The Common Law
Nonprofit organizations – personal liabilty of a nonprofit director
Volunteering as a director for a nonprofit organization is a wonderful way to get involved in the community. However, there is a common misperception that a nonprofit director can never be exposed to personal liability for carrying out his or her duties on behalf of the nonprofit. Texas law limits, but does not completely prohibit, personal liability of a nonprofit director for actions taken on behalf of the organization.
According to Texas' Non-Profit Corporation Act, a nonprofit director cannot be liable to the organization or any other person if the director acts in good faith, with ordinary care, and in a manner the director reasonably believes to be in the best interests of the nonprofit corporation. A person seeking to establish personal liability of a director must show the director failed to comply with this standard. From a practical standpoint, one of the best ways for nonprofit directors to protect themselves from personal liability under this standard is to pay close attention to the authority their nonprofit organization has granted them as a director and not to deviate from that authority without permission as given by the organization's by-laws and other rules.
While Texas law limits directors' liability, lawsuits are not unprecedented. Examples of claims asserted against directors include discrimination (age, race, sex, national origin, etc), wrongful termination, libel, and slander. Even if the lawsuit is meritless, you could be forced to run up large legal bills in order to defend yourself. You may want to check to see if your nonprofit maintains directors' and officers' liability insurance, which may help protect you in the event of a lawsuit.
Interested in learning more about this topic and other legal issues affecting nonprofit organizations? If yes, you should attend the Greenlights brown bag "lunch and learn" on July 6. At the lunch, another attorney and I will discuss general legal issues relating to nonprofits. Contact Greenlights (an organization designed to assist local nonprofits) or look at their Web site for more details (www.greenlights.org).
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Marrs, Ellis & Hodge LLP, www.jmehlaw.com.
The material in this column is for informational purposes only. It does not constitute, nor is it a substitute for, legal advice. For advice on your specific facts and circumstances, consult a licensed attorney. You may wish to contact the Lawyer Referral Service of Central Texas, a non-profit public service of the Austin Bar Association, at 512-472-8303 or www.austinlrs.com.