Are Board Members Personally Liable for Board Decisions?

Church board members have been placed in a position of trust, and they have a legal responsibility to place the church’s interests ahead of their own. This duty is known as their fiduciary responsibility.

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

Business Laws Protect Incorporated Ministries

The duty of board members to act in the best interests of the organization will apply, whether the church is incorporated or not. 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 the ministry. 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 church 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 him or his family a personal financial gain or benefit a business that he 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 without benefitting financially. For instance, if a board decision provides social or reputational benefits to a board member or his family, it could be considered a breach of the duty of loyalty if the decision harms the church 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 church.

As a safeguard, the church should consider adding bylaw provisions that:

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

Weigh Each Decision Carefully

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