The Washington Nonprofit Corporation Act sets out the duties and protections of the directors.
Topics covered:
The four duties
Directors must fulfill four main duties according to Washington law – the Duty of Care, the Duty of Loyalty, the Duty of Obedience, and with the new Washington Nonprofit Corporation Act as of January 1, 2022, an additional duty to share relevant information.
- Duty of Care: A director is expected to have a level of competence described as exercising the “care of an ordinarily prudent person in like position” under similar circumstances. That means a director must exercise reasonable care when making a decision as a board member, using diligence and independent judgment.
- Duty of Loyalty: A director should act in the best interest of the organization, putting the organization before their own self-interest. This is particularly important where there is the potential for personal gain and often arises when there is a conflict of interest. It is a best practice for the board to adopt a Conflict of Interest Policy and for staff and board to sign annual disclosure statements.
- Duty of Obedience: A director must make sure that the organization is in compliance with local, state, and federal laws and is staying true to its mission.
- Additional duty to share relevant information: In addition to the duties described above, directors and officers of the organization each have an additional duty to convey information to the board, committee members or, in the case of officers, their superiors if such information is either known by the director or officer to be material to the operations of the organization or relates to a violation or probable violation of any law or regulation involving the organization.
Protections
Washington State Law provides protections to make sure the directors are protected in the event the directors are threatened with legal action. In both cases, provisions should be written into the organization’s Articles of Incorporation.
- Limitation of Liability: These provisions eliminate or limit the personal liability of a director in cases where the director did not act with intentional misconduct or receive inappropriate personal benefit. While this protection is granted by operation of law and does not need to be written into the organization’s Articles of Incorporation or Bylaws, it is recommended that the language be added.
- Indemnification: These provisions permit a director who is a part of a legal proceeding related to the corporation to apply for indemnification, in other words, to be compensated for loss or damage, by the nonprofit. This would cover reasonable expenses incurred by the director in connection with a legal case before a court. This protection can extend to officers, employees, or agents of the organization.
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