Board Member Responsibilities

According to non-profit corporation law, a board member must meet certain standards of conduct and attention to their responsibilities to the organization.  These are generally described as the three duties of trust for the organization.  These responsibilities are referred to as the Duty of Care, the Duty of Loyalty, and the Duty of Obedience.


Duty of Care

This responsibility generally requires that a board must discharge the duties with the care an ordinary prudent person in a like position would exercise under similar circumstances.  Board members need not always be right, but they must act with common sense and informed judgment. To exercise this duty properly, boards must pay particular attention to the following:

  • Active participation.  A board member must actively participate in the management of the organization including attending periodic meetings of the board, evaluating reports, reading minutes and reviewing the performance of the executive director.  Intentionally missing three consecutive meetings will remove that member from the board.
  • Reasonable inquiry.  A member should request and receive sufficient information so that they may carry out their responsibilities as board members.  When a problem exists or a report on its face does not make sense, board members have a duty to inquire into the surrounding facts and circumstances. The board members also have a duty to investigate warnings or reports of employee theft or mismanagement.

Duty of Loyalty

Board members have a duty to give their undivided loyalty to the charitable corporation.  Decisions regarding the organization's funds and activities must promote the organization's public purpose rather than private interest.  Any potential conflict of interest transactions should be scrutinized closely by the board with the realization that the public will predictably be skeptical of such arrangements.  There are some general principles that will serve to guide boards faced with conflict of interest situations.

  • Conflicts in general.  While transactions between the charitable corporation and individual board members, their families and businesses they own or operate should be avoided; they are not absolutely prohibited. Under certain circumstances, a contract or transaction between a nonprofit corporation and a board member or an organization in which the board member has a material or financial interest is acceptable. However, if the transaction is challenged, the board will have the burden of establishing that the contract or transaction is fair and reasonable, that there was full disclosure of the conflict and that all board members in good faith approved the contract or transaction.  The board should only approve the transaction if it is clearly in the best interest of the charity.
  • Written policy.  The board should establish a written policy for dealing with conflicts of interest.  The policy should address disclosure of financial interest and withdrawal from discussion and voting by interested directors.  Due to the sensitivity of conflicts of interest, the board may want to require that transactions benefiting a member may be approved only by a greater than majority vote.  Also, requiring an annual disclosure by all board members of their business involvement with the nonprofit organization is recommended.
  • Loans. In general, a charitable corporation may not lend money to board members.  There is one statutory exception. The law allows loans for executive relocation expenses under certain circumstances.
  • Corporate opportunity.  Board members of an organization are under a trust obligation not to divert a corporate business opportunity for their personal gain.  A board member of a nonprofit corporation is also subject to this duty.  This duty means that a member may not engage or benefit from a business opportunity that is available to and suitable for the corporation unless the corporation decides not to engage in the business opportunity and conflicts of interest procedures are followed.


Duty of Obedience

Board members have a duty to follow the organization's governing documents (Articles of Incorporation and Bylaws), to carry out the organization's mission and to ensure that funds are used for lawful purposes.  Also, members must comply with other state and federal laws that relate to the organization and the way in which it conducts its business. For example, board members should be familiar with:

  • Federal law.  Charitable corporations usually apply to the Internal Revenue Service for exemption as a tax-exempt organization. Corporations that fail to do so may have their income taxed at normal rates, and contributors to the corporate charity may not be able to deduct their contributions on their income tax returns.
  • State law.  In general, charities must register and file an annual financial report with the Attorney General's office. If an organization contemplates using bingo or raffles to raise revenue, it may need to obtain a charitable gaming license from that same office. A nonprofit corporation must also file an annual renewal with the Corporation Division of the Secretary of State's office.
  • Mission and procedures. Board Members should be familiar with the organization's governing documents and should follow the provisions of those documents.  Members should be sure proper notice is given for meetings, that regular meetings are held, that members are properly appointed and that the organization's mission is being accomplished.

Other duties.

In addition to the above three general fiduciary duties, there are a number of specific responsibilities that must be observed by nonprofit corporate board members.

Satisfactory corporate documents and records.  A charitable corporation is required to have Articles of Incorporation and Bylaws. You should see that they are updated and consider amendments if they do not reflect the current mission and operating procedures of the organization.  The organization is also required to keep minutes of its board meetings and a record of all actions taken by committees of the board of directors.

Adequate financial records and controls.  One of the board's responsibilities is to oversee the organization's financial affairs.  Make sure that the organization has adequate internal accounting systems and controls.  With embezzlement from nonprofit organizations on the rise, it is imperative that financial controls are in place before theft occurs.  The board should be responsible for approving the organization's annual budget.  Board members should expect the CEO (or other designated staff) to produce timely and adequate income and expense statements, balance sheets and budget status reports, and should expect to receive these in advance of board meetings.  With large organizations, the board should employ, either directly or through an audit and finance committee, an independent auditor and review the auditor's annual report at a face-to-face meeting.

Safeguarding.  The board should oversee the effective use of the resources of the organization.  Policies should be adopted and large transactions approved to ensure that the organization's assets are not misapplied or wasted.  The board should ensure that the assets are invested prudently, avoiding high-risk investments and employing some diversification of investments.

Observing donor restrictions.  All donations must be used in a manner that is consistent with the organization's stated mission. However, some donors designate that gifts are to be used for a particular purpose. It is important to keep faith with donor intentions. The board is obligated to see that such restricted funds are used for the stated purpose(s).

Responsible solicitation activities.  Some organizations decide to hire professional fundraisers to conduct or assist in soliciting donations.  When hiring a fund raiser, select one who is trustworthy; ask for references. Make sure any contract with a professional fund raiser or consultant, especially the terms for compensation, is fair and reasonable from the charity's perspective.  Be aware that most donors expect the majority of their contributions to be used for program services and that many "watchdog" organization standards limit annual fundraising costs to no more than 35% of total expenditures.  Certain types of contracts require the organization's officers and directors to observe specific procedures.

Personal Liability

It is possible that board members of a charitable corporation will find themselves sued as personal defendants in a lawsuit filed by an "outside third party" that has incurred some personal injury or financial loss as a result of dealings with the organization.  To encourage citizens to serve as board members for charities, the law cloaks volunteer board members with qualified immunity.  They cannot be sued for negligent acts. They may, however, be subject to lawsuits alleging that a loss was due to their gross negligence, willful or fraudulent acts.

I have read and understand my duties as a board member of the Albany Aquatics Association.  By signing below I stipulate that I will follow and obey all duties and responsibilities as a board member.


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