What is the personal liability for an officer in a non profit corporation

Washington, DC Viewed 106 times. Posted 4 months ago in Business

Our nonprofit is incorporated and operates in 15 states. We have D&O coverage nationally and general liability coverage in most, but not all states. If a legal action comes up in a state where we do not have general liability coverage are our board members and national officers still covered by the D&O policy or may they be personnally liable for defending themselves in a suit?

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Answers (1)

Pamela Koslyn

This attorney is licensed in California. Posted 4 months ago.

The non profit aspect of your corporation has nothing to do with liability, that's only a tax status.

Your D&O insurance should protect your directors and officers adequately, and presumably your corporate articles provide for the maximum protection possible. In states where there's no insurance, your corporation still has its own corporate shield which protects its directors and officers from personal liablity because the corporation is a separate legal entity from those individuals that run it.

Hopefully you're careful to run the corporation adhering to the corporation's identity and complying with corporate formalities-- e.g., always using corporate stationary and coporate checks and never conducting corporate business in any individual names, maintaining the corporation by doing annual minutes of directors and sharehgolders' meetings, making the requisite secretary of state filings, being adequately capitalized, etc.

The way directors and officers can be held personally liable for a corporation's acts or omissions is if you allow someone to "pierce the corporate veil" by proving the corporation has been not following the corporate rules in conducting its business and making it unfair to respect the corporate shield/veil by letting the individuals get away with wrongdoing. Keeping your corporation's insurance in force and having a qualified corporate lawyer maintain the corporation's operations are the way to ensure against that happening.

Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.