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Can board permanently restrict funds?

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Can board permanently restrict funds?

We all know that when a board votes to impose restrictions on funds, such as treating them as endowment or for a specific purpose, the board may later vote to unrestrict those funds.  But are there circumstances where a board can permanently restrict a fund, or at least make it difficult for a future board to unrestrict?

Could the board say that only a 2/3 vote of a future board could remove the restrictions?  Could they say a vote of 3/4 is needed, or 90%, or 100%?  Could they put the rule into their bylaws, which would be binding on the board?  

I agree that any restriction placed on funds by the Board — and not by a third party donor — could be undone by a future board.  But I am not aware of any state law that would prohibit the current board from making it more difficult for a future board to do so, such as requiring a super-majority vote as you suggest. 

I would never recommend a 100% requirement because that would give an individual veto power over a critical asset at a time when it might be needed to save the organization itself.  And if I were voting, I would be reluctant to make it “too hard” for future boards to use the funds as they believe is necessary for the benefit of the organization.  It’s fine to make them stop and think about it and obtain a consensus, but you can do that by requiring a majority of the whole board to agree to unrestrict.   I would worry about breaching my fiduciary duty to the organization by handcuffing a future board from dealing with a critical circumstance that I can’t presently imagine.

Tuesday, June 7, 2016


Very informing.

Well said reply. I have counseled several nonprofits who have been hobbled by self-imposed limitations on borrowing, to the point where the viability of one of the organizations was in doubt because they couldn’t put up their valuable property as security in order to obtain operating funds. It hardly seems to meet any donor’s intent to have an organization fail while holding significant assets.

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