How do nonprofits get in trouble?
Failing to track and respond to the nonprofit's declining financial condition, resulting in its insolvency and inability to pay off its debts and liabilities (including payroll taxes) as they become due. Tolerating, wittingly or unwittingly, a hostile, noninclusive, and/or unsafe work environment.Jun 25, 2017
Can not for profit board members be sued?
Board members can be sued for their individual actions, such as if they personally and directly injure someone, guarantee a loan on which the nonprofit defaults, do something intentionally illegal or mix the nonprofit's funds with their personal funds.
Can a lawyer represent a company?
The role of a corporate lawyer is to advise clients of their rights, responsibilities, and duties under the law. When a corporate lawyer is hired by a corporation, the lawyer represents the corporate entity, not its shareholders or employees.May 29, 2020
Why do nonprofits get sued?
The Entity — The nonprofit may bring an action against its directors and officers. Examples include claims by current management against a former trustee. In some states, derivative suits are permitted. ... Directors — A nonprofit director may sue another board member alleging violation of a duty owed to the nonprofit.
Who should not serve on a board of directors?
Without further ado, here are five Board No-Nos.Getting paid. ... Going rogue. ... Being on a board with a family member. ... Directing staff or volunteers below the executive director. ... Playing politics. ... Thinking everything is fine and nothing needs to change.Mar 31, 2015
What are the legal responsibilities of nonprofit boards?
The basics Just as for any corporation, the board of directors of a nonprofit has three primary legal duties known as the “duty of care,” “duty of loyalty,” and “duty of obedience.”
When an attorney represents an entity the attorney's client is?
An attorney who represents an entity generally has only one client, the entity itself. This is true when an attorney represents a private corporation, which acts through its directors, officers, and others.
What is the highest paid lawyer?
Highest paid lawyers: salary by practice areaPatent attorney: $180,000.Intellectual property (IP) attorney: $162,000.Trial attorneys: $134,000.Tax attorney (tax law): $122,000.Corporate lawyer: $115,000.Employment lawyer: $87,000.Real Estate attorney: $86,000.Divorce attorney: $84,000.More items...•Dec 14, 2021
What is an attorney called?
A lawyer (also called attorney, counsel, or counselor) is a licensed professional who advises and represents others in legal matters. Today's lawyer can be young or old, male or female.Sep 10, 2019
What are board members liable for?
Specifically, Directors can be held personally liable based on three fiduciary duties: the duty of care, the duty of loyalty, and the duty of obedience. Unfortunately, many board members seem to be unaware of their fiduciary responsibilities for the organization for which they volunteer.Feb 21, 2018
Can board of directors sue the CEO?
Although the board of directors of a corporation wields considerable authority over corporate affairs, shareholders are a corporation's ultimate authority. ... U.S. law authorizes shareholders to sue corporate directors for wrongful acts that harm the corporation or the value of its shares.
How do you remove a board member from a non profit?
”A director may be removed, without cause, as determined by a two-thirds vote of the Board present at any meeting at which there is a quorum. In addition, any member of the Board of Directors may be removed for a substantial cause by the majority vote of the Board present at any meeting at which there is a quorum.May 1, 2018
What Should a Lawyer Explain to Constituents?
Based on the opinions in MetLife Demutualization and Seward & Kissel, we know that the policyholders of a mutual insurance company, the stockholders of a corporation, and the limited partners of a limited partnership are not a lawyer’s clients merely because the lawyer represents the corporation or the partnership.
How Does a Law Firm Check for Conflicts?
If Judge Rakoff’s expansive (and I think wrongheaded) view of corporate clients in GSI Commerce Solutions is accepted, then checking for conflicts may not be too difficult — any wholly owned subsidiary of a corporate client is automatically a client because “its liabilities directly impact” the parent’s bottom line. But that was just dicta.
Conclusion: Large and Small Problems of Client Identity
The discussion in this article suggests that the problems of client identity are sometimes easy and sometimes hard.
What should I know about a personal injury lawyer?
One thing to know about the lawyers: they don't have expertise in all areas of law. A personal injury attorney likely will not know enough to advise on your nonprofit’s taxes. A criminal attorney probably should not give advice on the employment issue that came up.
How can an attorney serve a nonprofit?
