Best Ways To Protect Church Board Members From Liability: Personal Liability Protection of Church Trustees
When it comes to church board members, there is always the potential for liability.
Whether it’s a matter of fiduciary duty or negligence, churches must protect their board members from being held liable if something goes wrong.
Here are some best ways to protect church board members from liability.
What to Consider in Forming a Nonprofit Organization Board of Directors
1. Church Insurance Coverage Requirements
Forming a governing board requires specific insurance coverage requirements for protection. The nonprofit board should have an insurance policy covering directors & officers and naming board members as insured.
The church insurance policy should include general liability protection, church property insurance, abuse and molestation insurance, workers’ comp, employment practice liability, employee dishonesty coverage, and business auto insurance.
2. Risk Management Policies and Procedures
Here is a list of risk management policies and procedures for forming a church elder board.
- Conduct an annual board orientation meeting to review the organization’s structure, policies, governing documents, and specific oversight duties.
- Maintain regular communications with the board on changes to policy, programs, staffing, fundraising initiatives, contracts, stakeholder concerns, and any threat of litigation.
- Explain how the nonprofit protects its directors and officers, including indemnification clauses in its bylaws and details of its D&O liability insurance policy and other liability coverage.
- Insist on accountability from board members and follow up with those who fall short of their commitments.
- Educate the board about conflicts of interest.
- Utilize available safety resources, checklists, forms, and training tailored for the ministry.
- Review the organization’s risk management practices and policies annually to ensure they are up-to-date and adequate.
3. Corporate Compliance Requirements
Specific corporate compliance requirements need to be met to form a church elder board.
These requirements include providing the necessary documents to the Secretary of State for incorporation, such as Articles of Incorporation and other filings, filing annual documents such as financial 990 reports, ensuring proper authority is assigned to the signatories of contracts and other legal documents and making sure to follow corporate formalities.
4. Organizational Documents
When forming a church elder board, it is essential to consider the organizational documents that will define the roles and responsibilities of the board. These documents include the church’s Articles of Incorporation, Constitution, Bylaws, and any policies the board of directors adopted.
Additionally, it is essential to include clauses that detail the church’s Statement of Faith and Moral Teaching, Formal Membership Requirements and Responsibilities, Mutual Interest, Ultimate Authority in Matters of Doctrine and Moral Teaching, and Religious Employment clauses.
With these documents, the church will have increased security in its faith and doctrine, the discipline of members and non-member volunteers, and its position as a religious employer.
5. Oversight
Oversight is overseeing or monitoring any activity, task, or decision. It is critically vital for forming a church elder board because it allows the board to ensure that the decisions and actions taken are in the best interest of the church, its staff and members, and its mission.
This is done by providing guidance and monitoring to ensure that all decisions are made responsibly, ethically, and per the guidelines and expectations of the church.
Oversight also provides accountability by holding board members accountable for their decisions and commitments. This helps to protect the church from legal claims or judgments that may arise from decisions made or actions taken by a board member.
Providing an annual board meeting with church members and regular communication with the board helps to ensure all members stay informed of any potential changes being considered.
The Best Ways to Protect Your Board Members From Fiduciary Liability
1. Purchase Directors and Officers Liability Insurance
Directors and Officers Liability Insurance protects the board members from personal liability if they are sued due to decisions or actions taken while running the nonprofit organization. It covers legal costs associated with defending themselves against these claims and any potential financial losses.
In some cases, it will also protect indemnification should a director or officer become liable for a third party’s damages.
2. Follow the Church’s Bylaws
Church Bylaws are an essential part of being a member of any church. They guide how to conduct oneself in a way that honors God and provides an example for other believers.
The bylaws also help protect all members’ rights and keep order in the church community. The board members must follow a church’s bylaws when making financial decisions on behalf of the organization.
3. Keep Proper Records
A church’s board of directors should keep a digital and hard copy of corporate records such as board meeting minutes and resolutions, articles of incorporation, board-approved bylaws, 501(c)(3) approval, mission, vision, and values statement, governing policies, orientation and training manual, and marketing and advertising pieces.
