If you are ever asked to serve on an organization’s Board of Directors, you have the obligation to be understand the responsibilities and duties you will undertake. Directors are fiduciaries of the entity they serve, and their many duties include those of obedience, loyalty, and care to the organization. Directors must also be aware of and comply with public disclosure requirements placed on the organization.
A Board of Directors is required to ensure that that its organization operates in strict compliance with applicable state and federal law. Further, Directors must honor and follow the organization’s governing documents, such as the Bylaws and Articles of Incorporation.
2. Duty of Loyalty
A Director must avoid using his or her status at the organization in a way that would result in personal or familial monetary gain. Directors must also avoid using an organization’s assets in a way that would have a similar result. Creating a “Conflict of Interests Policy” can be fundamental for an organization to ensure that its definition of a “conflict” explicit and thus understood and followed by the Board of Directors.
3. Duty of Care
Directors are required to discharge duties on the Board in good faith. Each director must act in a manner that he or she reasonably believes to be in the best interests of the organization, and with the care an ordinarily prudent person in a similar position would exercise under related circumstances. The duty of care includes actively participating on the Board, taking careful meeting minutes, ensuring financial records are well-maintained, protecting nonprofit charitable assets, and fully investigating any allegations, instances, or claims of misconduct or mismanagement within the organization or on the Board itself.
4. Disclosure Standards
Directors have the responsibility to make many of its organization’s documents accessible to the public. Such documents include the organization’s annual tax returns, tax-exemption application, and IRS determination letter. Failure to know which must be disclosed and when can result in the organization incurring fines.
Serving on a Board of Directors is a wonderful way to help shape an organization you care about from the inside out. By being aware of the responsibilities the position of Director entails, you can ensure that your time on the Board is effective and successful.
Do not hesitate to reach out to us if you have any questions about serving as a Director or creating a diverse and productive Board for your organization!
Take a look at a couple of our articles and videos related to establishing and growing your organization:
Adapted from “Nonprofit Governance: Current Pitfalls and Best Practices,” by Tisidra Jones, as presented on October 27, 2021 in the National Business Institute’s “501(c)(3) Organization and Formation From Start to Finish”
McCormick Law, PC d/b/a McCormick Law & Consulting is a boutique business and real estate law firm located in Norfolk, Virginia & Raleigh, North Carolina, that seamlessly serves clients throughout Virginia and North Carolina. Whether you are a new or existing client of the firm, McCormick Law, PC, cannot represent you on any new matter until the firm has made a determination that there is no conflict of interest and that it is willing to accept the new engagement. The testimonials on this website reflect the real-life experiences and opinions of our clients. However, the experiences are personal to those particular clients, and may not necessarily be representative of all clients. We do not claim, and you should not assume, that all clients will have the same experience. Your outcome may vary.
© McCormick Law & Consulting