Can personal legal ramifications (for example, safeguarding a board member's personal assets from lawsuit) be curtailed by establishing an indemnification clause in a nonprofit's bylaws?
State nonprofit corporation laws ordinarily permit a corporation to indemnify an officer or director (or other volunteer) who is brought into a legal proceeding because of the person's participation in work for the organization, except in certain situations such as those involving self-dealing, bad faith, willful misconduct, or tax liabilities. One of the key questions to ask before agreeing to serve on a nonprofit board is whether the organization has an indemnification policy properly spelled out in the bylaws, and whether it has insurance to back it up to make it meaningful. Many will not agree to serve unless they are assured that they will be reasonably protected in the event of litigation. (See Ready Reference Page: “Directors Often Fear Risks of Personal Liability.”)
Wednesday, March 21, 2007