Non-profit organizations, and their officers and directors, often fall into the trap of believing that they are exempt from the rules that govern “for-profit” corporations and similar organizations. In doing so, the responsible members of the organization open up the non-profit to many different kinds of legal liability. This post will review the different types of jeopardy that will result if the officers and other governing members of a non-profit ignore their fiduciary duties.
The basic duties of a board member or officer
A non-profit organization’s bylaws are as essential to its operations as the U.S. Constitution is to the functioning of the country. The first careful step is to retain a competent attorney with experience in non-profit law to draft the entity’s articles of incorporation and bylaws. These documents will govern the operation of the non-profit entity until it is dissolved. The documents cover such elemental subjects as election of trustees and officers, power to purchase, sell and encumber real property, and similar powers. Most importantly, the directors must be familiar with the provisions of the bylaws and must follow those provisions. The bylaws must be obeyed to the last detail. Properly drafted bylaws not only guide the actions of the governing board or officers – they also provide protection for officers who may be accused of malfeasance when in fact their actions were totally in compliance with the applicable provisions of the bylaws.
Provisions of the current bylaws should not tie the hands of future boards. Boards should be able to act by the vote of a simple majority. They should not be bound by super-majority requirements except in case of motions to dissolve the entity or sell crucial assets.
Similarly, the current board should not put the bylaws in an empty desk drawer never to be seen again. Every set of bylaws should be subject to an annual review by the board or by a special committee appointed for the task. Keeping the bylaws current is the key to maintaining the health of the organization. Bylaws should be kept free of low level policies such as vacation allotments, penalties for discrimination, or anti-smoking policies.
The bylaws should be drafted by a lawyer who is experienced in corporate organization and the laws that govern non-profit organizations. The same qualifications apply to the attorney who is retained to conduct an annual review of the non-profit’s organizational documents.