:

• Conflict of Interest Policy: Requires disclosure of potential conflicts and outlines procedures for managing them.
• Whistleblower Policy: Encourages staff and volunteers to report misconduct without fear of retaliation.
• Document Retention Policy: Ensures important records are maintained in accordance with legal standards.
• Financial Management Policy: Outlines budgeting, expense approvals, and audit practices to prevent misuse of funds.
• Board Orientation and Training: Educates new and existing members about their legal responsibilities and the organization’s mission, bylaws, and policies.

Policies should be reviewed regularly and updated as needed. Nonprofit boards should also conduct annual self-assessments to evaluate performance and improve governance practices.

Best Practices for Day-to-Day Governance

In addition to adopting formal policies, effective boards take action every day to provide good governance:

• Maintain accurate, detailed meeting minutes
• Clearly document all decisions and votes
• Monitor financial performance and approve budgets
• Provide transparency in fundraising and program activities
• Encourage open communication among board members and staff

It’s also essential to know when to seek legal advice. Whether reviewing contracts, handling a major donation, or navigating a dispute, having legal counsel can help avoid missteps.

Serving with Confidence

Nonprofit boards play a crucial role in shaping and sustaining charitable organizations. Board members who understand their legal responsibilities and adopt best practices not only protect the organization but also create a stronger, more sustainable impact in their communities.

If your board has questions about fiduciary duties, liability risks, or how to improve governance, it’s worth speaking with a qualified attorney who understands nonprofit law

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Need Help with Your Nonprofit Board Governance in Atlanta?

The Law Office of Cameron Hawkins provides legal guidance to nonprofit organizations and their boards. Whether you need help drafting policies, navigating compliance, or addressing a legal issue, we are here to support your mission.

Contact us online today to schedule a consultation or give us a call at (678) 921-4225 and keep your board operating with confidence and integrity.