Approximately 20 percent of all U.S. corporations are nonprofit, indicating significant exposure to directors and officers nationwide. Even worse, many of these directors don’t realize they have liability exposure.
The function of nonprofit nonprofits
The primary function of nonprofit nonprofits, including those for schools, is to maintain financial stability and provide the necessary resources to help the organization.
While many for-profit corporations are subject to various performance standards and behaviors with reporting requirements and regulatory agencies, nonprofitnonprofitsely exempt from these regulations, many nonprofit nonprofits and officers must implement internal information systems and performance criteria.
Also, because many nonprofit nonprofits and officers are frequently subjected to less scrutiny, there is a higher probability of litigation regarding their fiduciary role.
In addition, the resources of many nonprofitnonprofittions are insufficient to provide directors and officers with the most desirable support. As a result, decision-making may be hindered by incomplete information, adequate time, and the inability to investigate and document relevant factors carefully.
The legal climate
While many states make it difficult to prove negligence against directors and officers, that doesn’t mean they should rely on those immunities and limitations as protection. Mainly because, while even their defenses may eventually prevail, the bills associated with the reason can proliferate.
With the litigiousness of today’s society, board members commonly face lawsuits for an extended list of wrongdoings, including discrimination, harassment, wrongful termination of employees, inefficient administration or supervision, waste of assets, misleading reports, and other misrepresentations.
In addition to lawsuits and potential judgments, the cost of defending an organization can be prohibitive. Current studies show that the cost to protect a case can run anywhere from $35,000 to $100,000.
Part two is why charter schools need directors’ and officers’ insurance.
Directors’ and Officers’ liability insurance is most often associated with large for-profit companies; however, they are not the only ones that need it. Non-profinonprofits and officers (especially schools) may have an even more demanding job because the operations may be less familiar to the individual, and they are at a higher risk for litigation.
There are two types of nonprofitnonprofittions, each with a different form of exposure for their directors and officers. The first is a Public Benefit nonprofitnonprofittion, which serves the community at large, such as a religious organization or academic institution. The second type of organization is a mutual benefit nonprofitnonprofittion formed to help its members. Examples include trade associations, cooperatives, and social organizations.