Much like their counterparts on the boards of public companies, board members of many nonprofit corporations increasingly, and quite understandably, are raising questions concerning their potential personal liability and the steps that may be taken to maximize their protection against such liability. The impetus for these questions is not difficult to discern and includes, among other things:
- the assertion of claims against board members of health care institutions;
- the publicity concerning financially-related problems at a variety of reputable nonprofit and charitable organizations;
- bankruptcies of nonprofit organizations which bankruptcies can and sometimes do lead to claims against directors;
- the creativity of plaintiffs’ lawyers in seeking to hold board members personally accountable for losses arising out of financial problems of the organization and the misconduct of insiders. The fact that a director of a nonprofit organization was well-intentioned may no longer dissuade such lawyers from asserting claims;
- increasing scrutiny by state attorney generals that are empowered to oversee nonprofit organizations; and
- the increasing use of financing, e.g., bond offerings, that can give rise to securities claims similar to those asserted against public company directors.
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