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Nonprofit Law updates from Cullinane Law Group. June 2013.
Cullinane Law Group

Can a board member be paid to perform work for the nonprofit?

When a member of a board of directors assumes office, the law requires that the best interest of the nonprofit prevail over the director’s personal or business interests.

conflict of interest is an actual or perceived interest by an officer, board member/director, or staff member in an action that results in, or has the appearance of resulting in, personal, organizational, or professional gain.

A conflict of interest most commonly arises when a person in a position of authority over an organization (like a board member or officer) could benefit financially from a decision he or she makes in his or her role as a board member of the nonprofit. Conflicts of interest can arise in many situations, including leasing property or buying services from a board member.

There are always conflicts. What matters is how conflicts are handled.
If conflicts are handled improperly, there can be legal problems and public perception consequences. But, in other cases, if a potential conflict is handled appropriately, it could result in a very beneficial arrangement for the nonprofit.

For example, a board member who owns a catering company may offer reduced fees for the nonprofit’s annual dinner. Or, a board member who owns a building may reduce the rent for the nonprofit. Maybe the nonprofit could benefit from working with the law firm of a board member, because that board member will ensure that the firm will do excellent work and will charge a discounted rate. Committed board members want the organization to thrive, and may go to great lengths to do the job excellently.


The key question should be: What is the best interest of the nonprofit? 
Different states set out how potential conflicts of interest are to be handled. The Texas business code, for example, describes the circumstances in which an interested director or officer must 
  • Identify a potential conflict of interest
  • Disclose material facts of the interest or relationship, and then
  • Participate (or not) in the decision involving the topic in question.
Some tips to handling potential conflicts of interest
  • Implement a conflict of interest policy that is signed by all directors annually.
  • Get Bids. If a significant purchases (for either goods or services) are involved, obtain competitive written bids to ensure that prices and service/product are comparable if a board member could benefit from a particular decision. A board member who owns a catering company, for example, can propose having her firm provide services for the nonprofit’s annual dinner. Before making any decision, the board may invite other companies to submit proposals. And, the board member who is proposing her services would not be a part of the discussion or vote on the matter. The board would fully document, in minutes, how the decision was made.
  • Ask, Discuss, Record. Before major votes, have the board chair ask about potential conflicts of interest. Document this in the minutes and set out how the conflict was handled. More...

photo of Mollie Cullinane
Mollie Cullinane
 

We work exclusively with nonprofits + social enterprises.

We help you turn your passion or cause into an organization that can make a difference.


We serve foundations, charities, professional athletes, religious organizations, social enterprises, and do-gooders throughout the United States who seek to create positive change.


Based in Austin, Texas.
Clients Nationwide.

512.298.2898
hello@cullinanelaw.com


Jeff Cullinane

Client Highlight: The Life Starters

The Life Starters is an action-based social network filled with extraordinary peers, volunteer-coaches, and resources & tools that have reignited thousands of lives. If offers free membership and help free of charge to the world.

The Life Starters is a life re-entry program for people recovering from various types of loss and grief – whether a physical, emotional, or professional loss. Such losses may include surviving the loss of spouse through death or divorce, surviving natural disasters and catastrophes, and recovering from major illness or surgery.

The organization helps people break the cycle of grief.

Founded by Christina Rasmussen, who is on a crusade to change the way people live after loss. She’s been featured as a Woman Working to Do Good in the White House Blog and was named the Leading Mom in Business by StartupNation. She blogs about life after loss on Huffington Post.  Christina’s first book — Second Firsts: Live, laugh and love Again — will be released this fall.

Learn more at TheLifeStarters and Second Firsts.

What is a Benefit Corporation?

Traditionally, entrepreneurs with a strong desire for social change and charitable endeavors formed nonprofit corporations to advance their causes. But more and more entrepreneurs have chosen to utilize the benefit corporation as a means of achieving their goals for social good.

A new type of for-profit corporation accommodates entrepreneurs that want to pursue social good, environmental stewardship, and fair employment treatment in addition to profits. The benefit corporation differs from a traditional corporation in regards to its purpose, accountability, and transparency.

The purpose of a benefit corporation is to create general public benefit, which is defined as a material positive impact on society and the environment.

A benefit corporation’s directors operate the business with the same authority as in a traditional corporation, but instead of using profits as the sole measure of corporate performance, shareholders in a benefit corporation also assess whether the enterprise has achieved a material positive impact. More...

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