Attorneys can serve your nonprofit organization in two ways: (1) as a member of the board, and (2) as an attorney who represents the organization through the board. But when these roles overlap, things can get pretty messy.
Why can't a lawyer represent a client?
In particular, a lawyer may not represent a client if the representation involves a conflict of interest. That’s because the lawyer must be loyal to the client and be able to exercise independent judgment. There are specific rules that apply when a lawyer serves on the board of a corporation that is his or her client.
What is the role of the board of directors in a charitable organization?
It’s responsible for planning and carrying out the mission and operations, and safeguarding the organization’s financial health and the assets held in charitable trust for the general public.
What is an additional duty?
An additional duty is the obligation to perform legal work competently. A lawyer asked to serve on a charity board may have little specific experience in the types of legal matters that arise; for example, the rules of tax exempt status, third-party liability, and employment law matters.
What is outside counsel policy?
Some corporate outside counsel policies are consistent with this general rule. For example, the outside counsel policy for Company A provides that the law firm’s client is only the company and its divisions, which are not independent legal entities. See, e.g.,
What is the most complicated area of professional responsibility in corporate representation?
One of the most complicated areas of professional responsibility in corporate representation is analyzing conflicts of interest. Determining which entity is the “client” is always important, particularly so when a firm is asked to represent a large, international corporation with wholly—and partially-owned subsidiaries or affiliates. If the law firm is asked to represent the interests of one wholly-owned, but third-tier subsidiary, is that company the firm’s only client? Or, if the client is a closely-held corporation, does the lawyer servicing the parent company represent its one subsidiary as well?
What is operational commonality?
In examining the first factor—operational commonality—courts have considered the extent to which entities: 1) rely on a common infrastructure; 2) share common personnel such as managers, officers and directors; and 3) handle responsibility for the provision and management of legal services. See id., 618 F.3d at 211.
What does a board member do?
A board member who is an attorney offers to the nonprofit specialized knowledge, skills, perspectives, and networks of contacts. But serving as a board member is very different from representing the organization as pro bono counsel, which makes it critical for the parties to understand the precise role in which the attorney will serve. ...
Is attorney client communication protected?
If it’s clear that the communications are to be attorney-client communications, they should be protected by the privilege. However, such protection may be lost if it’s not clear that you are communicating only as an attorney or if the communication is recorded in minutes to which other persons have access. Competence.
What is a director entitled to?
In performing the duties of a director, a director may be entitled to rely on information, opinions, reports or statements prepared or presented by an attorney. This may serve as a defense to a claim if, for example, a director took an action that would otherwise have been considered negligent but not for the director’s reliance on the opinion ...
Do nonprofit directors have a higher standard of care?
Standard of Care. While there are cases of inside directors (who are employees) of for-profit corporations having a higher standard of care than outside directors, there does not appear to be authority that extends to directors of nonprofit corporations with specific professional knowledge, skills, and experience that might be relevant in exercising their fiduciary duties. However, it seems quite plausible that you may be held to a higher standard of care if you are compensated by the organization for acting as an attorney while serving as a director.
Attorney vs. Nonprofit Board Member
- People tend to perceive lawyers as well off (aka: ready to write out the big donation check) and knowledgeable of all areas of law (aka: ready to dispense free legal advice). So, awesome choice for a board member, right? Turns out, it can get a bit more complicated than that. Attorneys can serve your nonprofit organization in two ways: (1) as a member of the board, and (2) as an attor…
Can They Give The Board Legal Advice?
- One thing to know about the lawyers: they don't have expertise in all areas of law. A personal injury attorney likely will not know enough to advise on your nonprofit’s taxes. A criminal attorney probably should not give advice on the employment issue that came up. It’s totally understandable that people turn to the lawyer in the room whenever a legal issue crops up. But, it can get the no…
When Board Service and Representation Conflict
- If your board relies on legal advice from an attorney/board member, then there’s an attorney-client relationship. Even without formal agreements and paperwork, a court would consider your board member to be an attorney for your organization. This relationship makes things difficult for the attorney/board member work well in either role. When lawyers represent a corporation – yes eve…
So, Now What?
