The Common Law

Nonprofit organizations – personal liabilty of a nonprofit director

I have been asked to be on the board of directors of a local nonprofit organization. Can I be personally liable for my role as a director with the nonprofit?

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).

Please submit column suggestions, questions, and comments to thecommonlaw@austinchronicle.com. Submission of potential topics does not create an attorney-client relationship, and any information submitted is subject to being included in future columns.

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.

A note to readers: Bold and uncensored, The Austin Chronicle has been Austin’s independent news source for almost 40 years, expressing the community’s political and environmental concerns and supporting its active cultural scene. Now more than ever, we need your support to continue supplying Austin with independent, free press. If real news is important to you, please consider making a donation of $5, $10 or whatever you can afford, to help keep our journalism on stands.

Support the Chronicle  

NEWSLETTERS
One click gets you all the newsletters listed below

Breaking news, arts coverage, and daily events

Can't keep up with happenings around town? We can help.

Austin's queerest news and events

Updates for SXSW 2019

All questions answered (satisfaction not guaranteed)

Information is power. Support the free press, so we can support Austin.   Support the Chronicle