Non-profit organization laws can be complex and vary by jurisdiction. An experienced business lawyer can provide guidance throughout the claims process and fight to obtain the best results for you. Lawyers specializing in non-profit organizations will be especially helpful in these cases.
Donors — A nonprofit’s contributors may sue directors and officers alleging misuse of a restricted gift. State Attorney General — In most states, the state attorney general represents the interests of the general public in assuring the proper management of public benefit corporations.
And, whether you ultimately win or lose a case that's brought against your nonprofit, a lot of time and energy will probably be eaten up in the process. So let's look at some of the best ways to protect your organization from the most common types of lawsuits: contract disputes, employment law claims, and personal injury lawsuits.
Take steps to protect your nonprofit from legal problems. If your nonprofit is structured as a corporation, then the people who work for it are protected from personal liability for work done on the nonprofit's behalf.
Apart from lawsuits, the Internal Revenue Service can penalize any nonprofit's board, as well as individual board members, for approving excessive compensation for the nonprofit's executives, or if the nonprofit fails to withhold Social Security or income taxes from the paychecks of its employees.
Employment Law Claims The most common – and often the most costly – claims against nonprofits are employment law-related claims. Harassment, wrongful termination, retaliation, discrimination and wage-and-hour disputes are among the top claims against nonprofit employers.
In the majority of states, a non-profit organization is treated as a legal entity capable of suing and being sued. Because of this, it must abide by any contract entered into. It must also exercise the same duty of care as any other corporation would in the same circumstances.
Directors or officers of nonprofit corporations can be held personally liable if they:personally and directly injure someone.personally guarantee a bank loan or a business debt on which the corporation defaults.More items...
Failing to track and respond to the nonprofit's declining financial condition, resulting in its insolvency and inability to pay off its debts and liabilities (including payroll taxes) as they become due. Tolerating, wittingly or unwittingly, a hostile, noninclusive, and/or unsafe work environment.
The Pension Protection Act of 2006 added a new law that provides for automatic revocation of an organization's tax-exempt status if it fails to file a required annual information return for three consecutive years.
Being a fiduciary obviously includes the financial aspects of a nonprofit. Each board member has a responsibility to ensure, to the best of their ability, that all funds are handled and accounted for in a transparent and compliant manner.
Specifically, Directors can be held personally liable based on three fiduciary duties: the duty of care, the duty of loyalty, and the duty of obedience. Unfortunately, many board members seem to be unaware of their fiduciary responsibilities for the organization for which they volunteer.
With rare exceptions, members of a nonprofit board are protected against personal liability due to the following: An incorporated entity is responsible for its debts. In the vast majority of circumstances, judgments imposed on a nonprofit by a court of law have to be paid by the organization, not individual directors.
Much has been written about Section 501(c)(3) organizations' legal accountability to the IRS, state Attorneys General, and other government regulators. But like for for-profit entities, who are accountable to shareholders, public charities also have broad and deep accountability to their stakeholders.
By the articles of incorporation required of all nonprofit organiza- tions, the board is held responsible for the organization. The board as a whole, and its individual members, are answerable for all that the organi- zation does, and how it does it. The board therefore is the locus of accountability.
Three Key Fiduciary DutiesDuty of Care. Duty of care describes the level of competence and business judgment expected of a board member. ... Duty of Loyalty. Duty of loyalty revolves primarily around board members' financial self-interest and the potential conflict this can create. ... Duty of Obedience.
The board of directors of a non-profit organization will appoint officers. Most organizations have a president, a secretary, a treasurer, and possibly other positions such as a vice-president or an assistant secretary. This will depend on the needs of the organization and local law requirements.
An attorney can also assist with steps that may not be obvious to the general public. For example, somes a business or defendant’s legal name may be different than the name known to the public. The state in which they are incorporated will also matter, as well as what state or states in which they operate.
These include: Purchasing liability insurance; Including a liability limitation clause in contracts; and. Producing and maintaining clear policies and procedures. Find the Right Business Lawyer. Hire the right lawyer near your location.
A non-profit organization, also known as a non-profit corporation, is an organization that exists to fulfill a non-monetary purpose. This is different from a regular corporation that exists to make a profit. The two types of corporations are structured and function in a similar manner. However, a non-profit corporation may have tax-exempt status ...
Present the evidence gathered and review the facts. The attorney will be able to help determine what, if any, claims are available and what, if any, damages are available. If an injury or loss has occurred, an individual may be able to recover compensatory damages.
Their main role is to set policies and oversee issues like finances, strategic planning, and/or management-level hiring. The board of directors of a non-profit organization will appoint officers.
The business judgment rule offers directors and officers protection when making decisions on how to manage the non-profit organization. For the most part, a director of an officer will only be held liable in rare circumstances, such as if they acted in bad faith.
