The Pastor’s StudyPosted on October 23rd, 2012.
QUESTION: How can a church provide some protection for its board against the likelihood of personal liability for the result of something they did or did not do while serving the organization?
ANSWER: One means of protection is to make sure that the organization is incorporated. The law recognizes corporations as separate legal entities, and the corporate form usually serves as a shield against personal liability. For corporations, liability is generally confined to the organization and does not extend to those who manage it. Most lawyers advise their individual clients not to sit on the board of directors of a nonprofit organization that is not incorporated.
Another form of protection is indemnification. A nonprofit organization should provide in its articles or bylaws that it will pay the judgments and related expenses (including legal fees) incurred by the directors and officers (and perhaps others), when those expenses are the result of the commission or omission by those persons while acting in the service of the organization. This indemnification cannot extend to criminal acts and may not cover certain willful acts that violate a civil law. The right to indemnification is a matter of applicable state law. As such, state law should be considered when drafting indemnification provisions.