Wisconsin Historical Society

Guide or Instruction

Legal Standards for Your Nonprofit Board Members

Legal Standards for Your Nonprofit Board | Historic Preservation | Wisconsin Historical Society

In addition to bringing passion, expertise, and ideas to your nonprofit organization, board members must also follow certain legal standards. These legal rules protect the interests of your dues-paying members and your financial sponsors. They also safeguard the government's financial support of nonprofits through tax deductions.

Legal standards for nonprofit boards sound a bit like marriage vows. All board members must exercise the duties of care, loyalty, and obedience.

The Duty of Care

When your board members make decisions that affect the health of your organization, they must exercise caution and prudence. This concept is known as the business judgment rule, or the care that an ordinarily prudent person would exercise in a similar position and under similar circumstances.

Your board members exercise the duty of care when they:

  • Understand the mission of your organization and all of its current governance documents, including bylaws and strategic plans
  • Regularly attend and participate in meetings
  • Read materials in advance of meetings
  • Ask pertinent questions and request additional information on issues when warranted
  • Review financial reports, budgets, and other fiduciary documents carefully
  • Ensure that internal accounting is in order
  • Make their own decisions instead of being swayed by strong personalities on the board
  • Consider the possible negative long-term impacts of a proposed solution to a temporary problem

The Duty of Loyalty

Board decisions must be in the best interests of your organization, and your board members' allegiance must be undivided. Your board members cannot use information gathered as a part of their board duties for personal gain.

To eliminate the possibility of self-interested decision-making, your board members may elect to require the full disclosure of a possible conflict of interest. A conflict of interest arises when a board member's interest and the interests of the organization overlap.

For example, if your organization is considering purchasing and rehabilitating a derelict historic property adjacent to a board member's property, the board member stands to gain from the organization's action. Therefore, the board member must report this information to the group and recuse himself or herself from making decisions about that property purchase.

The Duty of Obedience

Your board members must be faithful to your organization's mission. And the decisions that your board members make must always support that mission. When board members follow this duty, your board bolsters the confidence of the public — and contributors — that their tax-deductible funds are being spent appropriately.

Learn More

Find more how-to articles about historic preservation advocacy.

You can learn more about nonprofit operations from the Nonprofit Management Education Center offered by the Center for Community and Economic Development, which is part of the University of Wisconsin Division of Cooperative Extension. This resource includes a library of articles and an Organizational Assessment Tool.