When signing legal documents of the church, it is best practice to place the church’s corporate seal over the signature or on the signature page and to include the title, such as “John Smith, Secretary of ABC Church, Inc.”
Downloading our sample Church Board Administration checklist can help determine how well the church protects the board members from legal liability, fines, and other losses.
4. Formation and Organization Documents
Formation and organization documents provide a framework of rules and regulations that all organization members must adhere to to ensure it runs smoothly and efficiently. These documents outline the purpose of the organization, its goals and objectives, structure, financial policies, personnel policies, and other important information related to the organization’s operation.
These documents must be updated regularly to reflect changes in the industry or within the organization itself. A well-crafted document can help an organization stay organized, efficient, and compliant with applicable laws and regulations.
5. Board Member Training
Board member training is an integral part of any organization, as it ensures that board members are fully informed and equipped with the necessary skills to make sound decisions. Board member training can include understanding financial statements, developing strategic plans, and learning about governance best practices.
Additionally, board member training may involve developing a working knowledge of the organization’s mission and objectives or discussing current trends in the sector. Board member training should be tailored to meet the specific needs of each board member and should be conducted regularly to ensure that all members are up-to-date on their responsibilities.
6. Adopt a Statement of Internal Controls
Adopting a statement of internal controls can help protect church board members from personal liability by providing a framework for appropriate oversight and decision-making.
Such controls include providing an annual board orientation to ensure board members understand their legal duties and obligations, delivering regular communications to the board to apprise them of programmatic developments, stakeholder concerns, and other matters, keeping the board informed of any steps the organization has taken to protect itself and holding each board member accountable for their commitments to the organization.
Additionally, the statement should include a process for disclosing any conflicts of interest that may arise so that these conflicts can be addressed promptly.
7. Have a Code of Ethics
Having a code of ethics can help protect church board members from personal liability by ensuring that they remain accountable to the standard practices set by the church and the laws that protect them. This code of ethics should include the duties of care, loyalty, and obedience, all of which require board members to place the interests and well-being of the church ahead of their own and act like any reasonable person with an invested interest in the church would act.
Through this code of ethics, board members can be sure that they are conducting meetings, memberships, and elections according to the church’s bylaws and understanding and overseeing financial records and transactions to ensure transparency. Additionally, any conflicts of interest must be disclosed to facilitate examination and discussion.
8. Follow State Immunity Laws
Understanding how these laws vary across states requires understanding how following state immunity laws can help protect church board members from personal liability. Generally, state immunity laws relieve personal liability for volunteers and board members acting in good faith and without malice.
Tips and Tricks on How to Avoid Personal Liability Risk as a Church Board Member
Know your state’s laws regarding liability and nonprofit organizations
Most states require organizations to register as corporations with specific church insurance coverage. Additionally, all employees must be protected with workers’ compensation and employers’ liability insurance.
Nonprofits are also expected to meet safety regulations, such as having on-site fire extinguishers. Organizations should also familiarize themselves with relevant laws regarding fundraising activities, such as restrictions on soliciting donations or requirements that must be met when seeking grants or sponsorships.
Nonprofits are required to comply with any applicable state and federal labor laws when it comes to employee rights and wages.
Adopt bylaws to protect the board and its members from liability
Adopting a board orientation that reviews the legal duties of the board and its expectations of board members is essential. Regularly communicating with the board about organizational developments and appraising them on the steps taken to protect the organization and its governing team can help keep the board informed and aware.
Holding board members accountable for their commitments and disclosing actual and potential conflicts of interest through an annual process are also essential protection measures. Finally, having a directors and officers liability insurance policy and other liability coverages can provide additional protection to the board and its members.
Get general liability insurance for the board
Churches must get general liability insurance for their Board of Directors because it protects the board members if they are sued for negligence, wrongful acts, or other liabilities in their capacity as directors. Without this protection, the board members could be personally liable for their actions and potentially have to pay out of pocket for legal fees, fines, or settlements.
General liability insurance can provide coverage for members of the church who are injured while on the premises. This protection can save the church from paying out a large settlement in the event of an injury.
