Charity Board Members -- Their Obligations
The Attorney General provides Consumer Alerts to inform the public of unfair, misleading or deceptive business practices, and to provide information and guidance on other issues of concern. Consumer Alerts are not legal advice, legal authority, or a binding legal opinion from the Department of Attorney General.
CHARITY BOARD MEMBERS -- THEIR OBLIGATIONS
So, You've Been Asked to be on the Board
of a Charity. What Now?
To operate effectively, every charity must have a strong, capable board of directors. Achieving that can be difficult, however, as there is often considerable turnover on the boards of many charities. As a result, charities are frequently on the lookout for new board members. If you have been asked to serve on a board, what should you take into consideration when making your decision?
Should I serve?
There are many facts and questions to consider. Why were you invited onto the board? Who invited you: management or other directors? What will be expected of you? Are you asked to serve only for your name and whatever financial commitment you can make, or will you be expected to get in there and work? How much of a financial commitment is expected? What is the time commitment? What is the current makeup of the board? What is its relationship to the organization's management? Will you be protected from personal liability in the event of financial problems? It is important to understand that, not only can the charity be sued, but you as a board member can also be sued individually.
Perhaps most important, what will be your legal responsibilities? Do you want to rely on others to maintain compliance with the charity's legal responsibilities when you personally can be held responsible? These are but a few of the questions which should be asked. And we haven't even asked yet whether the cause is right for you.
What are some of the legal responsibilities?
While the questions and issues discussed above are all important, there is one more question which must not be overlooked: Is the charity in compliance with state and federal law? You must remember that the board is ultimately responsible for the charity's actions and operations. To avoid potential embarrassment to you (or worse), you should ensure that the organization is knowledgeable and capable of handling its legal responsibilities.
How was the charity organized? If it is a Michigan corporation, is it up to date in its annual filings with the Corporations Division of the Department of Consumer and Industry Services to maintain its corporate status?
Has it received charitable tax exempt status from the IRS? In order for donors to claim a tax deduction for any contributions to the organization, and in order to apply for most funding grants, the charity must have applied for and received tax exempt status under section 501(c)(3) of the Internal Revenue Code. Is there a copy of the IRS letter awarding such status in the charity's records?
Is the organization up to date in its annual filings with the IRS?
According to the IRS, charitable organizations must file either Form 990 or 990-EZ unless
their annual gross receipts are normally less than $25,000. Private
Foundations filing Form 990-PF must file regardless of annual gross receipts.
Does the charity report to the Department of Attorney General? The organization's records should reflect its status with the Attorney General's Charitable Trust Section. Most charities in Michigan are required to register and submit annual financial reports to the Charitable Trust Section. Is it up to date in its filings? Many charities are also required to become licensed for conducting solicitation and fund raising activities. If it is required to have a solicitation license, is the license current?
Does the organization contract with a professional fund raiser for solicitation or fund raising activity? Is the professional fund raiser licensed by the Charitable Trust Section? Does the board aggressively oversee, not only the activities conducted by the professional fund raiser, but also all representations made by the fund raiser using the charity's name?
- Should the charity report to or be regulated by any other governmental agencies? If it conducts bingo or raffles, has it applied for licensing with the Bureau of Lottery? Does it have a sales tax exemption from the Department of Treasury for purchases it makes? Does it collect sales tax on items sold by the organization? Does it withhold taxes from employees and send withholding payments to the IRS and Michigan Department of Treasury? Should it be licensed by any agency for any of its charitable programs?
This short checklist of some of the legal responsibilities that charities and their boards must face is only intended to be a preliminary guideline to aid you in making your decision whether to serve. Service as a director of a charity can be wonderfully fulfilling. Your decision to serve is extremely important to you and the charitable activities you seek to advance. To help ensure that your experience is rewarding and to protect both you and the charity you serve, be ready to ask the right questions and make sure the charity knows the answers. Being aware of the legal responsibilities that accompany board membership can help both you and the charity avoid embarrassing difficulties down the road.