Contracts with board members are often overlooked by nonprofits. One reason for this is that nonprofit’s are often formed by people who have some familiarity with each other. With a certain level of trust already established, a contract may not seem necessary.
However, a contract between your nonprofit and its board members is one of the most important contracts your nonprofit should have.
Contracts are legal documents that spell out the relationship between parties. A contract between a nonprofit and a board member is important because it makes the arrangement more legitimate and it states the rights and responsibilities of both the nonprofit and the board member.
Without a contract, a board member may not know what actions are allowed, and could wind up doing something that damages the nonprofit. For example, a board member might speak to the media on your nonprofit’s behalf, making statements about fundraising and donations. The board member may have made the statements innocently, but those statements may cause issues between your nonprofit and its donors.
Having a contract in place can prevent this type of incident, by telling board members what they can and cannot do. It can also lay out the remedies your nonprofit can take against the board member should an incident like this occur.
If your nonprofit does not currently have a contract with its board members, state law will govern the relationship. While this may be okay in some situations, each nonprofit is different and should have its own set of contractual rules, rather than relying on a general set of rules set by the state.
Even if your nonprofit is established and has never used a contract, one should still be put into place, both for new and old board members. This will help protect your nonprofit and the board member starting from the date the contract is signed.
A contract between a nonprofit and a board member doesn’t have to be complex, but it should contain several important clauses. Here are a few important ones:
Responsibilities. A board member should have several responsibilities. For example, a board member should agree to attend meetings, serve on committees, stay informed of information related to the nonprofit, be prepared for meetings, participate in events, and be bound by the bylaws. If your nonprofit requires mandatory donations of its board members, that should also be included as a responsibility. The responsibilities will vary depending on your nonprofit’s needs, and they may also vary from board member to board member.
Term and termination. A board member will likely serve for a term, rather than indefinitely. This information needs to be stated in the contract, along with whether the board member can be appointed for additional terms. This section can also address the reasons why a board member could be terminated early, and the process a board member should use to resign before the term is up.
Confidentiality. Board members will be privy to certain information regarding the nonprofit, such as business and marketing plans, financial information, and intellectual property rights. It’s important that the board member agree to keep this information confidential, even after no longer serving as a board member.
Non-compete and non-solicitation agreements. Your nonprofit should include clauses that prohibit a board member from opening a competing nonprofit both while serving as a board member and for a certain period of time thereafter. Likewise, it’s necessary to include a non-solicitation clause, so that the board member does not contact your nonprofit’s clients and donors for any reason other than on behalf of the nonprofit.
Ownership of work. A board member may complete work for the nonprofit while serving as a board member. For example, if a board member has a design and marketing background, the board member may design a logo and marketing materials for the nonprofit. It’s important to include language in the contract that states any work done for the nonprofit belongs to the nonprofit, not to the board member. Failure to include this language could set your nonprofit up for a legal battle as to who owns the material.
As with all contracts, it’s important to discuss your nonprofit’s particular circumstances with an attorney who can determine whether additional clauses need to be included in a board member’s contract.
A board member may be leery of signing a contract, especially one who has been serving on the board for some time already. It’s important to stress that the contract is in place to protect both the nonprofit and the board member.
If your nonprofit has an attorney, the attorney can discuss the contract at a board meeting and answer any questions that a board member has. However, it’s important to let each board member know that the attorney represents the nonprofit and that a board member should retain his or her own legal counsel to review the contract.
Don’t make a board member sign on the spot. Give each board member time to review the contract on their own and contact an attorney with any questions.
If a board member refuses to sign the contract, see if there’s a reason why and whether there’s any room to negotiate. If the board member still refuses, your nonprofit may want to look at replacing that board member with someone who is willing to be contractually bound to your nonprofit.
Without a contract, your nonprofit may be hard-pressed to hold a board member to his or her word, and it may become difficult to resolve issues. Having a well-drafted contract between your nonprofit and its board members will set a good foundation for this crucial relationship.