I recently accepted an invitation to join a nonprofit board. Once I got on the board, I learned the organization was in big debt and I began receiving letters from bill collectors. As a board member, am I liable for the organization’s debts?
The simple answer, according to Attorney Brent Smith, is that directors and officers of nonprofits are immune from liability in nearly all instances.
“In most cases, you are not personally liable even if the board makes a mistake,” Smith said.
The Wisconsin Legislature passed a law in 1997 exempting board members from being personally responsible for such errors. It was meant to encourage more people to volunteer their time on these agencies. “It also saves nonprofits money because that law provides some protection should they choose not to carry errors and omissions insurance for their board members as they did in the past,” Smith said.
What are the exemptions that could make you liable?
- If you violated criminal law in an action you took on the board, knowing what you did was illegal or having a reasonable expectation that it was.
- Willful failure to deal fairly with the corporation or its members on a matter in
which you have financial conflict of interest, such as convincing the nonprofit to do business with your company. - A transaction from which you improperly gained a personal benefit.
- Willful misconduct, which means you intentionally did something that you knew you should not have done even if it was not illegal.
“No one should be afraid to serve because of fear of personal liability,” Smith said. “Many nonprofits rely on good people to volunteer time on their boards."
Information provided by Brent Smith, attorney at Johns, Flaherty & Collins, SC, and active community volunteer. For more information about board member liability, call him at 608-784-5678.