Legal & fiduciary responsibilities

Board members should understand there is a set of legal and fiduciary responsibilities that keep the organization in good standing with various government agencies and the public. For board members, there are three duties related to fiduciary responsibilities and the board should review these duties annually.

• Duty of Care: Board members must take reasonable care when making decisions, using diligence and independent judgment. Board members are expected to have a level of competence described as exercising the “care of an ordinarily prudent person in the like position” under similar circumstances.
• Duty of Loyalty: Board members should act in the best interest of the organization, putting the organization before self-interest. This is particularly important when the potential for personal gain exists and often arises when there is a conflict of interest.
• Duty of Obedience: Board members must make sure the organization is in compliance with local, state, and federal laws. Board members stay true to the organization’s mission and governing documents.
• Duty to Share Relevant Information: As of January 1, 2022, with the new Washington Nonprofit Corporation Act, there is an additional duty for board members and officers to share information with the board if a board member or officer has information that is important to the operations or relates to a violation or probable violation of law involving the organization.

Board members need to know the local, state, and federal requirements for the organization and ensure the organization is compliant with all requirements. In addition, board members should review and approve the completed IRS Form 990 annually. When fulfilling these responsibilities, board members should have access to and regularly refer to key organizational documents like Articles of Incorporation, bylaws, budgets, and the strategic plan.

In Washington, nonprofit and charitable organizations need to register and stay up-to-date with the Office of the Secretary of State, Corporations & Charities Division. Nonprofit corporations have an annual report and charitable organizations have an annual renewal to complete. The resource on the following page outlines the requirements for nonprofit corporations and charitable organizations. Be sure to check which type of organization you are and remember you may qualify as both.

Another very important responsibility of the board is hiring the organization’s executive director and completing the executive director’s annual review. When the board provides the executive director a thorough and useful annual review, ongoing support, and investments in their development, a strong partnership and positive relationship between the board and executive director can emerge. Use this sample executive evaluation form as a starting place to create your own annual evaluation process.