Are Board Members on the Hook Personally for Board Decisions?

Pastor John is approaching potential board candidates but encounters objections from a candidate worried about personal liability for the board’s actions. Can board members be held personally liable, and what should Pastor John tell them?

Understanding Board Member Liability

Board members and officers of the church have fiduciary duties to the organization. This means their decisions should always be in the church’s best interest, not their own or any particular individual’s. They must exercise due diligence in their decision-making process by asking questions and gathering necessary information to make informed decisions. When board members adhere to these principles and use the judgment that a prudent person in a similar position would exercise, they are generally shielded from personal liability for the board's actions.

Steps to Decrease Personal Liability

Incorporation

Once the church is incorporated, it becomes a separate legal entity from its board members and officers, providing a “corporate veil” that protects directors’ personal assets in case of a lawsuit.

Observing Corporate Formalities

To maintain the protection of the corporate veil, officers and directors must observe fiduciary duties and adhere to corporate formalities. These include:

• Electing officers and directors

• Adopting Articles of Incorporation and Bylaws

• Appointing board committees

• Amending corporate documents as needed

• Reviewing financial arrangements

• Approving contracts and leases

• Employing and monitoring the executive director/CEO

• Adopting budgets

• Appointing auditors

• Bringing and defending legal actions

• Conducting meetings and preserving written records

• Managing funds

• Maintaining appropriate records

Individual Directors

Individual directors can further reduce their risk of personal liability by fulfilling their fiduciary responsibilities diligently, such as:

• Attending all meetings

• Thoroughly reviewing all financial statements and minutes

• Becoming familiar with all governing documents

• Ensuring all objections are recorded in the minutes

• Resigning from the board if unable to fulfill the role and responsibilities adequately

Conclusion

Pastor John should reassure potential board members that by acting in the church's best interest, following fiduciary duties, and adhering to corporate formalities, they are unlikely to be held personally liable for the board’s actions.

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