Most people who serve as an officer or director of a charitable or nonprofit organization do so because of a sincere desire to help support a mission or purpose in which they believe deeply. When contemplating giving of your valuable resources or time, there are several legal questions you should consider before you accept a position as a governing board director, officer, or volunteer leader.
Most nonprofit organizations are charitable trusts. Their intended beneficiaries in Texas are typically the people of Texas. As such, mismanagement or misappropriation of assets of the organization can carry far more serious consequences for leadership than if the same acts occurred in a private organization.
The following are some simple questions we recommend you always ask before you associate yourself or your resources with any Texas nonprofit organization:
1. Is the organization filed as a nonprofit with the Texas Secretary of State and IRS? Has the nonprofit done its due diligence in selecting a name that is legal?
Sometimes well intended organizations skip these important steps and think they are exempt from such matters because their work is charitable or not for profit.
2. Does the organization have an external CPA that prepares required reports and returns?
Although not for profit, some organizations forget they must act like a responsible business. This requires a certified public accountant in Texas who understands the laws regarding finances for charitable organizations.
3. Does the organization have insurance that defends and indemnifies the board of directors and volunteers?
Sometimes generous givers get a rude awakening when they are told to obtain their own defense when sued by an angry employee, client or volunteer of a nonprofit organization. In Texas, charities that do not purchase the proper charitable organization insurance are severely limited in their defense to liability. You can be vulnerable as an agent of that organization when in a leadership role.
4. Are you properly covered by your personal policy as a board member of a charitable organization?
If you own a home or other assets, you may have a homeowner’s policy of insurance and umbrella insurance that provide you valuable rights. You should consult with your insurance provider to see if you have coverage as an officer, director, compensated employee or volunteer of a nonprofit organization. You should also ask how much your policy premiums will increase if you accept such a position.
5. Does the organization have bylaws that are legitimate and have been adopted?
A reputable nonprofit organization will not only have bylaws that have been approved and signed by the Chair pursuant to a properly posted and duly convened meeting, but should be willing to provide a copy for your review. While often boring and lengthy documents, they are incredibly important. They define and control every significant action by board members and often by volunteers. Action outside the authority created by the bylaws may forfeit liability insurance coverage, grants and funding. You should not accept a position until you confirm these affairs are in order.
About your authors:
Laura Fowler is the Managing Shareholder of The Fowler Law Firm PC. She proudly serves as pro bono legal counsel for a diverse group of nonprofit organizations to assist them in the matters addressed in this article.
John Pearce is a tax attorney and Certified Public Accountant joint licensed in Texas, Louisiana, Georgia, and Kentucky. John regularly counsels with both large and small nonprofit organizations. He currently serves pro bono as Texas CPA Society Treasurer, Rotary District 5870, and Austin Bar Association Business & Taxation Section Treasurer.
About The Fowler Law Firm PC: Attorneys with The Fowler Law Firm PC proudly donate their talents and resources to many area charities. Click HERE for more information. Follow our charitable adventures on our Facebook page.