Before filing the IRS form ( 1023 for 501 ( c )( 3 ) status or 1024 for 501 ( c )( 4 ) status ), check with an attorney or CPA for help in determining under which status you qualify . The attorney will also be able to assist your group in filling out the forms for such a qualification .
BOARD LIABILITY ISSUES
Once you begin your board membership recruiting efforts , you will undoubtedly be confronted with potential board members who fear being liable for board actions . Many board members have questions about the possibility of becoming personally financially liable because of board service .
In most cases , the board cannot be held liable for the corporation ’ s debts . However , it is very important that the organization “ incorporate ” to receive this protection for its individual board members . If you seek this protection , you must complete the process as defined earlier in this document .
In general , board members of nonprofit corporations are not liable for the corporation ’ s debts . For example , if the corporation had a large printing job done by a printer and then was unable to pay the bill , the printer would not be able to collect from individual board members because the debt is with the corporation . To be able to collect from individual board members , the printer would have to prove either that an individual board member had guaranteed or cosigned on the amount or that the board had been grossly negligent . It is generally very difficult to prove gross negligence if the board produces evidence that they met regularly , considered financial decisions carefully , and used careful regard in making decisions on behalf of the association considering the information available to them at the time .
Many non-profits put a provision in the bylaws indemnifying board members in the event they are sued because of board service . These indemnifications are promises that the corporation will repay the board members for costs of defending themselves in lawsuits and / or for costs of judgements against board members . For this reason , larger organizations carry directors ’ and officers ’ liability insurance ( often referred to as D & O ). If your organization is interested in D & O Insurance , please contact an experienced insurance agent for more information and steps on how to obtain D & O . Most local insurance companies can assist with this request .
Neighborhood Organizational Handbook – Arlington , Texas 13