A nonprofit’s Board of Directors are fiduciaries with a duty to guide the nonprofit toward a sustainable and stable future by implementing sound legal, ethical, and financial policies as well as ensuring the organization has sufficient resources to advance its mission.
3 Primary Legal Duties of a Nonprofit Board
Each individual board member has three primary legal duties to the nonprofit, its constituents, and each other:
- Duty of Care. Each director is legally required to exercise reasonable care when making decisions on behalf of the organization. This includes making sure the nonprofit has the appropriate advisers and auditors to manage risk.
- Duty of Loyalty. Directors must make decisions based on the best interest of the organization and ensure that the nonprofit’s activities are advancing its mission. This duty includes the disclosure of any conflicts of interest that may impact impartial decision-making.
- Duty of Obedience. Directors must ensure that the organization follows its own bylaws, obeys applicable laws and regulations, and adheres to its purpose.
Basic Board Roles & Responsibilities
Good governance is essential for a nonprofit and begins with a basic understanding of the board’s roles and responsibilities, which includes the following:
Establish identity and direction
- Adopt and maintain a strategic plan that defines the direction of the organization.
- Ensure that the nonprofit’s programs and activities reflect the organization’s mission and values.
- Align strategic priorities with the annual budget.
- Put in place appropriate risk management policies and plans.
- Implement financial management best practices to ensure fiscal integrity, including having an external auditor conduct annual audits.
- Review all policies and procedures to ensure they meet legal and ethical guidelines.
- Oversee key management hiring, compensation, and performance review functions.
- Develop and track goals related to the nonprofit’s programs and activities.
- Review and approval of all key contracts.
Ensure necessary resources
- Develop and manage the annual budget.
- Establish fundraising guidelines, including the role of directors in fundraising efforts.
- Ensure the composition of the board supports the nonprofit’s strategic needs.
Fiduciary obligations arise regardless of whether a board member is paid for his or her work. A director or officer who breaches their fiduciary duties can face personal liability for harm caused by the breach.
The Church Law Center of California assists religious and secular nonprofits with governance challenges. We can help your organization examine its board procedures and develop good practices. To find out how we can be of help to your organization, call us at (949) 689-0437 or reach out to us through our contact page.