OVERVIEW OF THE NEW YORK NOT FOR PROFIT INSTITUTIONOVERVIEW OF THE NEW YORK NOT FOR PROFIT INSTITUTION

Characteristics of a Not-for-Profit entity:Characteristics of a Not-for-Profit entity: Mission is not for financial gainMission is not for financial gain No assets, income or profits inure to any managing partyNo assets, income or profits inure to any managing party

Can be two types of legal “person”:Can be two types of legal “person”: TrustTrust CorporationCorporation

501(c)(3) status is granted by the IRS.501(c)(3) status is granted by the IRS.

GOVERNANCE, DELEGATION AND FUNCTION OF NON-PROFIT BOARDSGOVERNANCE, DELEGATION AND FUNCTION OF NON-PROFIT BOARDS

GENERAL GOVERNANCE OF NON–PROFIT CORPORATIONSGENERAL GOVERNANCE OF NON–PROFIT CORPORATIONS Board of Directors:Board of Directors:

• For-profit Boards (Smaller, elected, get paid)For-profit Boards (Smaller, elected, get paid)• Non-profit (20-30 average, self-sustaining, uncompensated service, Non-profit (20-30 average, self-sustaining, uncompensated service,

independence from staff)independence from staff) Board does not manage. It monitors staff, committees and experts.Board does not manage. It monitors staff, committees and experts.

GOVERNANCE, DELEGATION AND FUNCTION OF NON-PROFIT BOARDSGOVERNANCE, DELEGATION AND FUNCTION OF NON-PROFIT BOARDS DELEGATION OF BOARD AUTHORITYDELEGATION OF BOARD AUTHORITY

USE OF COMMITTEES FOR MANY DUTIES.USE OF COMMITTEES FOR MANY DUTIES.• Executive CommitteeExecutive Committee• Finance CommitteeFinance Committee• Nominating CommitteeNominating Committee• Audit CommitteeAudit Committee• Others as neededOthers as needed

GOVERNANCE, DELEGATION AND FUNCTION OF NON-PROFIT BOARDSGOVERNANCE, DELEGATION AND FUNCTION OF NON-PROFIT BOARDS DELEGATION OF BOARD AUTHORITYDELEGATION OF BOARD AUTHORITY

Use of OfficersUse of Officers• PresidentPresident• Vice President(s)Vice President(s)• SecretarySecretary• TreasurerTreasurer

Use of StaffUse of Staff

GOVERNANCE, DELEGATION AND FUNCTION OF NON-PROFIT BOARDSGOVERNANCE, DELEGATION AND FUNCTION OF NON-PROFIT BOARDS THE FUNCTION OF NON-PROFIT BOARDSTHE FUNCTION OF NON-PROFIT BOARDS

INTERNAL FUNCTIONS:INTERNAL FUNCTIONS:• Establish operating proceduresEstablish operating procedures• Adopt budgets and fiscal controlAdopt budgets and fiscal control• Approve long range plansApprove long range plans• Ensure mission complianceEnsure mission compliance• Monitor senior staff performanceMonitor senior staff performance• Monitor committee and expert performanceMonitor committee and expert performance• Provide for Board and senior staff succession Provide for Board and senior staff succession

EXTERNAL FUNCTIONS:EXTERNAL FUNCTIONS:• FundraisingFundraising• Projecting the organization in the community Projecting the organization in the community

LEGAL RESPONSIBILITY OF DIRECTORSLEGAL RESPONSIBILITY OF DIRECTORS THREE DUTIES: DUTY OF CARE, LOYALTY AND OBEDIENCETHREE DUTIES: DUTY OF CARE, LOYALTY AND OBEDIENCE

DUTY OF CAREDUTY OF CARE• Director must act as an ordinarily prudent person would have acted in a like position Director must act as an ordinarily prudent person would have acted in a like position

and under similar circumstances.and under similar circumstances.• Directors must act in good faith (honestly and openly).Directors must act in good faith (honestly and openly).• Directors must act in the best interest of the organization (not their own interest).Directors must act in the best interest of the organization (not their own interest).• Can rely on others (staff, committees and experts) but not blindly. Must be careful in Can rely on others (staff, committees and experts) but not blindly. Must be careful in

selection and oversight. selection and oversight.

LEGAL RESPONSIBILITY OF DIRECTORSLEGAL RESPONSIBILITY OF DIRECTORS THREE DUTIES: DUTY OF CARE, LOYALTY AND OBEDIENCETHREE DUTIES: DUTY OF CARE, LOYALTY AND OBEDIENCE

DUTY OF LOYALTYDUTY OF LOYALTY• Must have undivided allegiance to the organization.Must have undivided allegiance to the organization.• Cannot secure pecuniary benefit for oneself or a 3rd party without full disclosure Cannot secure pecuniary benefit for oneself or a 3rd party without full disclosure

and uninfluenced approval (disinterested majority).and uninfluenced approval (disinterested majority).• Conflict of interest disclosure generally.Conflict of interest disclosure generally.• Reasonable compensation allowed.Reasonable compensation allowed.• Appropriating a corporate opportunity is not.Appropriating a corporate opportunity is not.

LEGAL RESPONSIBILITY OF DIRECTORSLEGAL RESPONSIBILITY OF DIRECTORS THREE DUTIES: DUTY OF CARE, LOYALTY AND OBEDIENCETHREE DUTIES: DUTY OF CARE, LOYALTY AND OBEDIENCE

DUTY OF OBEDIENCEDUTY OF OBEDIENCE• Must carry out and be true to the mission.Must carry out and be true to the mission.• Charter, IRS filings, Bylaws and grant and fund raising solicitations.Charter, IRS filings, Bylaws and grant and fund raising solicitations.• Must ensure that the organization acts legally in all respects.Must ensure that the organization acts legally in all respects.

LEGAL RESPONSIBILITY OF DIRECTORSLEGAL RESPONSIBILITY OF DIRECTORS LAWSUITS AGAINST DIRECTORSLAWSUITS AGAINST DIRECTORS

BREACH OF DUTY LAWSUITSBREACH OF DUTY LAWSUITS• While these can come from other Board members or donors, there is not usually While these can come from other Board members or donors, there is not usually

an incentive for them to do so. Most of these suits are instituted by the Attorney an incentive for them to do so. Most of these suits are instituted by the Attorney General. General.

THIRD PARTY LAWSUITSTHIRD PARTY LAWSUITS• These are rare. However, they do happen and the costs of defense alone can be These are rare. However, they do happen and the costs of defense alone can be

exorbitant. exorbitant. STATUTORY LIABILITIESSTATUTORY LIABILITIES

• Filing false documents, tax fraud.Filing false documents, tax fraud.

DIRECTOR PROTECTIONSDIRECTOR PROTECTIONS Do nothing wrong.Do nothing wrong.

Indemnification. Indemnification.

Directors and Officers Insurance.Directors and Officers Insurance.

CONCLUSIONCONCLUSION IN A NUTSHELLIN A NUTSHELL

Directors get sued for breaching a Duty or a Statute. They can also be Directors get sued for breaching a Duty or a Statute. They can also be brought into so-called 3rd party lawsuits.brought into so-called 3rd party lawsuits.

Directors have a measure of protection via the corporate veil and Directors have a measure of protection via the corporate veil and Indemnification statutes and policy. Indemnification statutes and policy.

Directors may get reimbursed by the Corporation but to be sure Directors may get reimbursed by the Corporation but to be sure reimbursement would be there a D&O policy should be procured. reimbursement would be there a D&O policy should be procured.

ANY QUESTIONS?ANY QUESTIONS?