Legal Responsibilities for Board Members of Nonprofit Organizations

1. Legal Responsibilities for Board Members of Nonprofit Organizations Or…all you need to know to stay out of trouble. Presented: July 2007 Prepared by: Elsbeth Howe, MSUSA Director of Research and Policy

2. Section 501 (c) (3) of the Internal Revenue Code exempts from tax liability corporations that are operated for educational purposes. MSUSA must annually file IRS Form 990, which reports income, assets and liabilities and names and addresses of officers and board members. MSUSA must comply with all laws and regulations governing tax exempt organizations to maintain its status and avoid penalties. MSUSA is a 501 (c) (3) Organization

3. MSUSA is a Minnesota Nonprofit Corporation • Board Members have fiduciary [pertaining to the holding of something in trust] duties: • Duty of Care • Duty of Loyalty • Duty of Obedience

4. Duty of Care • Requires active participation in committees, board actions, reviewing minutes of meetings, books and records, accurate record keeping, trust property, resources, charitable trusts and investigations.

5. Duty of Loyalty • Avoid conflicts of interest-a conflict of interest occurs when a Board member acts in a position of authority on an issue in which he or she has financial or other interests. MSUSA has a conflict of interest policy. • Have appropriate written policies.

6. Duty of Obedience • Adhere to all applicable state and federal statutes. • Follow all filing requirements. • Maintain government documents. • Obtain outside assistance when necessary.

7. Board Members are responsible for the management of the business and affairs of the corporation. They are not required to manage day-to-day activities. They must act in good faith, in a manner the board member reasonably believes to be in the best interest of the corporation, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances. A Board Member is not liable if he or she acts in good faith and did not act in a willful or reckless manner. You are entitled to rely on information, opinions, reports, financial statements provided by officers and employees, legal counsel, public accountants that you believe to be reliable and competent. You cannot rely on them if you know they are false. Copies of articles, bylaws, accounting records and minutes must be kept for six years. Standard of Care

8. Review and approve MSUSA’s financial statements Review and approve MSUSA’s Form 990 and annual audit. Ensure all state and Federal registrations are current, including annual registration with the IRS, Attorney General and Secretary of State. Making sure any taxes and forms are paid and filed with the Department of Revenue and the IRS (sales tax, payroll taxes, etc.) Updating MSUSA’s insurance policies. Reviewing and approving contracts and large financial transactions Hiring the executive director and evaluating his or her performance on an annual basis. Reviewing and approving salary changes for staff. Hearing grievances from staff. Approving minutes from past board meetings. Overseeing internal financial procedures or investment policies. Assist with fundraising. Evaluate the organization’s programs. Oversee strategic planning. General Board Responsibilities

9. State Chair: General active management of the business of the corporation. Preside at meetings. See that resolutions are carried out. Sign contracts and financial statements. Treasurer: Keep accurate financial records for the corporation. Make deposits. Endorse checks. Disburse funds as directed by the Board. Officer Duties

10. Minnesota Attorney General • The Minnesota Attorney General may bring a lawsuit against MSUSA and its Board Members for a breach of fiduciary duty, federal law violations or contractual obligation issues.

11. Minnesota Statutes Chapter 317A governs nonprofit corporations. MSUSA filed Articles of Incorporation with the Minnesota Secretary of State when the corporation began. MSUSA must annually file a corporate registration with the Secretary of State. MSUSA solicits contributions and therefore must annually register with the Minnesota Attorney General’s Office. Several sections in Minnesota Statutes refer to MSUSA. Section 136F.22 recognizes MSUSA and contains the fee language. Section 136F.04 describes the process for MnSCU student board member selection. Minnesota Law

12. MSUSA and MnSCU • MSUSA has policy requirements and contractual obligations with MnSCU. • Fee collection contract. • Policy 3.7 Statewide Student Association

13. MSUSA Bylaws • Board Members should be knowledgeable about MSUSA Bylaws and Policies and Procedures.

14. Executive Session • The MSUSA Board goes into executive session to discuss personnel or legal matters. • Executive Session consists of officers, Board members, executive director, and anyone else needed to assist the discussion. • All discussions held in executive session are confidential, and cannot be discussed. • A motion originating in executive session must be brought before the Board in open session. • Violation of executive session confidentiality may result in sanctions to individual Board members and may result in legal liability for MSUSA.

15. Insurance • MSUSA has Director’s & Officer’s Insurance. This insurance protects nonprofits, their board, and staff from a variety of lawsuits alleging mismanagement.

16. Attachments • Fiduciary Duties of Directors of Charitable Organizations [From the Office of Minnesota Attorney General Lori Swanson] • Board Governance [Minnesota Council of Nonprofits] • 2005 MSUSA Tax Return