Can nonprofit board members be held personally liable?

 

“Can board members be personally liable for what happens in their homeschool group?”

Well…that’s really a legal question and I’m an accountant, not a lawyer, but here’s a recent news story about board members of a nonprofit nursing home. They were held personally liable for failing to do their “fiduciary duties.”

Court Holds Officers and Directors of Non-Profit Healthcare Facility Personally Liable to Creditors for Breach of Fiduciary Duty

The court ruled that the officers, specifically the nonprofit’s administrator and CFO, and board of directors were jointly and severally liable to creditors in the amount of $2.25 million.

What did they do wrong? It’s a long list:

  • breached their respective duties of care
  • did not keep adequate financial records
  • breaches of the duty of loyalty owed to the nonprofit through self-dealing
  • the board failed to remove an incompetent administrator and CFO
  • severely mismanaged the nonprofit, a nursing home
  • the administrator diverted grant funds that were provided by a community foundation
  • The CFO was found to have engaged in self-dealing

The author, attorney Robert Blaisdell concludes by saying,

“This case is significant because it exemplifies the trend of holding officers and directors of non-profit entities personally liable for breach of their fiduciary duty to the corporation.”

Did you get that? “Personally liable for breach of their fiduciary duties.” That means the board members must pay, from their own pocket, damages because they didn’t do their job as board members!

Don’t let this happen to you!

Know your duties as board members and do them.

 

Carol Topp, CPA

HomeschoolCPA.com

Can our homeschool group get sued if we’re not a recognized nonprofit?

Carol,
We are a Christian homeschool group and co-op. The church that hosts our co-op classes is concerned with the possibility of us getting sued if we are not a recognized non-profit.  We are comprised of like-minded believers for a specific cause.  Can you comment on this?

TW

 

TW,

I usually recommend nonprofit incorporation to protect the leaders and members of a homeschool organization.

Nothing can stop a lawsuit, but forming as a corporation means the liability is limited to the corporation’s assets and it protects the personal assets of the leaders and members from the lawsuit damages.

Unfortunately, being like-minded does not mean you’re immune from lawsuits. One group told me that a co-op member’s health insurance sued the homeschool group for medical bills when a child was injured while at co-op. The co-op member did not bring the lawsuit, her health insurance company did.

If you need more information on the benefits of nonprofit incorporation for your homeschool group, read The IRS and Your Homeschool Organization. It includes a chapter on nonprofit incorporation.

I hope that helps,

Carol Topp, CPA

Save

Save