- Knowing all of this, what do you say to the lawyer interested in board service? Should you still reach out to the attorney you’d like to serve on the board? Well, the issues I described are not inevitable. Attorneys and board service can be tricky, but my intention isn’t to discourage you from having an attorney passionate about your mission serve on your board. Instead, I just want your …
Should Attorneys Serve on Charity Boards?
- “We already have legal counsel because we have an attorney sitting on our board,” we were told by several organization executives at a recent nonprofit governance symposium. Attorneys on nonprofit boards? It happens all the time. It’s likely that every lawyer reading this post has been approached more than once to accept a directorship at a charitable organization. But is it a goo…
The Hat Trick
- The common thread popping up in these situations is the lawyer-as-board-member wearing the wrong hat at the wrong time, or trying to wear both hats at once – often at the innocent and misguided urging by the organization. Simply put, this professional with the hat dilemma has multiple legal, professional, and ethical obligations. There are director duties and there are attor…
Director Duties
- The board of directors is the governing body of the charitable organization. It’s responsible for planning and carrying out the mission and operations, and safeguarding the organization’s financial health and the assets held in charitable trust for the general public. The authority to make decisions rests with the full board. No board member has authority to act alone, but each …
Attorney Duties
- An attorney has additional – and sometimes colliding duties – because of the status of being a member of the state bar. In particular, a lawyer may not represent a client if the representation involves a conflict of interest. That’s because the lawyer must be loyal to the client and be able to exercise independent judgment. There are specific rulesthat apply when a lawyer serves on the …
The View from The Organization’S Perspective
- There are risks to the charitable organization if an attorney serves on its board. They may arise in a number of situations including, for example: 1. The attorney-director may not know much about nonprofit law, or other legal issues that arise and that the organization wants or expects the lawyer to do, like preparing a tax exemption application package, writing employment contracts, …
The View from The Attorney-Director’S Perspective
- There are risks to the attorney arising from service on a charity board. For example: 1. It may be unclear in which capacity the attorney-director is voicing an opinion – as a director or as an attorney. An attorney-client relationship may be inadvertently created when none is intended. 2. There may be confusion about who is the client – the organization or one or more individuals clo…
Conclusion
- It’s important for both the attorney and the organization to approach the decision about service on a charity board with eyes wide open. Some of the risk may be mitigated by taking precautions: for example, making sure everyone is clear about when the lawyer-director is acting as an attorney and as a director only; disclosing actual and potential conflicts of interest; and candidly discussi…
II. Which Corporate Entity Do You represent?
- A. Model Rule 1.7 and Corporate Affiliates
One of the most complicated areas of professional responsibility in corporate representation is analyzing conflicts of interest. Determining which entity is the “client” is always important, particularly so when a firm is asked to represent a large, international corporation with wholly—a… - B. Outside Counsel Policies and Corporate Affiliates
The general rule is clear: a lawyer who represents a corporation is not deemed to represent any constituent or affiliated organization. Some corporate outside counsel policies are consistent with this general rule. For example, the outside counsel policy for Company A provides that the law fir…
Rule 1.7 and Conflicts Associated with A Client’S Business Interests
- A. Model Rule 1.7 and Representation of Competitors
The Model Rules provide guidance with respect to a lawyer’s representation of business competitors. Comment to Rule 1.7 states, in pertinent part, that “simultaneous representation in unrelated matters of clients whose interests are only economically adverse, such as representati… - B. Outside Counsel Policies and Representation of Competitors5
Outside counsel policies impose far greater conflict waiver obligations when representing business competitors. Perhaps in light of this case law, corporations are restricting counsel by contract provisions which either forbid them—based on the concept of “loyalty”—from representi…
IV. Conclusion
- In light of the increasing prevalence of both outside counsel policies generally, and specifically those containing these types of conflicts provisions, law firms must have the appropriate tools to manage these requirements. First, these policies should be reviewed consistently by a centralized staff. Problem areas should be addressed with the clients. These provisions are not always set i…
Endnotes
- 1. Discussion of the third exception is beyond the scope of this article, but generally arises where there is a likelihood of substantial financial loss to a client as a result of an engagement adverse to one of its affiliates. See, e.g., Mylan Inc. v. Kirkland & Ellis LLP, No. 2:15-cv-00581 (W.D. Pa. June 9, 2015) (disqualifying law firm from representing a party in a hostile takeover of the paren…
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