In most states, a non-profit organization is considered a legal entity capable of suing and being sued. Thus, a non-profit must abide by its contract, and exercise the same duty of care as any other business would in the same situation.
Just as in most corporate settings, directors and officers of non-profit organizations are given great discretion to manage their organization. The business judgment rule protects non-profit directors and officers when making decisions on how to best manage the non-profit organization. Therefore, a director or officer for a non-profit will be held liable only in rare circumstances, such as acting in bad faith.
As for members, most states will not allow individual members of a non-profit organization to be liable for the actions of the non-profit. On the other hand, a non-profit will only be liable for the actions of its members if they are acting as an agent for the non-profit organization within the course and scope of the organization. Thus, a member that is responsible for breaking the law will be personally liable unless they are acting as the agent of the non-profit.
There are several steps a non-profit can take to limit its liability including:
- Buying liability insurance
- Using limitation on liability clauses in contracts
- Having clear policies and procedures
If you are a non-profit organization and a lawsuit has been brought against you, an experienced business attorney can advise you of your legal rights and defenses.