SHORT ANSWER: No, so long as they are serving in the interest of the corporation and not receiving compensation for their services.
Protecting Nonprofit Directors: Understanding California's Corporation Code Section 5047.5
In the heart of California's nonprofit sector, countless individuals selflessly dedicate their time and expertise to serve as directors and officers without compensation. Recognizing the critical role these volunteers play in advancing public service and charitable endeavors, the California Legislature has enacted Section 5047.5 of the California Corporation Code. This provision serves as a shield, offering protection to these altruistic individuals by limiting their personal liability for actions taken within the scope of their duties.
The preamble of Section 5047.5 emphasizes the importance of volunteers in the efficient conduct and management of public service and charitable affairs in California. The provision aims to dispel the perception that personal assets are at risk for those who generously contribute their time without financial compensation. This statutory protection encourages a broader pool of volunteers, essential for the diverse and impactful work carried out by nonprofit organizations.
Scope of Protection:
Section 5047.5 provides a robust defense against monetary damages for volunteer directors and officers, outlining the conditions under which such immunity applies. Directors and officers are shielded from liability for negligent acts or omissions if performed in good faith, in the best interest of the corporation, and in the exercise of policymaking judgment.
Exceptions and Safeguards:
While the section offers broad protection, it also includes exceptions to ensure accountability. Directors and officers remain liable for self-dealing transactions, conflicts of interest, intentional misconduct, and actions brought by the Attorney General. Additionally, liability insurance is a prerequisite for the application of this protection, emphasizing the importance of financial responsibility for nonprofits.
Specific Application and Requirements:
Section 5047.5 applies exclusively to nonprofit corporations that are tax-exempt under Section 501(c)(3) or 501(c)(6) of the Internal Revenue Code. Furthermore, the provision mandates that nonprofit corporations maintain liability insurance, with the required coverage determined by the organization's annual budget.
Expenses vs. Compensation:
The section clarifies that the payment of actual expenses incurred by directors or officers in the execution of their duties does not constitute compensation. This distinction ensures that volunteers are not discouraged by concerns about personal liability while covering legitimate expenses related to their roles.
Limitations and Exclusions:
It is crucial to note that Section 5047.5 does not shield volunteer directors or officers from liability if the nonprofit unlawfully restricts membership or services based on certain characteristics. Additionally, the protection does not extend to volunteer leaders who receive compensation from the corporation in any other capacity.
California's Corporation Code Section 5047.5 stands as a testament to the state's commitment to fostering a vibrant nonprofit sector. By offering legal safeguards to volunteer directors and officers, this provision encourages civic engagement, philanthropy, and community service, ultimately contributing to the betterment of society. As nonprofits continue their valuable work, the statute serves as a beacon, attracting dedicated individuals to contribute their skills and time without fear of personal liability.
*This material is intended for general information purposes only and does not constitute legal advice. Each case requires unique legal analysis of law and facts. For legal issues that arise, the reader should consult legal counsel.