Nonprofit directors owe duties similar to those in for-profit entities, with several differences that matter in practice.
Duties. Care and loyalty, plus a duty of obedience in many formulations — adherence to the organisation’s stated purposes and to donor restrictions.
No owners. There are no shareholders to bring derivative claims. Enforcement generally rests with the state attorney general, and in some circumstances with members or donors. That does not make the duties weaker; it makes them enforced by a different party.
Conflicts of interest. Policies are effectively required, and transactions with insiders are scrutinised. Federal tax rules impose penalties on excess benefit transactions, applying to the recipient and to the managers who knowingly approved them, with a rebuttable presumption of reasonableness available where the board follows a defined process using comparability data and contemporaneous documentation.
Restricted funds. Donor restrictions bind, and releasing or modifying them requires donor consent or a court or attorney general process. Spending restricted funds for other purposes is a recurring and serious problem.
Private inurement and political activity restrictions attach to tax-exempt status, with the limits on lobbying and the prohibition on campaign intervention differing by exemption category.
Public disclosure of information returns, which are the organisation’s most widely read document.