Know duty of obedience requirements — and how to meet themThe legal duties of a nonprofit board of directors generally fall under three basic categories: care, loyalty and obedience. Here, we take a look at duty of obedience.
What is the scope of duty of obedience?
Duty of obedience requires board members to follow the letter of the law at all times. This includes:
- Ensuring compliance with the organization's mission
- Meeting all tax requirements
- Following all laws and codes affecting nonprofit organizations
- Following the organization's governing documents and bylaws
What are some ways to ensure compliance?
Duty of obedience calls for board members to:
- Understand relevant tax codes, filing requirements and reporting mandates. Because tax laws are often complex, duty of obedience enables board members to retain the help of qualified experts, such as tax lawyers or accountants.
- Comply with both external and internal laws. Board members must be careful to follow any laws affecting nonprofits as well as obey their own governing documents and bylaws. Again, consultation with an expert, such as a legal adviser, is allowed as needed.
- Remain focused on the mission. Obedience in this sense means that board members can't act in a way that contradicts or undermines the organization's mission or goals. Board decisions and actions must directly relate to support of the mission.
- Use donated funds appropriately. Board members must ensure that the nonprofit's resources are used in pursuit of the mission and in a way that garners — and maintains — public trust.
- Protect the organization's nonprofit status. In the U.S., board members must take active steps to maintain tax-exempt status, such as staying current on relevant tax filings and avoiding unrelated business activities that generate substantial revenue.
This article draws on the expertise of Grace Davies, a Minneapolis-based attorney with special interest in product liability, medical malpractice and employment discrimination.