Ensure the board follows best practices
Best practices for church board members include providing an annual board orientation, regular communication with the board, keeping the board apprised of steps taken to protect the nonprofit and its governing team, and holding each and every board member accountable for their commitments. Following these best practices can help churches and their board members avoid potential legal liability, fines, and other losses that could damage the organization’s reputation and financial standing.
Ensure board members are appropriately appointed
Appointing a new board member should involve a selection committee that identifies suitable candidates and reviews the qualifications of those interested in serving on the board. Once identified, potential board members should be interviewed to ensure they have the necessary experience and expertise for their roles.
It is also important to consider diversity when selecting board members, such as gender, race, ethnicity, and other characteristics such as age or skillset. After the selection process has been completed, it is recommended to hold an all-church vote for its church members.
The organization should formally appoint all board members, with transparent terms and expectations outlined to each member.
Keep records and maintain corporate records
It is essential to keep accurate records of all business transactions and activities, so the church can clearly understand its financial position and performance. Keeping organized records can help the business analyze its economical trends and make more informed decisions.
Keeping accurate records aids in compliance with legal requirements such as tax filing, church property insurance coverage, and annual reports. Documents should be stored securely to protect confidential information and against fraud or theft.
A sound recordkeeping system allows companies to access and update their documents whenever necessary easily. The importance of keeping accurate records cannot be overstated; it is critical for businesses to maintain corporate records to remain compliant with state laws and regulations.
Make sure the board follows the organization’s mission statement
By adhering to the mission statement, board members can make decisions in the church’s best interests, avoiding possible legal action or claims.
Hold regular board meetings
Regular board meetings are essential for church board members to fulfill their fiduciary responsibilities effectively. Board meetings allow members to stay up-to-date on the financial documents, policies, and other matters related to the church.
These meetings also allow board members to discuss any motions or actions that make them uncomfortable and record their objections in the meeting minutes. Additionally, board meetings provide a forum for training new and existing board members on best practices and addressing any areas the board may be lacking.
Have a clear understanding of the board’s duties
The duties of a church board are to provide leadership, oversight, and governance of the church and its activities. They are responsible for setting and enforcing policies, making decisions on behalf of the church, and representing the church to the public.
Establishing an apparent job distraction for each board member is vital to ensure they understand their position.
Make sure there is proper communication between the board and church members
Ensuring proper communication between the board and church members can help avoid liability for church board members by ensuring that all members are on the same page. Clear communication will allow church members to understand the church board’s goals, values, and decisions and ensure that the church follows its mission.
Additionally, the church board must always be open to listening to and responding to the members’ concerns promptly. This will help to foster a sense of trust between the board and the congregation and will also help to identify potential legal risks before they become problematic.
Finally, proper communication between the board and church members will allow the board to provide guidance and support to the church members professionally yet empathetically.
Have in place a conflict of interest policy
Having a conflict of interest policy helps to ensure that board members are acting on behalf of the company ethically and objectively. With this policy, all parties involved will be aware of their responsibilities and avoid situations where their personal interests could interfere with their work.
The policy should include details on identifying potential conflicts of interest, what actions to take when one is identified, and how to report any violations. This policy should also address disciplinary action for those who fail to comply with it and procedures for resolving disputes that may arise from the conflict of interest policy.
Make sure there is proper oversight of nonprofit board members
To properly oversee nonprofit board members, organizations should have policies and procedures in place to monitor their activities. This could include regular board performance reviews, clear expectations for board members, and annual financial reports.
Additionally, it is vital to ensure that all board members are adequately trained on their duties and responsibilities to manage the organization’s resources effectively. Board meetings should also be held regularly to discuss issues or concerns and provide updates on progress toward organizational goals.
It is also vital to have an independent review process for significant decisions the board makes so that the organization can remain accountable to its constituents.
Review, revise, and update policies and procedures as needed
Policies and procedures should be reviewed annually to ensure they remain compliant with laws that may have changed. Board members should document any recommendations and changes made in the meeting minutes.
Implement a system of checks and balances
Implementing a system of checks and balances can help avoid board liability as church board members by ensuring that all board members are aware of their fiduciary responsibility to the church and diligent in fulfilling their duties.
