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Is lawyer responsible if nonprofit doesn’t follow rules?

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Is lawyer responsible if nonprofit doesn’t follow rules?

I am the sole attorney employed by a nonprofit. I do not handle any of the corporate structure work and have no idea if the board is meeting or what is discussed during those meetings. The board members are all inside directors. Can I be held responsible if the nonprofit is not following its bylaws or the required corporate formalities?

Although a few areas of noncompliance can create personal liability, such as failure to remit withholding tax payments, most issues of noncompliance are organizational failures and not areas of potential personal liability.  If you are not an officer or director yourself and don’t have responsibility for corporate compliance, it is hard to see how you could have personal legal liability for the organization’s noncompliance. 

That’s not to say that noncompliant officers or directors wouldn’t look for a convenient scapegoat if things went wrong and it could be argued that you should have done something to prevent it.  You haven’t given us a full picture of your situation, but your question says a lot about your concern.  You might want to consider whether there are ways to protect yourself or to make clear that you are not responsible for any these issues.  If you think the risk is too great, you might just want to move on.

Tuesday, May 9, 2017

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Comments

I recently reviewed a draft version of a forthcoming Thomson-Reuters CPE called "Accounting Overview for Tax Professionals." It had the same liability concerns as this lawyer. I've reprinted a few sentences here, replacing "accountant" with "lawyer." This is the course's restated advice under a draft Responsibility section: "Management is responsible for the prevention and detection of fraud and noncompliance with laws and regulations, and the maintenance of internal control. However, many small business clients do not understand management's responsibility. They may have unrealistic expectations and may assume that the [lawyer] is providing a higher level of assurance than he or she actually is, including detecting fraud, noncompliance with laws and regulations, and internal control deficiencies. A written engagement letter is required..."

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