There are some circumstances in which directors of nonprofit organizations can be held legally liable for acts they carried on behalf of the organization, or acts that could be construed as them representing the organization.
With the potential for legal liability constantly looming, it is imperative that the organization have a commitment at all levels to operating fully within the law. This will help prevent most cases in which legal liability would be an issue. Any time the law is unclear, directors (and the organization as a whole) should use a conservative approach and not attempt to press their luck regarding possible liability.
Here are some tips to help you avoid legal liability with your nonprofit organization.
- A strong commitment to education: For your organization to stay in full legal compliance, you must commit to educating all directors (who are typically volunteers) of all the potential legal risks the organization faces. A good way to do this is to have orientation programs for all new directors that come aboard the organization. These programs should have sections that include information and training in various compliance challenges. Ongoing education can also help to provide reminders of these compliance issues and prevent any challenges from arising.
- Constantly available legal counsel: You should have legal counsel that is always available to your organization and its directors. The organization’s attorney will monitor organizational policies and programs, as well as any external policies and regulations that could affect the organization. If issues that could lead to potential risk arise, the attorney can bring these issues to the attention of the directors.
- Indemnified directors: Indemnification is a promise to pay for the legal defense (and any damages incurred) if the indemnified person is accused of legal wrongdoing while acting on the organization’s behalf, with the exception of cases involving gross negligence or fraud. By indemnifying directors, you help shield them from personal liability for organizational matters and give them a little extra incentive to act as directors in the first place.
- Insurance: To give yourself a broader safety net, get liability insurance for your organization. These policies cover a wide range liability types, paying for any legal defense and resulting damages or settlements from claims of wrongdoing by the organization or its directors. Liability insurance has the added benefit of opening up potential new opportunities for the organization. Many businesses or organizations will not do business with nonprofits if they do not have liability insurance.
It’s important to take whatever steps possible to protect your volunteer directors from legal liability on behalf of the organization. To learn more about how you can shield your directors from legal liability, contact a knowledgeable attorney in the U.S. Virgin Islands.