Even after your filings have been approved by the state’s corporate filing office, your corporation does not automatically achieve tax-exempt status under the state and federal government. You will need to separately apply to the IRS for federal tax exemption as well as state tax emption in a few states.
When going through the application and organizational process of forming a non-profit, you will probably want to consult a business attorney who has experience in dealing with start-up companies and specifically with non-profit organizations.
Who Sues Non-profit Organizations? Your non-profit clients may believe they are less likely to have a D&O claim because they don’t have shareholders. However, non-profits work with a wide variety of individuals and organizations that could be a potential claimant in a suit brought against their directors and officers. The Entity.
Examples include claims by current management against a former trustee. People and communities the non-profit helps may bring claims against directors and officers alleging wrongdoing. A current director may sue another board member alleging violation of a duty owed to the organization.
A donor providing funds to the non-profit may sue the directors and officers alleging misuse of funds or gifts. Outside organizations serving as a vendor or partner may allege harm caused by the non-profit or its directors, officers or employees.
Outside organizations serving as a vendor or partner may allege harm caused by the non-profit or its directors, officers or employees. The State Attorney General represents the interests of the general public in ensuring proper management of public corporations.
A current director may sue another board member alleging violation of a duty owed to the organization. Members. Members of the non-profit might bring suit against the directors and officers alleging harm to the interests of the members. Donors. A donor providing funds to the non-profit may sue the directors and officers alleging misuse ...
For many violations, your state's attorney general is the only person with standing to bring a lawsuit. If a lawyer you hire does not believe that you have a case, try consulting the attorney general' s office and encourage him to bring a lawsuit on your behalf.
To sue a board member, you must show that he acted beyond the scope of his duties. Possible causes of action include the publishing of defamatory statements (untrue, damaging statements against you personally); the violation of state reporting laws and wanton disregard of duties .
If a lawyer you hire does not believe that you have a case, try consulting the attorney general's office and encourage him to bring a lawsuit on your behalf. Warnings. Lawsuits, especially those against large corporations, can be very time consuming and expensive.
Make sure that you have standing to bring the lawsuit. Not just anyone can sue a nonprofit's board of directors; you have to be a person who was individually hurt by the board's actions. Examples of individuals with standing to sue the board include insiders (such as employees); outsiders (third-parties with business relationships with ...
Do the Owners of a Corporation Have a Limited Liability? Nonprofit directors, like those of for-profit companies, have limited liability for their corporate actions. This means that there are only certain people who can sue a nonprofit's director and only for certain reasons. Before you consider suing a nonprofit's board of directors, ...
Other Government Officials — Other government officials, including representatives of the U.S. Internal Revenue Service and the U.S. Department of Labor, may bring actions against nonprofit directors alleging violation of state or federal laws.
Members — Directors and officers of membership associations are vulnerable to claims brought by members alleging harm to the interests of the member. Donors — A nonprofit’s contributors may sue directors and officers alleging misuse of a restricted gift.
Outside sources can be vendors, funders, or another nonprofit. The Entity — The nonprofit may bring an action against its directors and officers. Examples include claims by current management ...
In some states, derivative suits are permitted. In a derivative suit, members of a nonprofit may bring a claim on the nonprofit’s behalf against a director and officer. (Note: Claims by the entity against its directors and officers will likely be excluded under most nonprofit D&O policies).
Directors — A nonprofit director may sue another board member alleging violation of a duty owed to the nonprofit. Under certain circumstances such an action may be compelled. Beneficiaries — The people you are in business to help — your service recipients — may bring claims against directors and officers alleging wrongdoing. ...
Personal injury or "tort" lawsuits are the least likely ones your nonprofit will face. But if one arises, it can be financially devastating. (There's a reason people keep advocating "tort reform.") Tort claims can stem from a physical injury, property damage, emotional distress, or damage to a person's reputation.
To prevent misunderstandings and disputes, your organization should establish exactly what's being agreed to, and put it in writing. That way, if a dispute arises -- or the other party doesn't do what was promised in the contract -- you'll have written evidence to present in court.
But the nonprofit itself can still be held liable (over and above any amount that's covered by insurance).
Assuming this is a Georgia non-profit corporation, the type of claim you have might be brought to court, but probably can only be taken to court by a "derivative" proceeding under the Georgia Code. There are specific advance notice and participation requirements to be entitled to bring such an action, and you probably need to consult with an attorney if you want to head down that road. As the first...
Yes, you can sue the non-profit and the individual, but you have to consider whether it is worth the time and expense. And you need to consider what your damages may be. I.e., how has the issue harmed you directly? It is most likely a better use of time to try and resolve your issue informally.