The Dirty Dozen: Twelve Documents Every Attorney Should Review Before Serving on the Board of a Tax-exempt Organization

As a board member of a community theater, it’s your job to make sure the organization’s finances are in order. This means paying attention to the financial reports and making sure the finance and audit committees meet regularly. If you don’t do this, you could be held personally responsible if something goes wrong. Lawsuits against board members are rare, but they can happen, so it’s important to take your responsibilities seriously. Be careful when agreeing to serve on a board, and make sure you understand what it involves. The government and the state of Florida have rules to oversee tax-exempt organizations. Florida law protects board members of non-profit organizations from being personally liable for their actions, as long as they acted in the best interest of the organization and didn’t do anything illegal. Non-profit organizations can also get insurance to protect their board members from lawsuits. Some big charities and nonprofit organizations may promise to cover their directors’ legal fees if they get sued, even without insurance. But if the organization doesn’t have enough money to cover these costs, directors could end up paying a lot of money out of their own pockets. Insurance policies for directors and officers vary in how much they protect them, and some may not cover certain types of accusations, like fraud or unauthorized payments. Before joining a board of directors, a lawyer should ask for and read these documents:
1) Articles of Incorporation – These are the papers that created the organization. Look for any changes made after incorporation.
2) Bylaws – These are the rules the organization follows. They can include how directors are chosen and how meetings are conducted.
3) IRS Form 990 for the Last Completed Fiscal Year – This form shows the organization’s income and financial health, and must be filed annually. The IRS Determination Letter is a special letter from the government saying that the organization doesn’t have to pay federal taxes. The organization needs to file an annual report with the Florida Department of State to keep the state updated on basic information, and avoid penalties for not filing on time. If the organization is incorporated in another state, they need to follow that state’s rules for filing reports. 1) Before joining a board, make sure you know what is expected of you. Find out how often meetings are, where they are, and how long they last. Ask if you need to donate money and if there is a conflict of interest form to fill out.

2) Ask for a list of the current officers in the organization. This will show you who is in charge and what their responsibilities are. The list of board members shows who is in charge of the organization. A big board means they don’t meet often and have more of a ceremonial role. A small board lets people get more involved. There must be at least three board members by law. The people on the board can show potential problems, like if they are all in the same profession. It’s also good to know who is on the board in case you have questions about the organization. And if you know or have had issues with any of the board members, it can be a problem. Every tax-exempt organization should have a clear mission statement that explains what it does and hopes to achieve. The IRS recognizes eight tax-exempt purposes, such as religious, scientific, charitable, literary, educational, and more. Before joining a board, make sure you agree with the organization’s mission statement. Board members should also understand the organization’s financial condition by reviewing the audit, budget, and financial report. It’s important to ask questions until you understand everything. A proper budget should show projections versus the previous year’s results to assess the organization’s success. To operate as a board member for a nonprofit organization in Florida, you need to have certain important documents and registrations in place. These include things like the organization’s bylaws, IRS tax-exempt status, state registration, and more. If the organization doesn’t have most of these things, it may not be operating legally. If you’re already on the board of an organization that doesn’t have these documents, you should encourage them to get everything in order.

Source: https://www.floridabar.org/the-florida-bar-journal/the-dirty-dozen-twelve-documents-every-attorney-should-review-before-serving-on-the-board-of-a-tax-exempt-organization/