A nonprofit organization with a mission to preserve and expand the French culture had an endowment of $20,000 and became inactive for approximately 10 years (no annual or other formal meetings) in 1999. The bylaws in effect at the time stated that only the interest on the endowment could be spent unless 2/3 of the membership approved spending the principal and then only 1/2 ($10,000) of the principal could be spent. Since it appeared that the organization was soon to go out of existence, the "interim" president (not elected by the non-existent board) and the elected treasurer made the decision in 2008 to spend the $10,000 on a memorial to the French explorer Champlain. The organization began to function again in 2009 and some members now want to sue the officers who donated the $10,000 to recoup the funds. What legal standing do these members, who were previously not active, have to pursue such legal action? The current board is divided on whether to proceed and wants guidance on this issue.
There are lots of legal issues in this question. Were the unhappy members actually members at the time of the distribution, or are they new members who joined after the event? If they weren’t members at the time, they probably don’t have standing to sue. At the time of the decision, were the president and treasurer the only active members so that 100% of the membership approved? Will 2/3 of the current members ratify the action? Are the president and treasurer volunteers protected by a volunteer protection statute or a director protection statute, or a limitation of liability provision in your bylaws? Are you required under your bylaws to advance defense costs to the officers before you can proceed with a suit against them?
There is an even more practical issue, however. Who can afford to sue over an expenditure of $10,000, especially when it was made for the purpose of the organization – and not for their personal benefit -– at a time when no one else seemed to care?
With pressure mounting on nonprofits to consider affiliations with other organizations, this workshop is designed to help you better navigate the world of mergers, acquisitions and affiliations. Unlike the corporate world, there are no financial "matchmakers" to help nonprofits identify successful partners for a merger. Learn more in our pre-recorded webinar.
Weekly question and answer
Notice of each full edition
and its free stories
Report on 501(c)(3) electioneering
What our readers say about Nonprofit Issues
Once again you've tackled a tricky question and explained it so we all can understand the issue.--M.V.
Thank you for your informative and keen advice on nonprofit matters. I believe it's a unique and concise place to get answers to this often wispy area called nonprofit. --R.T.
Have a question?
Other ways to
Talk to the Editor
Next Conference Call:
Wednesday, June 19, 2013
Participate in this bi-monthly telephone seminar conference call and ask your questions directly to Editor Don Kramer.
Access the entire site
($9.95/24 hours, $17.95/3 months).
Full Day Program
A well-received full-day program that covers the current hottest topics in nonprofit law. Qualifies in Pennsylvania for Continuing Education credits.
Don is available for programs and speaking engagements ranging from a one-hour presentation to a full-day primer on nonprofit law. Contact us if you are interested in having him speak at your program.