Checking and balancing can be achieved by:
- Requiring all board members to attend meetings
- Thoroughly review all financial documents
- Become familiar with the church’s governing documents and policies
- Board members should be held accountable for their commitments and clearly understand potential conflicts of interest
- Require an independent CPA to review and sign off on financial records annually
Follow IRS guidelines for nonprofit organizations
To reduce the risk of church leaders who sit on a church board falling out of compliance with federal guidelines, it is vital to comply with IRS requirements for nonprofit organizations. These include conducting an annual board orientation meeting, maintaining regular communications with board members, explaining how the nonprofit protect its directors and officers, insisting on accountability from board members, and educating the board about conflicts of interest.
Stay informed of changing laws and regulations
Understanding local, state and federal laws that apply to the church and recent court decisions is essential for effective risk management. For example, California recently passed AB 506 Mandated Reporter Training, requiring organizations to comply with a new set of background checks and training standards.
Keep records of board member actions
Keeping records of board members actions helps to ensure that the decisions and actions taken by the board are appropriately documented so that there is a clear record of what has been done. This also allows for accountability, as any decisions can be referred back to in future meetings.
Keeping a record of board member actions provides transparency, allowing all stakeholders to see what decisions have been made and by whom. Board member minutes also ensure consistency, ensuring all members follow the same procedures when making decisions and taking action.
Running a board may sound glamorous, but it comes with great responsibility. Board members who fall short of their volunteer service obligation could find themselves in the crosshairs of a local attorney pursuing their personal assets for failure to perform their duties.
As your church insurance agent, we can’t help ensure your board member responsibilities are met, but we will provide you have access to the best church insurance coverage that includes directors and officers insurance that most standard general liability insurance policies exclude.
Are church board members liable for the decision they make?
Church board members are responsible for making decisions that benefit the church and its members. As such, they are liable for any decisions that do not meet this goal. This liability can include legal action taken by individuals or organizations affected by the decision and disciplinary action taken by the church or a higher governing body.
What is the fiduciary responsibility of church board members?
The fiduciary responsibility of church board members is to act in the church’s and its members’ best interest. They are responsible for using sound judgment when making decisions that could impact the church’s finances and operations.
They must always be aware of potential conflicts of interest and take measures to avoid such disputes. This includes exercising due diligence when making decisions such as hiring staff or approving contracts.
Board members should also strive to be transparent with their decisions and ensure that all members are informed about any changes or decisions made by the board.
What is the responsibility of a church board?
Church board member responsibilities include:
- Overseeing the operations of a church
- Implementing policies, procedures, and guidelines to ensure the smooth running of the church
- Ensuring that all legal requirements are met concerning taxation and financial reporting
- Ensure church liability insurance policies are in force
- Providing guidance and oversight on matters related to personnel and staff management
- Develop and maintain the church’s overall vision, mission, and strategy
- Engaging with the community and communicating news about the church’s activities.
What are the church member’s responsibilities as part of a nonprofit organization?
While church members may not be required to have responsibilities, they may be asked to volunteer. This could include helping with fundraising efforts, helping with administrative tasks, attending meetings, or providing direct services. Church members should stay informed about changes within the organization and its goals.
Can a board member sue the board?
Yes, a board member can sue the board. This type of lawsuit is known as a derivative suit, and it allows a board member to bring an action on behalf of the organization. In such cases, the board member must prove that the board has acted negligently or illegally in its decision-making process, harming the organization.
The board member must also show that they have exhausted all internal remedies before bringing the lawsuit. If successful, the court may order corrective action and award damages. However, before filing a derivative suit, the board member must understand their rights and responsibilities and any legal implications of pursuing such an action.
What are church liabilities?
Church liabilities are the obligations and responsibilities of a church. These liabilities may include financial obligations, such as taxes, church insurance, and payroll; legal duties, such as contracts and agreements; and other business-related liabilities, such as personnel issues and public safety.
Are churches required to have trustees?
Churches are typically required to have trustees to ensure their financial and legal obligations are met. Trustees are responsible for managing the church’s assets, ensuring that funds are appropriately used, and following all laws and regulations.
Can a pastor be a trustee of his church?
Yes, a pastor can be a trustee of his church. Trustees are responsible for the overall management and direction of the church, so having a pastor as part of that team is beneficial.
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