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Lawyers on Non-Profit Boards – What You Should Think About Before You Say ‘Yes’
by Natasha Smith
As lawyers we are asked frequently to sit on the boards of charities and non-profit organizations (“NPOs”) (collectively, “non-profit boards”). At first it seems like a ‘no-brainer’. Serving on a non-profit board is a great way to give back to your community by contributing your skills, time and effort to a worthy cause. It’s also a fabulous way to expand your personal and professional network and, for some, it is a way to fulfil a religious duty or employment expectations.
From the non-profit’s perspective, they’ve lucked out securing a lawyer’s commitment because, as lawyers, we are trained to manage risk and, as such, we have the ability to offer a unique set of professional skills that are particularly useful when exercising the management oversight required of a prudent board. What some of us may not realize, however, is that in some cases, we can be held to a higher standard of care than our fellow board members who do not possess the same expertise. Additionally, there are real liability and professional conduct issues that arise for lawyers serving on non-profit boards. So, before we say ‘yes’ to serving on a non-profit board, it’s prudent to consider just what that service entails.
Role of a Non-Profit Board
While many of the oversight duties of a non-profit board are similar to those of a for-profit board (i.e., reviewing financial statements, setting long-range objectives, developing strategic plans, establishing operational policies and guidelines, evaluating the performance of the corporation, among other duties), generally, the board of a for-profit corporation engages in its duties with the ultimate goal of maximizing profit. It is this motivation that distinguishes a non-profit board from a for-profit board. Individuals who have experience on boards of business corporations and those of us who have experience advising business corporations will find that serving on the board of a non-profit requires that the affairs of the non-profit be managed in light of considerations quite unique to non-profits.
Managing Risk
Regardless of whether the organization is charity or an NPO, an important consideration of a non-profit board is whether anything is being done by the organization that may result, on audit, in a loss of the organization’s tax-exempt status. For charities, this consideration means that the board has an obligation to ensure, amongst other things, that:
the activities engaged in by the charity are charitable at law;
-- annual filings are submitted accurately and on time to the Canada Revenue Agency (“CRA”);
-- the charity maintains proper books and records;
the charity maintains adequate direction and control over its resources; and
-- the charity does not engage in any activity that may result in the provision of a private benefit that CRA determines to be more than ancillary and incidental to the charity’s purposes.
For those serving on the board of an NPO, managing the risk of losing tax exempt status means, for the most part, ensuring that the NPO does not operate with the intention of earning a profit; otherwise, the corporation risks taxation on its income generated during those years where profit is found to be a motive. Notably, operating with the intention of earning a profit is different from carrying out activities that result ultimately in the earning of a surplus. This discussion, however, is beyond the scope of this article.
Director Remuneration
The legal ability for directors of non-profits to be paid is dependent upon:
(i) whether the non-profit is a charity or an NPO; and
(ii) the jurisdiction in which the non-profit operates.
Generally, there is no prohibition on compensation paid to the directors of NPOs. However, directors of charities operating in common law provinces are not permitted to receive remuneration, either in their capacity as directors or for other services rendered
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