Key Takeaways:
- Nonprofit board members have three core legal duties: duty of care, loyalty, and obedience. They apply regardless of whether they’re written into internal policies.
- Duty of care requires more than attendance: board members must be engaged, informed, and willing to review key materials, especially financial information and major decisions.
- Duty of loyalty means putting the nonprofit first and managing conflicts of interest through recusal, fair market value, and clear documentation in meeting minutes.
- Duty of obedience requires following the law and governing documents, including bylaws, articles, voting procedures, and filing/reporting requirements like the IRS Form 990.
- Most nonprofit governance problems are preventable when boards prioritize clarity before crisis and bring in legal or accounting support for high-stakes decisions or compliance gaps.
Nonprofit boards aren’t just symbolic. When someone agrees to serve, they take on real legal duties, and those duties affect everything from governance and compliance to financial oversight and conflict-of-interest decisions.
In this episode of 501c Suite, Olivia Cloer sits down with attorney Spencer Rehn to answer a question nonprofit leaders hear all the time (and sometimes avoid asking): What is my board legally required to do today?
The 3 Core Legal Duties of Nonprofit Board Members
Spencer explains board responsibilities through three universal duties that apply to board members, whether or not they’re written into your internal documents: duty of care, duty of loyalty, and duty of obedience. These duties generally come from state law and form the baseline expectations for board service.
Duty of Care: Be Engaged and Make Informed Decisions
Duty of care is about showing up, but also participating thoughtfully.
In practice, this means:
- Attending meetings consistently
- Reviewing materials ahead of time (minutes, proposals, policies, etc.)
- Asking questions when something isn’t clear
- Understanding enough of the organization’s financial picture to spot concerns
Spencer emphasizes that board members shouldn’t show up blind. Being present isn’t the same as being informed. And while not everyone will be the treasurer, every board member has a responsibility to understand key decisions.
What happens if a board member isn’t paying attention?
If something goes wrong, one question tends to matter: Should you reasonably have known? If a board member ignored warning signs or didn’t engage at all, it can make a difficult situation worse for the organization they’re trying to serve.
Spencer also clarifies liability in a grounded way: most issues are tied to organizational governance and decision-making, not personal liability, unless someone knowingly harmed the organization or acted illegally.
Duty of Loyalty: Put the Nonprofit’s Interests First
Duty of loyalty is about decision-making in the best interest of the organization and avoiding conflicts of interest.
Spencer’s simple test is helpful: When you’re wearing the nonprofit hat, your decisions should benefit the nonprofit, not you, your family, or another business.
A common scenario: “Can my company bid on work for the nonprofit?”
Olivia offers a clear example: a board member owns a web design company, and the nonprofit needs a new website. Can the board member’s company submit a bid?
Spencer explains that it can be possible, but it needs careful handling:
- The board member who owns the web design company should recuse themself from the discussion and voting.
- The nonprofit should evaluate options (like multiple bids) and document the decision.
- The transaction should reflect fair market value.
- Minutes should clearly reflect the conflict and the process used to manage it.
The point isn’t to treat every potential conflict like a scandal. It’s to handle conflicts transparently, document the process, and make decisions that stand up to scrutiny later, because governance is part of mission protection.
Duty of Obedience: Follow the Law and Your Governing Documents
Duty of obedience is the most straightforward: follow the law and follow your rules.
That includes:
- Federal and state legal requirements
- Your articles of incorporation
- Your bylaws
- Any adopted board policies and procedures (if applicable)
Olivia highlights a frequent issue: many board members have never actually read the bylaws. Or the bylaws are so specific that they become hard to follow in real life. Either way, not knowing your governing documents can create avoidable governance problems.
Obedience also includes reporting and filings
Spencer points to the IRS Form 990 as the most common federal requirement, and notes that state filing requirements vary widely. Some states require annual filings, some biannual, and some involve multiple agencies (like the Secretary of State, Attorney General, or Department of Revenue). The message is simple: staying compliant is a board responsibility, and it’s easier to maintain compliance than to recover it after things slip.
What Board Duties Look Like Day to Day
Nonprofit boards don’t all look the same. A working board for a $20,000/year nonprofit will operate differently from a board for a $20 million/year organization. That’s normal.
But across sizes, Spencer points to a few consistent themes:
Financial oversight matters, even if you’re not the treasurer.
There’s no universal rule for how often every board member must review financials, but Spencer offers a practical guideline: Quarterly can be a reasonable cadence for many organizations, adjusted based on size, risk, and complexity.
What matters most is that board members can engage with basic questions like:
- Is this transaction permissible?
- Is it consistent with our charitable purpose?
- Is it legal and properly documented?
When decisions aren’t obvious, that’s a signal to slow down and get support.
When to Bring in Outside Help
A major theme of this episode is clarity before crisis.
Spencer suggests that outside help (legal or accounting) often makes sense when:
- Something feels strange or unclear.
- The board hasn’t met regularly and is trying to shore things up.
- The nonprofit is considering a major transaction or partnership.
- A conflict-of-interest situation needs proper handling.
- The organization is preparing filings (like the 990) and wants a second set of eyes.
- The nonprofit has slipped out of compliance and needs a path back.
Olivia adds an important leadership point: it’s empowering to say, ‘I don’t know this yet, but I know how to get the answer.’
Board Best Practices That Prevent Problems
Spencer closes with best practices that strengthen governance and reduce preventable risk:
1. Know and follow your bylaws
When someone joins a board, they should ask for:
- Bylaws
- Articles of incorporation
Board policies (if any)
2. Be an active participant
This means preparation, informed voting, and understanding how decisions affect the organization’s charitable purpose.
3. Keep the mission central
Strong governance helps prevent mission creep, where well-intended expansions slowly pull the organization away from its original purpose. Adapting a mission can be legitimate, but drifting without intention can weaken impact and complicate compliance.
Learn More and Stay Connected
If you’re looking for reliable answers to your nonprofit’s most important legal questions, visit charitableallies.org for free resources, guides, and case studies designed to support nonprofit sustainability.
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