How Ministry Board Members Can Guard Against Personal Liability for Board Decisions

Board members that govern ministries and other faith-based organizations have been placed in a position of trust. They have a legal responsibility to place the organization's interests ahead of their own. This duty is known as their fiduciary responsibility.

If board members use their power and influence for personal gain, they can be sued as individuals, placing their home and personal assets at risk. But if ministry board members are acting in good faith, the same laws that protect corporate board members in the secular world can also help protect them.

Business Laws Protect Incorporated Ministries

The duty of nonprofit board members to act in the best interests of the organization applies, whether or not a ministry is incorporated. Every jurisdiction provides protection for board members of incorporated entities, as long as the board member acts with honest intentions. There’s generally less legal protection afforded to board members of an unincorporated ministry organization, meaning that the assets of these board members are generally more at risk.

The protection offered to board members of incorporated organizations can apply to liability arising out of injuries, contractual obligations, and other forms of liability created by statute.

If you haven’t already done so, consider speaking with a local attorney about incorporating your faith-based organization. Taking this step will help reduce the likelihood that board members could be held personally liable for the decisions they make while serving on the ministry's board.

The Protection Has Two Requirements

There are two primary requirements that board members must follow in order to obtain corporate protection. These requirements can be summarized as the “Prudent Person Rule” and the “Duty of Loyalty.”

• The Prudent Person Rule. Board members have a duty to think matters through before making key decisions. The prudent person rule basically states that a board member will be protected from personal responsibility unless a “reasonably prudent person” would have avoided similar actions or decisions. For this reason, board members will want to carefully consider the facts and context of each significant decision or action.
  
  Some degree of risk taking is acceptable, so long as the risk taken is “reasonably prudent” under the circumstances. Talking things through and working to reach a consensus rather than quickly moving to a vote can help ensure that important decisions are truly “prudent” under the circumstances. Be sure to document in your board minutes that key decisions were discussed and carefully considered before the board came to a final decision.
   
• The Duty of Loyalty. Board members have a duty to avoid conflicts of interest. The duty of loyalty requirement states that board members will be protected against personal liability as long as their actions and decisions aren’t intended to provide them with personal gain. The most common breach of the duty of loyalty occurs when a board member votes in favor of an action that will either provide personal financial gain or benefit a business that the board member (or a relative) owns or controls.
  
  Although financial gain is a common motive for breaching one’s duty to the organization, a board member can also breach the duty of loyalty in other ways. For instance, if a board decision provides social or reputational benefits to a board member, it could be considered a breach of the duty of loyalty if the decision harms the ministry as a whole. 

The duty of loyalty can also be breached if a board member receives an indirect financial gain. For example, a board member who makes a decision or takes an action that’s intended to negatively affect a personal competitor could be considered to be a breach of the duty of loyalty to the organization.

As a safeguard, faith-based organizations should consider adding bylaw provisions that:

• Prohibit board members from obtaining any personal gain at the ministry's expense
• Bar the ministry from doing business with companies that will benefit board members or members of their immediate family.

Weigh Each Decision Carefully

Members of ministry governing boards are responsible for guiding the organization and helping to fulfill its mission. Because they serve in leadership roles, board members are held to a higher standard of accountability than others in the organization. By placing the interests of the ministry above their own, board members will not only better serve the organization, but they can also protect themselves from legal liability, fines and other out-of-pocket losses.

Updated September 8, 2021