Making Non-Profit Governing Documents Work For YouDecember 02, 2010
By Reed W. Risteen, CPA
Many non-profits never look at their governing documents and only dust them off when requested by the auditors or a potential funding source. However, there are benefits to reviewing these documents on a regular basis and revising them to obtain maximum legal benefit.
Enhancing Director Liability Limitations and Maximizing Director Indemnification
Under the Connecticut Nonstock Corporation Act (the Act), directors are generally not liable for actions as directors if they satisfy certain duties of care, loyalty and good faith. However, by including a special provision in the Certificate of Incorporation, directors' liability to the non-profit for monetary damages for breaching director responsibilities can be limited.
In addition, absent special provisions in the Certificate of Incorporation, the Act provides that non-profits are required to provide directors a minimum level of indemnification. However, by including a special provision in the Certificate of Incorporation, the non-profit can be required to provide broader indemnification of directors if that is desired.
Designating Classes of Members
Designating classes of membership and the rights of each class can be important if voting rights are to be limited for certain types of members. Spelling out voting and other rights in the bylaws can eliminate the potential for director disputes.
Although stating the purpose and activities of a non-profit organization in detail in the Certificate of Incorporation may seem like a good practice, it also serves to limit the allowed activities of the organization. As organizations evolve over time, programs, activities and mission tend to change. Therefore, it is usually preferable to state activities or purpose in the most general manner possible, to avoid operating in a manner inconsistent with governing documents. This is also a good time to review the language in the Certificate of Incorporation to ensure the organization is operating within those stated boundaries.
Regular Review of Governing Documents
Most attorneys recommend that a non-profit organization's governing documents be reviewed every five years to ensure they are still appropriate. Now may be a good time to review these documents with your legal counsel.
If you have any questions regarding your organization's governing documents, please contact Lori Budnick at email@example.com or 860.561.6828.